How Medicare Data Could Revolutionize Health Care
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The Fiscal Times
April 23, 2014

The release this month of a mountain of data on physician payments by the Centers for Medicare and Medicaid Services (CMS) might be remembered by future historians as a major turning point in the quest to battle overpriced medical care.

As a result of a court ruling, the government on April 8 made public some $77 billion in payments to nearly one million providers during 2012. In a month or so, data will be released on hospitals and clinics. An injunction making the information private since 1979 was challenged by the Dow Jones Co., publisher of The Wall Street Journal.

While increasing transparency in public health care services is generally a win for patients and taxpayers alike, the numbers are meaningless without pragmatic analysis. We need to know which doctors are overcharging the system or providing unnecessary or ineffective care.

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Doctors' trade groups have been fighting the public exposure of these numbers for years. Some 4,000 doctors were paid more than $1 million each from the health system for the elderly, with seven making more than $10 million. Medicare spends 12 percent of its annual budget on doctors' fees.

Although the highest-paid physicians received the most media attention, the hard work ahead lies in analyzing the data wisely to determine where there's waste and when and if value is being added to improve health outcomes and prolong lives.

How the Data Can Bring About Change
By itself, looking at the Medicare data is like describing an ocean by examining single drops of water. But some interesting patterns will emerge if the data is crunched in a responsible way. Here's what we could learn: 

  • Do Medicare-Paid Doctors Overtreat Patients? Analysts will need to weigh the doctor fee data to see if the highest-paid doctors are doing a disproportionate number of procedures and tests or writing more prescriptions for drugs relative to a "best practices" average. For this, they might have to compare results with a country with a national-health care program in which procedures are scrutinized for cost and effectiveness. A "control" group is needed for a benchmark comparison.

    Data wonks will also have to do some statistical balancing because most Medicare-compensated doctors primarily see older patients and specialize in certain procedures and treatments. The fundamental questions may be: 1) Are the treatments being billed helping or hurting patients long term? 2) If those doctors are overtreating patients and not providing effective treatments, how would we identify them? 3) Would the government develop some kind of rating system?

  • Do Medicare Doctors Overbill the Government? The numbers certainly provide ammunition for federal prosecutors. A conservative estimate places Medicare overbilling at roughly $1 billion a year, according to The Center for Public Integrity, which just won a Pulitzer Prize for Investigative Reporting. Since the fee-for-service system encourages doctors to bill based on volume of services rather than health outcomes, the economic incentives are in place for overbilling. 

    When does overbilling become fraud? The government has some guidelines, but it needs to apply them rigorously to see who the bad actors are and remove them from the system.

  • Will Insurers Use the Data? If I was an insurance executive, I would be thrilled to get my analytics department to get to work on the Medicare data. Not only could my actuaries and analysts develop computer models to determine which doctors are likely to overcharge, but they may then exclude them from preferred provider networks and health maintenance organizations, which are offered privately and through the Medicare Advantage program.

    Who are the worst actors? Just as home insurers know every claim you've ever filed, insurers will be able to put a microscope on physician and hospital/clinic billing to cut costs and impose penalties on those charging above-average rates. If the insurance industry does this right, it can find ways to lower costs and create a system of dis-incentives to rein in doctors who are overbilling or overtreating. Although the Medicare data is being pulled from a public system, many doctors have "private-pay" patients as well, so there's quite a bit of spillover into the private sector.

  • Will Consumers Be Able to Use the Data? How can uninformed patients know where to find the best oncologist, orthopedic surgeon or internist? Doctors haven't been rated the way appliances, restaurants, movies and vehicles have been for decades. The reason is lack of comparative information and the difficulty of the comparison. Hip replacements aren't the same as furnace replacements. What's the re-admission rate (repeated hospitalizations) for a specific doctor doing a procedure? Do most of the patients who get a hip or knee replacement by a certain surgeon end up having those joints replaced or get infections? 

    To answer these questions, analysts will have to dig deep into the data to find relationships. Do doctors who have a certain volume of procedures or prescribe certain drugs have worse patient outcomes? Since Medicare has already clamped down on costly hospital re-admissions, it may be able to cross-check patient outcomes with physicians and hospitals. With this level of analysis, adjusted for local pricing and type of patient population, we will eventually have consumer ratings for providers. We will truly be able to find "four-star" doctors and hospitals focused on our long-term health instead of a billing code. It's not hard to predict that some online entrepreneur will use the data to post "best value" doctor and hospital ratings.

A lot of this data talk is way beyond wonky for most patients, though. It's just not relevant since so many Americans never see hospital or doctors’ bills through their employer-provided care.

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What's more important is how transparency can transform the system.

Those insured through the Affordable Care Act — more than 8 million have picked a plan at last count — could use a rating system to choose cost-effective doctors and hospitals. That's important for insured Americans with high-deductible policies who will pay for services out of pocket and will use their own money to pay for basic care.

Employers could work with insurers to identify cost-effective hospital/clinic groups. With a universal rating system, they could see which physician group is accountable in doing prudent procedures, tests and surgeries.

Such policing could lower premiums over time. Lawyers will also be interested in the data to see if overtreated patients are receiving harmful care. 

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Debra Ness, president of the National Partnership for Women and Families, told USA Today the new data may trigger a sea change in health care. “I think this is very exciting and it has been a long time coming,” she said. “I think it’s part of a much larger cultural change in health care… There are a lot of times people think they’re doing the right thing, but until they step back and see the data and compare to others, they may not realize they are consistent with best practices or their peers.”

At the very least, transparent billing information can create a feedback loop in the system that's currently missing.

What's the connection between how a doctor or hospital treats a patient, how they bill and the care patients ultimately receive? Is there a monetary connection that triggers overbilling and poor treatment? If so, the data can tell a great truth that can save billions of dollars — and lives.

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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.