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Coding corruption and the lost billions

Writer's picture: Michael ConnellyMichael Connelly

Updated: Sep 14, 2024

This Wall Street Journal article (Insurers Pocketed $50 Billion From Medicare for Diseases No Doctor Treated) is exceptionally well done and more importantly, it accurately diagnoses what is wrong with the US health system:


When Congress conceived of the Medicare Advantage program decades ago, the hope

was that insurers would make Medicare more efficient. In traditional Medicare, doctors

and hospitals get paid for each service they provide, an incentive to offer more. The idea

behind Medicare Advantage was to pay private insurers a lump sum to cover all services,

giving them an incentive to keep patients healthier.


To protect insurers from the risk of winding up with sicker-than-average patients, the

government allowed bigger payments for certain serious health conditions.


Partly because of that, Medicare Advantage has cost the government an extra $591billion over the past 18 years, compared with what Medicare would have cost without the help of the private plans, according to a March report by the Medicare Payment Advisory Commission, or MedPAC, a nonpartisan agency that advises Congress. Adjusted for inflation, that amounts to $4,300 per U.S. tax filer.


The most critical problem in healthcare today is the corruption of the payment system,

which is complex coding. It has destroyed primary care and hospice and invited massive

fraud into health care. The article does a great job making the point that coding invites fraud:


John Gorman, a former Medicare official and founder of two companies that review

records and conduct home visits on behalf of Medicare insurers, says “Any time you base a system like this on diagnosis codes, there’s going to be rampant abuse of the system. [Insurers] will find something else to make up the revenue.”


The article artfully illustrates how private insurers use coding to increase their payments -

and defend it as appropriate. Medicare has known this abuse has been going on for years.

But they are unable to prove the abuse. Why? Because coding complexity is full of gray

space. The abusers live pretty well in that gray space.


The only problem with the article is that it offers no meaningful solutions. More fraud

oversight by Medicare will fail because of the inevitable gray space in coding. There are meaningful solutions to the problem - beginning with eliminating coding from the payment formulas. My website offers more details on eliminating this fraud and improving healthcare.




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