Gaming the health care system; David Cutler's concerns

 The eminent Harvard health economist  David Cutler is worried by, among other things, the takeover of many healthcare facilities by private equity

Financial Games in Health Care—Doing Well Without Doing Good, by David M. Cutler, , JAMA Health Forum. 2024;5(5):e241591. doi:10.1001/jamahealthforum.2024.1591

"One form of gaming is asset looting—businesses taking money out of health care and then extorting state governments to replenish the funds. In an earlier publication,1 Song and I discussed how this works. Typically, a private equity firm owning a hospital sells the land the hospital is on and agrees to lease it back to the hospital at a high interest rate. The money from the sale is paid out to private equity investors; the hospital is saddled with the debt. If the hospital cannot repay the loan, the private equity firm threatens to close the facility unless the government covers the debt. Quality suffers during this process. Quality indicators at hospitals and nursing homes bought by private equity firms worsened after these changes in ownership.

...

"A third gaming strategy involves “coding intensity” and “upcoding,” which is coding and billing for more complex (and thus more expensive) care. These practices seek to maximize risk-adjusted reimbursements based on diagnostic codes. With coding intensity, the insurer codes all diagnoses ever received by an individual so that disease-based reimbursement is higher. Medicare pays private plans based on the health risks of their enrollees (measured by reported diagnoses). Thus, private insurers participating in Medicare Advantage spend enormous sums to find and code additional diagnoses. Estimates are that coding intensity will cost Medicare $50 billion in 2024.⁶

...

However, addressing coding practices is challenging because it may encourage risk selection. If payments for care provided to a patient are less than the costs incurred for that patient, insurers and clinicians may seek to treat only profitable patients and drive away the unprofitable ones. There are countless ways to do this. At the plan level, leaving prestigious hospitals out of a network and putting expensive medications in high cost-sharing tiers will drive away sicker patients.^9,10 Clinicians engage in risk selection as well. Widespread nonparticipation in Medicaid is evidence of the consequences when profitability varies with patient insurance status.

Because setting optimal health care reimbursement is difficult, less scrupulous clinicians and insurers will always have incentives to cut corners. Recently, it seems that the norms preventing this tendency are fraying. Thus, policymakers need to deter the idea that doing well can come at the expense of doing good. Whenever possible, malfeasance must be prevented in advance and punished when it occurs. Such a strategy will require willpower on the part of policymakers, not just tough words."