Feed on

More Cowbell

In another dog bites man finding:

Detecting Potential Overbilling in Medicare Reimbursement via Hours Worked
by Hanming Fang, Qing Gong

Medicare overbilling refers to the phenomenon that providers report more and/or higher-intensity service codes than actually delivered to receive higher Medicare reimbursement.  We propose a novel and easy-to-implement approach to detect potential overbilling based on the hours worked implied by the service codes physicians submit to Medicare.  Using the Medicare Part B Fee-for-Service (FFS) Physician Utilization and Payment Data in 2012 and 2013 released by the Centers for Medicare and Medicaid Services (CMS), we first construct estimates for physicians’ hours spent on Medicare Part B FFS
beneficiaries.  Despite our deliberately conservative estimation procedure, we find that about 2,300 physicians, or 3% of those with a significant fraction of Medicare Part B FFS services, have billed Medicare over 100 hours per week.  We consider this implausibly long hours.  As a benchmark, the maximum hours spent on Medicare patients by physicians in National Ambulatory Medical Care Survey data are 50 hours in a week.  Interestingly, we also find suggestive evidence that the coding patterns of the flagged physicians seem to be responsive to financial incentives:  within code clusters with different levels of service intensity, they tend to submit more higher intensity service codes than unflagged physicians; moreover, they are more likely to do so if the marginal revenue gain fromsubmitting mid- or high-intensity codes is relatively high.

Back in the good ol’ days when we used to debate actual policy and not flinging monkey dung at each other, one of the claims advanced by advocates of single-payer healthcare was that the administrative overhead of Medicare was much lower than the administrative overhead of a private insurance system.

A few points.

First, overhead is still only a small percentage of the overall costs of health insurance and delivering medicine. If you eliminated overhead entirely, you would not do very much at all to reduce medical expenditures and certainly none of that would “bend the cost curve” since it would be a one time drop in the level of spending and not a change in the rate of spending.

Second, one reason for Medicare’s cost advantage, administratively, is that it already piggybacks onto the administrative overhead of the larger federal government tax collection and payment apparatus. So when we compare administrative overhead of the private insurers versus Medicare that is not exactly an apples-to-apples comparison.

Third, see the abstract above. High administrative expenses are not, ipso facto, evidence of inefficiency. A good deal of what the private insurers do is audit their providers to cut down on the nonsense like you see above. It is well understood that there is a large amount of fraud, waste and abuse within the Medicare system. A standard Medicare response to the findings above is to cut the reimbursement rates further, which paradoxically increases the incentives for doctors to defraud the system.

None of this is to suggest that private insurers are doing things perfectly, but it certainly is to suggest that more cowbell is not the solution.
And in other health care news … hospital mergers lead to higher prices to patients. Dog bites man. And of course, you know what the proposed solutions include – greater crackdown via anti-trust measures. While in a sensible world I might accede to that, it makes little sense to give even more power to an institution that is probably responsible in the first place for carving out exemptions for particular sectors, and has famously used its power to club companies for being successful and not for being anti-competitive. How about making it easier to start a hospital? How about allowing all kinds of folks to deliver medical services? If the problem is not enough competition, there is more than one way to skin that cat. But again, folks are not interested in fixing problems, they are only interested in fixing problems by increasing the power of the regulatory state. That won’t end well.

3 Responses to “More Cowbell”

  1. John Dewey says:

    Glad that I came across your blog.

    About “making it easier to start a hospital”: I’ve noticed the past decade what seems to me an explosion of ambulatory surgery centers in the Dallas suburbs. Not sure if this is a national trend. What I’m curious about is whether the increased competition among North Texas hospitals and surgery centers has had any impact on surgery costs.

    If you know about or come across any data on surgery costs by metro area, I would appreciate if you could share the source.

    FYI, I’m retired after a career in corporate finance. I follow Don Boudreaux’s Cafe Hayek blog and Mark Perry’s Carpe Diem blog.

    • wintercow20 says:

      Nice to meet you John. We see the same explosion of ambulatory centers here too. My feeling is that these are nonetheless affiliated with a major hospital system and not truly stand-alone enterprises. On the bright side, this may appear to be a way for hospitals to streamline activities and reduce costs, but it is not exactly increased competition. If/when I find those surgery costs I will share them. My brother is an executive at a major university health system and I am sure his group keeps track of this, at least for benchmarking purposes. I suppose the data is proprietary, but I will try. Cheers.

  2. John Dewey says:


    Here’s some information about ownership of U.S. ambulatory surgery centers:

    “Independent ambulatory surgery centers comprise the largest share of the $24 billion ASC market at 63%, according to an investor presentation from Tenet. The two largest standalone companies, USPI and AmSurg, each have 4%, while hospitals operate 13% of facilities. HCA’s ambulatory surgery center division has 2% of the market while Tenet currently controls 1% of centers.”


    IMO, ambulatory surgery centers compete with hospitals even when such centers are affiliated with a hospital chain. My wife, an OR nurse and former OR supervisor, has worked for decades in both hospitals and surgery centers. As she explains it, the facilities compete to attract surgeons’ business. She believes that turnover time is a critical success factor for surgery centers, as surgeons desire to schedule as many cases in a day as possible. Surgery centers seem to be more nimble and accomodating.

Leave a Reply