Medicare is treated across these episodes as a government payment system whose billing rules shape medical practice, and as a retirement transfer program whose finances rest on pay-as-you-go taxation rather than saved contributions.
The coding system and the AMA monopoly
Dr. Jeffrey Singer describes how Medicare billing begins with a coding system created in the early 1980s. Several competing code systems existed, but the American Medical Association lobbied Congress and obtained a monopoly, so that the entire coding system is designed each year by the AMA. The list contains thousands of codes breaking down every procedure, service and diagnosis and assigning each a computerized number. Physicians were told they would have to submit bills to Medicare using this system, and hospitals had a similar system. Singer’s account stresses that services and diagnoses now had to be defined by a bureaucratic entity rather than individualized; to be compensated, a physician had to select the code that most closely fit, even when it did not describe the patient’s problem or the service rendered. He notes that the AMA is paid a large sum by Medicare and by insurance companies to develop the codes, and that a significant share of the association’s income comes from the codes rather than membership dues Will Americans Accept Second Class Medicine? (2013).
Bob Zadek frames the change in his own terms: in the old days a patient would see the physician, who would spend as much time as necessary and then determine the bill, which might have been predetermined for the visit. Now, he says, the patient is not a patient but a series of codes, and the office must develop the skill of converting treatment into as many codes as possible to maximize payment from Medicare or insurers.
Price controls and the homogenization of medical value
Singer dates the next layer to the mid-1980s, during the Reagan administration, when Medicare instituted price controls. Based on the codes, a panel or commission decides what each procedure code is worth. Hospitals operate under an analogous system called diagnostic related groups, or DRG codes. Singer receives a book every October from Medicare stating the reimbursement for each code. The same amount is paid whether the physician is the best in the world and invented the operation or is performing it for the first time; the code for removing a gallbladder pays a fixed amount regardless of record or complication rate. He calls this one size fits all, unlike professions where excellence can be rewarded by charging more Will Americans Accept Second Class Medicine? (2013).
Zadek draws the contrast with law: lawyers who consider themselves smarter raise their hourly rate, and if they raise it too much they have a high rate but no income, because they are tested against the market every day. Singer adds that a lawyer may adjust a fee downward for a client who cannot pay, but under Medicare rules he cannot reduce his fee for a person with very limited income because that would be discriminatory — even for an 80-year-old widow living on a fixed income hand-to-mouth.
Singer describes the resulting office practice: to survive financially, doctors hired consulting groups to advise on the best way to code a service, and almost every doctor’s office now has one or more certified coding specialists. When he finishes providing a service he writes down what he did, and the coding specialist translates it into code numbers; when he objects that the codes do not match what he did, he is told that a different description pays 20% less or 20% more. He says this affects physicians’ mentality, because diagnoses must match procedure codes. He gives the example of a patient who comes in fearing a breast mass and is found to have none: there is no code for telling a patient she has nothing to worry about, so to be paid he must supply a diagnosis such as breast pain. He argues this makes epidemiological data suspect — a study of the incidence of breast pain in the San Francisco area from 2005 to 2011 cannot distinguish genuine diagnoses from codes entered to obtain payment for a normal exam. Singer calls the acquiescence to the coding system the beginning of a cancer that affected professionalism, a slippery slope.
Perverse billing and the pull toward hospitals
Zadek describes how private practitioners coming under the umbrella of a large hospital system see costs rise for the same process, because of what he calls the perverse billing rules of Medicare. He gives two figures: laser eye surgery performed by an ophthalmologist in his office is reimbursed at $389, while the same doctor with the same machine in a hospital yields the hospital about twice as much, $738, because the hospital can put on more costs as it is more expensive to run. An echocardiogram averages $143 in private practice and $319 in Medicare. Zadek says this costs the system about one billion dollars more just by forcing doctors to leave private practice and work for a hospital Will Americans Accept Second Class Medicine? (2013).
