Medicare Opens a New Door to the Era of Big Data
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The Fiscal Times
January 29, 2014

If there's a way of unlocking the black box that is U.S. medical pricing, it may come from an unlikely source: Medicare.

The agency that oversees the federally run insurance system – the Centers for Medicare and Medicaid Services (CMS) – quietly announced recently that it would "evaluate requests for individual physician payment information." The final rules have yet to be written, but that bureaucratese, in plain English, could mean you'll eventually be able to see what doctors are actually charging – or at least what they are reporting to Medicare.

Why is this important? In the quest to open up medical pricing, Medicare will be able to compile a database of medical charges, analyze it and come up with a means of comparison for the entire health care system.

How do you know if what your doctor is charging is reasonable and fair for your area? How do you find quality doctors who charge less for the same service? Is there a way of merging doctor quality data with payment information? Do some doctors charge more but deliver poorer service or have worse outcomes?

In the era of "big data," where huge pools of information can be crunched to reveal major trends, the Medicare announcement is beginning to pry open a door that's been shut for decades.

Although it's not been widely heralded, CMS has been knocking on the transparency door for years. In 2010, the agency started a "Health Data Initiative to promote transparent, innovative and safe data use." Last year, CMS released hospital charges on the most common inpatient and outpatient services from more than 3,000 hospitals

A new era of greater transparency would not only be consumer friendly, it would go a long way to rein in medical bills in the U.S., which are consuming nearly one-fifth of the American economy.

Other Benefits of Transparency
Of course, transparency by itself is not useful unless the data is used to benchmark medical expenses. Wouldn't it be helpful to know what the average office visit in your area really costs – particularly if you're paying for the service out of pocket? 

When I pulled some local Medicare emergency room charge data from CMS late last year to contest a $1,000 emergency-room bill that I had to pay out of pocket, the hospital I was working with said that the fee that Medicare would've paid – only $400 – didn't apply to my case. Why? Because Medicare has its own schedule of reimbursement rates and "private pays" (non-Medicare patients who pay out of pocket) are billed at a higher rate, mostly because they haven't got the same clout as Medicare, which pays medical bills for more than 40 million Americans. 

Another benefit of greater transparency will be the ability to ferret out doctors and hospitals that are overbilling insurers, private payers and the public health system, which also includes Medicaid and the health system for federal employees. A closer look at doctor's charges may prompt more audits of the system.

A conservative estimate from the watchdog group Center for Public Integrity pegs Medicare overbilling at $11 billion over the past decade. One of the most egregious abuses is when hospitals or doctors "upcode" – that is, bill for a more expensive test or procedure. Here's what the Center had to say about what they found: 

  • A significant portion of the added charges is likely due to “upcoding” — charging for more extensive and costly services than actually delivered.
  • Many doctors have steadily billed the higher-level — and more lucrative — codes, while spurning those that pay less.
  • Some of the most dramatic surges in higher-cost billing codes have occurred in hospital emergency rooms. Hospitals are permitted to set their own rules for billing outpatient charges and these payments are seldom audited by Medicare.
  • The rise in costly coding and billing errors appears to be getting worse amid lax government oversight and the proliferation of electronic medical records systems, which critics say can facilitate abuse.

Even more useful would be to reveal the relationship between medical specialists' incomes, how many procedures they provide and their financial connection to clinics and testing services. As reported in a recent New York Times piece, specialists can earn "on average, two to four times as much as primary care physicians." Specialists may focus on certain procedures because they are more profitable, the Times reported, even though they may not offer better outcomes for patients.

How will health care consumers ever know if the treatment they are getting is appropriate if there's a cloaked financial incentive for doctors to over-perform certain tests and procedures? 

That's why the Medicare transparency policy could make a difference. If you could compare charges between specialists in your area, it would not only help you make an informed decision, doctors would have to compete – and lower their charges – but you'd also possibly have the ability to identify doctors who were over-performing certain procedures.

While it's unlikely that Medicare's transparency moves will directly lower medical charges, the agency will be able to set benchmarks for what prices could be in an open and fair pricing system.

Will the private sector feel the pressure of Medicare's "big stick" approach and force providers to open up their books? In the past, that hasn't always been the case since private employers and insurers have all negotiated prices on their own without the benefit of Medicare's single-payer clout.

That could change if insurers and employers team up to use the Medicare information to cut better deals, which is more likely given the pressure to reduce medical expenses through employer-provided care.

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Journalist and speaker John F. Wasik has written 14 books on subjects that range from wealth to ecology to retirement. He writes for Reuters and contributes to Forbes, The New York Times and other publications.