Today’s Wall Street Journal has an article regarding a chain of cancer clinics that may be overutilizing a particular test for their patients, a test that offers a generous reimbursement from Medicare. The article is behind their paywall, but here’s a sample of it:
How Medicare ‘Self-Referral’ Thrives on Loophole
…the manager of a Florida urology practice worried in 2010 that her company would attract federal scrutiny for its frequent use of an expensive bladder-cancer test.
The manager’s concern involved a program at 21st Century Oncology Holdings Inc.—a national chain of cancer practices—that gives its urologists a financial incentive to order the test from a central in-house lab. A federal law since the 1990s has prohibited “self-referral,” in which doctors can profit from Medicare-reimbursed procedures they order. But 21st Century Oncology and many physician groups around the country have found ways to do it anyway, exploiting an exception to the law in ways its writers didn’t anticipate.
I’m familiar with the self-referral issue, and while I generally think the concern is overblown, it is a real phenomenon that is worth considering. Unfortunately, almost all of the consideration that will be given to this issue will be along the lines of “what bureaucratic/enforcement/oversight mechanisms do we need to impose or expand in order to stop this.”
What won’t cross the minds of the people trying to solve this problem will be the root cause of the issue, which is third-party payment of medical care. The article notes at a later point that Medicare paid between $700 and $1000 for the test in question, while an older test that apparently isn’t all that less effective costs $84.
In a real market, the consumer and the payer are typically the same person. Which means the patient would have the incentive to ask, when their doctor recommends a $1000 test, if there’s a less expensive substitute. That incentive doesn’t exist in Medicare or any other third-party payment system where the patient is shielded from the real cost of treatment.
Central-planners will never go for it, of course – allowing consumers to pay directly for their treatment (which doesn’t have to mean relying entirely on personal funds) would completely shatter the myth that individuals are too irrational, dumb, unsophisticated, and panicked when it comes to purchasing health care. It would also put them out of a job.
But it is possible, and in fact millions of Americans (myself included) do just this, as I outlined in my book The Self-Pay Patient: Affordable Healthcare Options in the Age of Obamacare. Don’t look to third-party payment to solve the problems largely created by third-party payment, look to the market.
Sean Parnell ([email protected]) is a research fellow for health policy at The Heartland Institute.