Singer extends the pattern to cardiology: Medicare pays cardiologists so little for stress tests and echocardiograms that many cannot cover the rent on equipment they do not own, so they send those tests to the hospital rather than lose money doing them in the office. Specialists across fields are selling their practices to hospitals in the face of electronic-record expense, regulatory costs and reimbursement rates, so hospitals have staff surgeons, cardiologists and pulmonary specialists. As a surgeon in private practice, Singer says, a laparoscopic gallbladder operation pays him an amount he declines to state on the radio and which varies by part of the country; if he is a hospital employee doing the same operation, the hospital’s bill is paid about double, though that goes to the hospital because he is on salary. Zadek restates it: the same Dr. Jeffrey Singer does the same procedure with the same scalpel in his hand, and the cost to society is double, forced by the government’s system. Singer attributes the disparity to lobbying: the Hospital Association has done a much better job than the medical societies of lobbying healthcare regulators for reimbursement fees, working the overhead of maintaining an acute care hospital into reimbursement for a simple procedure. Where there is no market, he says, the only other way is through politics, and how well you lobby the regulators who set payment determines how you get paid.
Medicare as a retirement transfer program
Burton Abrams, asked about Medicaid and Medicare as examples of economic folly, says it is mostly Medicare rather than Medicaid. He describes Medicaid as a welfare program originally set up for people clearly at the poverty level, with benefits going primarily to their children, and says most people would not call providing healthcare for the destitute and their children the worst policy. He notes that President Obama doubled the number of people who qualify for Medicaid, many of them above the poverty level Worst Ten Economic Mistakes of the 20th Century (2014).
Medicare, by contrast, Abrams calls a retirement program that replaces private retirement planning with a government-paid-for retirement program. Money put into the Medicare system is money not saved for retirement and is consumed rather than saved, with a long-run detrimental effect on the economy. He calls Medicare the real folly. Zadek characterizes Medicare as a wealth transfer from working Americans to retired Americans, and observes that retired Americans as a demographic class are the wealthiest of the age-group classes, making it hard to justify transferring wealth from people who are productive and accumulating a nest egg to those who comparatively do not need it. Abrams agrees it transfers wealth, and raises the measurement problem: many current recipients believe they paid for the program through FICA while working, and telling them that because they own a house they will not receive what was contractually agreed to strikes him as a disturbing change of plan. He says he would rather the program had been fully funded, and that a large retirement income would be pulled back through the income tax, which he calls a more reasonable outcome than what he describes as a class warfare in which the young pay taxes transferred to the elderly.
Zadek takes issue with the entitlement claim: what retirees paid in is minuscule compared with what they took out, and what you pay in is unrelated to what you get out. It is not a break-even system but a pay-as-you-go system, so paying a few pennies of Medicare taxes should not entitle them to enormous benefits. Abrams agrees, with the qualification that this was mostly true for earlier retirees: Harry and Bess Truman paid nothing into Medicare and held cards number one and two. He says today’s retirees have paid in over their working lives, and that a reasonable accounting would count not only taxes paid but accrued interest, since that is what they would have received privately; on that basis they are not receiving extraordinary payouts. He says his own parents probably received far more than they paid in, as most of the audience’s parents did. He adds that a household with two high earners, each earning $65,000 a year on average over a lifetime, loses out: they pay two sets of taxes but receive the same Medicare benefit as a low-income family, and with Medicare somewhat means-tested, high retirement income from private savings means paying more for Medicare and likely reduced Social Security payments in the future.
Across episodes: no development
The topic appears in two episodes: the 2013 interview with Dr. Jeffrey Singer on coding, price controls and hospital billing, and the 2014 interview with Burton Abrams on Medicare as a retirement transfer; the excerpts show no development of the question between the earlier and later treatment, since the two guests address different aspects of the program rather than revisiting a shared argument.
What the sources do not cover
The excerpts do not state when Medicare was enacted, which statute created it, or which amendments or court decisions shaped it. They do not give the name of the coding system, the composition of the panel that sets code values, or the size of the AMA’s payments from Medicare. They do not state Abrams’s title, field or the title of his book, nor the outcome of any proposal to means-test or restructure the program.
Will Americans Accept Second Class Medicine? (2013) Worst Ten Economic Mistakes of the 20th Century (2014)