As Medicare funding hangs in the balance, the July 28 episode of Federal Spending, an online analysis show, examined costs and waste, options for keeping the program viable, and government initiatives aimed at driving the health care budget down.

Guest analyst Michael Haisten, Principal Consultant at Real Intelligence, said the government needs to stop creating legislative complexity around health care and start looking at economic principles to reduce the real cost.

“The two real things that make supply and demand work – perfect information and no market constraints – do not exist in our health care today,” said Haisten. Instead, he said, we’re facing an economic nightmare: excess demand and excess supply.

As if that weren’t enough, the Medicare system is also plagued with waste and fraud, two thorns that could be prevented by employing better data collection and fraud detection software. “Without good tools for sharing information, you’re never going to get a good handle on costs,” said Gary Baldwin, Editorial Director or Health Data Management.

“Going after fraud is one of the best investments our government can make.” – David Wiggin

With over 47 million people enrolled in the program – and an annual bill of $528 billion and growing – it behooves the government to keep Medicare afloat. When disaggregated from the total amount health care expenditures, Medicare consumes 14% of the federal budget. By most accounts, it is expected to be solvent until at least 2029; however, because of the baby boom bulge, the decrease in overall workforce and the escalating costs of health care, we may not have 18 years to play with.

A host of solutions have been proposed: increase the percentage of contributions, reduce benefits, raise the age of enrollment, or constrain payments. Aside from being met with resistance from Medicare recipients, none of these is a viable, long-term solution.

The Meaningful Use bill was designed to staunch the flow of fraudulent and wasteful federal dollars by incentivizing the use of electronic health records, making it possible for health care providers to access patient information across the network. “By putting in information technology tools and promoting the sharing of data instead of hoarding it, doctors and hospitals will be on the same page,” said Baldwin.

The numbers vary, but the FBI estimates that up to 10% of annual Medicare expenditures go to fraud. That’s roughly $50 billion per year. “Going after fraud is one of the best investments our government can make,” said David Wiggin, Life Sciences Director at Teradata. Unfortunately, existing methods only detect fraud after it occurs.

Wiggin explained that the best way to prevent fraudulent claim payments is to look not just at claims, but at public records databases, network/relationship analysis and clinical intelligence. “We need to integrate data form other data sources to be able to triangulate, to be able to get smarter about who these providers and who these recipients are,” said Wiggin.

Jaime Fitzgerald of Fitzgerald Analytics said that for Medicare spending to be well-invested, it must not be fraudulent or wasteful. He echoed the sentiment that information technology tools are necessary to keep unnecessary spending at bay.

“If Medicare wants to run itself like a business, ” said Fitzgerald, “it needs to use data analysis for greater efficiency.”

Following are the major insights, information and quotes from the show:

The entire show can be seen at: http://www.insideanalysis.com

Guests:

Points of Discussion:

• Family budget vs. Federal budget
• Medicare budget facts
• Spending options in the context of economic principles
• Options for keeping Medicare viable
• Gross spending
• Exactly where the money goes
• Electronic health records

Primary Questions:

• Why is Medicare on the chopping block?
• How can we attack the cost without devaluing the program itself?
• What are the key categories of fraudulent waste and what drives them?
• What accounts for the major variations in Medicare costs by region?
• Does legislation interfere with reducing the costs of Medicare?
• Will the movement towards regulation resolve some of these issues?

Quotes:

• “Constraining payments has historically been a price control mechanism that causes market distortion.” – Haisten
• “What we really should be looking at is reducing the real cost.” – Haisten
• “The two real things that make supply and demand work – perfect information and no market constraints – do not exist in our health care today.” – Haisten
• “Reducing the real costs starts at the ground level of legislative rollback.” – Haisten
• “By putting in information technology tools and promoting the sharing of data instead of hoarding it, doctors and hospitals will be on the same page.” -Baldwin
• “People are not likely to participate in a program that they don’t have the resources to do.” -Baldwin
• “Without good tools for sharing information, you’re never going to get a good handle on costs.” -Baldwin
• “Going after fraud is one of the best investments our government can make.” – Wiggin
• “Technology has stepped in make up for what policy does not allow.” -Wiggin

Insights and Information from the show:

• In 1973, disabled people were added to Medicare enrollment
• 47.5 million people currently enrolled
• 23% of budget is in health care allotment; Medicare is 14%, Medicaid is 9%
• The vast majority of the household budget go to housing, food and transportation
• Medicare is solvent until at least 2029
• Enrollment is increasing (baby boom bulge) and contributions are decreasing (workforce reduction)
• Rise in health care costs are also a contributing factor
• Options: increase contribution, reduce benefits, raising the age of enrollment, means testing, constrain payments, reduce real cost
• Raising the age of enrollment is a one-time option; not a viable long-term solution and doesn’t increase savings enough
• When the consumer has already paid for a service, they do not see the value of it anymore
• There are areas where the medical expenditures are three times higher than anywhere else because they are over supplying medical resources; there’s a confluence of private institutions
• It’s necessary to reduce legislative complexity
• Medicare Part A created an influx of private insurance companies, which increased the complexity of decision making
• Medicare Part D put in some privatized options, and created constraints on government bargaining

Gross Medicare Spending:

• $528b in 2010
• $735b in 2015
• $1038b in 2020

Medicare was 3.5% of GDP in 2009

• $2.5 trillion is spent nationally on health care
• $1b per day in Fee-For-Service Medicare payments; not based on outcomes, but what is done
• 32% of spending goes to patients with chronic illness in the last two years of life
• The vast majority of the elderly are not taxing Medicare resources

• $50-60b is the government’s estimated amount of Medicare fraud
• Up to 20% of the Medicare budget is going to fraud (upcoding and outright falsities)
• “Meaningful use” refers to the push for electronic health records in order to wring out inefficiency
• The law is calling for value-based health care: paying for results instead of services
• Accountable care organizations is a way of paying for care where you pay for bundled care around a given diagnosis
• The bottom line is, these costs are running almost out of control; the government has a plan in place to try to address them using IT
• The public outcry against a patient ID number caused it to fall flat; makes sharing data difficult
• The FBI estimates that health care fraud accounts for 3-10% of total health care spending; at 10%, that’s roughly $50b per year
• There’s an emerging technology that prevents the payment from being made before fraud can occur
• Existing fraud detection is made after the fraud occurs
• Data integration for claims, public records and network information can help detect fraud early
• Fraud detection algorithms can be applied before a claim is paid
• The ROI is 8:1 or greater
• Unnecessary imaging (MRI, CT, PET scans) costs $3-7b per year; considered unnecessary if it yields no results
• Lifestyle choices come home to roost during end-of-life care; preventable conditions comprise 18% of Medicare conditions
• For Medicare spending to be well-invested, it must not be fraudulent or wasteful
• In the private sector, you look at the distribution of spending
• If Medicare wants to run itself like a business, it needs to use data analysis for greater efficiency

This show is produced by Inside Analysis in conjunction with Breaking Gov. Please share your thoughts on Twitter with #FedSpend. Federal Spending is an apolitical program designed to follow the money, not the politics or personalities. We broadcast Thursdays at Noon ET for an hour. Guests may stream the audio live without registering, or join the WebEx by registering.

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