Medicare’s Future More Stable After Fraud Battle

A tough campaign to root out fraud, with an assist from low inflation, has slowed Medicare’s spending growth to its lowest level in the program’s 35-year history, according to a government report to be issued today.

If such savings can be maintained, they could guarantee Medicare’s financial soundness for years and delay the drastic changes some politicians have warned will be necessary to keep the program solvent for the so-called baby boom generation.

Medicare spending rose a scant 2.5% in 1998, the government reported in its latest study of national health spending. By contrast, private health-care spending by businesses and individuals jumped 6.9% during the year.

Medicare’s low growth persisted last year, experts believe, and is likely to continue again this year as the Justice Department keeps health-care cheating high on its list of anti-fraud targets. The drive against fraud “certainly will not lighten up in an election year,” said Gail Wilensky, a former director of the Health Care Financing Administration, which runs Medicare.

Tom Scully, president of the Federation of American Health Systems, which represents for-profit hospitals, declared Medicare inflation to be dead. “So it’s hard to argue that you have to reform Medicare to control inflation,” he said.

Wilensky predicted that Congress would delay any “serious discussion” of Medicare reform until the middle of the decade. Medicare, which covers people 65 or older and the disabled, now pays benefits to 40 million people. The army of beneficiaries will grow to 78 million by 2030, when all of the baby boomers (Americans born in the years 1946 through 1964) will have reached the age of eligibility.

Last year’s official report on Medicare said that its hospital trust fund would run out of money in 2015. Because of the spending slowdown, the date of fiscal crisis will be pushed even further into the future, predicted Bruce Vladeck, former head of the Health Care Financing Administration and now at the Institute for Medicare Practice at the Mount Sinai School of Medicine in New York.

“It’s going to be later than last year’s report . . . , so we’re talking about the next 15 to 20 years,” Vladeck said. That “is hardly an emergency.”

The report to be issued today says that a general slowdown in inflation throughout the economy helped Medicare, as did the 1997 Congressional Balanced Budget Act, which imposed regulatory changes that slowed spending.

But the most surprising surge of savings was generated by the high-profile government crackdown on fraud and abuse. Doctors, hospitals, home health-care agencies, testing laboratories and providers of medical equipment have been forced to pay nearly $500 million to the government for trying to defraud Medicare in 1998 alone, the report said. And the crackdown probably has netted savings far larger than that by deterring health-care providers from trying to cheat.

“The most significant effect on health-care expenditures is the change in providers’ behavior as a result of the enforcement effort,” said D. McCarty Thornton, chief counsel to the inspector general at the Department of Health and Human Services.

This is a “deer-in-the-headlights effect,” said one expert. Hospital officials, doctors and other providers are less likely to bend the rules now that their practices are being closely watched by FBI agents, Justice Department prosecutors, and Health and Human Services Department investigators.

“The major effort to go after fraud has paid greater dividends than anyone expected,” said Marilyn Moon, a Medicare expert at the Urban Institute, a nonpartisan Washington think tank. “When you threaten not only to go after providers but also to throw some of them in federal penitentiaries, then people change their behavior,” said Moon, one of the public trustees of the giant Medicare trust fund.

The government’s health-care fraud program has been in existence since the mid-1980s, but it was not until the 1996 Health Insurance Portability Act that it got a steady stream of funding for investigators and attorneys trained in detecting white-collar crime and health-care fraud.

The stepped-up enforcement has resulted in a 40% increase in the number of pending civil health-care fraud cases and a 20% increase in criminal fraud convictions. As a result, nearly 9,000 health-care providers have been excluded from the Medicare program from 1997 to 1999, according to the HHS inspector general’s office.

Medicare pays hospitals according to a system of reimbursements for more than 400 separate diagnostic categories. The more complicated the case, the more money the hospital collects.

Government investigators said that many hospitals were illegally “upcoding” cases--that is, classifying them as more complex than they really were--so that they could collect more money.

For example, viral pneumonia is more common and gets a lower payment for treatment than bacterial pneumonia. But many hospitals were reporting viral cases as bacterial to boost revenue.

“Many hospitals were telling us that 20%, 30% or 50% or more of their cases were bacterial pneumonia . . . , since our enforcement effort, reimbursements for bacterial pneumonia dropped by $100 million,” said John Bentivoglio, special counsel for health-care fraud at the Justice Department. “That’s enormous.”

Improper payments by Medicare--money lost to fraud or money spent for services that weren’t medically justified--were reduced to $12.6 billion annually, down nearly in half from $23 billion in 1996, according to Justice Department figures.

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