How Much are Misaligned Incentives in Health Care Costing Tax Payers?

On Christmas Eve, I took care of a patient who had just undergone surgery for an infected artificial shoulder. He was to be discharged on intravenous antibiotics three times a day for six weeks. This is a pretty common treatment. Patients are generally able to give themselves this medication with the help of a home care nurse who visits once a week. The total cost of this is approximately $7000 for nursing visits, antibiotics and supplies ($120 per visit for eight nursing visits plus $143 per day for antibiotics)

The social worker informed him that Medicare would not pay for home care nurse visits or supplies. BUT, Medicare pays for inpatient rehabilitation, which he would be eligible for to receive these antibiotics. Given the choice of paying $7000 for home administration versus $0 for inpatient rehabilitation, naturally he chose inpatient rehabilitation.

The problem is, is that his inpatient stay costs taxpayers approximately $21,000. $350 for room and board plus additional costs for antibiotics and supplies, totaling approximately $500 a day. Furthermore, although he was well enough to be discharged home before Christmas, he needed to stay until he could be placed in rehab. Because of holiday scheduling, most rehabilitation facilities were not accepting admissions. Thus, he had to stay in the hospital an extra four days in the hospital over the weekend and holidays. Given that the average cost of a hospital stay is $2338 in Maryland that added an additional $9352 or so of unnecessary expenses.

In sum, because financial incentives encouraged my patient to spend $0 rather than $7000 out of pocket, Medicare spent an unnecessary added $30,000 on his hospitalization and care.
To make matters worse, my patient didn’t even want to go to rehabilitation. He preferred to administer the antibiotics himself at home and found it hugely inconvenience to have to be an inpatient for six weeks just for antibiotics. He was a small business owner, and these extra days in rehabilitation would hinder his productivity at work. He was upset that he had to stay in the hospital over the holidays for unnecessary reasons. He was upset about this twisted logic, which forced him to choose the less resource efficient option and lamented the financial burden he was unwillingly imposing on taxpayers.

This decision would harm my patient in other ways. Medicare limits beneficiaries to sixty lifetime days of inpatient rehabilitation care, so if he ever needed future inpatient care, he would have fewer days available to him. Staying in a hospital facility can also be harmful medically, as added days in the health care setting place him at increased risk for health care acquired infections.

The United States has been in recession for years and calls for fiscal responsibility ring loudly. Fiscal crises and congressional deadlock have almost become the new normal. Rising health care costs account for 25% of total federal spending and stands at $2.8 trillion a year. This contributes a significant portion of our national debt at a time when we can’t afford wasteful spending.

The Affordable Care Act has attempted to curtail waste through various mechanismsincluding redirecting care from high cost specialists to lower cost primary care doctors, restructuring reimbursement from fee for service to a value based model. Others have suggested various cost cutting mechanisms such as reducing overtreatment, implement market-based incentives, and reduce overhead.

My patient’s situation illustrates another aspect of potential cost control that has not frequently been discussed. Skewed financial incentives caused by illogical Medical reimbursement schemes create additional unnecessary costs that are not just wasteful, but also harmful and inconvenient to patients. $30,000 is a great deal of money to waste on something that is medically unnecessary and unwanted.

This is but one example where misaligned incentives drive providers and patients to choose the less efficient, more wasteful option. Examples are abound in health care. Patients in New York regularly told me that they called an ambulance because it was cheaper to them (free!) than a $20 cab ride. An ambulance ride in New York City costs $704 per ride not including mileage. Medicare and Medicaid contribute approximately half of the FDNY’s total revenue of $205 million yearly.

I remember referring one of my clinic patients to the social worker because she had recovered from depression and wanted to get a job. The social worker discouraged her from finding employment and instead advised her to volunteer because she would lose her disability benefits if she found gainful employment.

Because uninsured patients do not have outpatient drug coverage, it is not uncommon for uninsured cancer patients to be admitted to the hospital in order to get outpatient chemotherapy infusions. This adds approximately $2338, the average cost of an overnight admission, on top of what would have been an outpatient infusion.

I could go on and on.

Policy changes that systematically reform these misaligned incentives could do much to reduce illogical decisions that cause wasteful healthcare spending. Lobbying and patchwork legislation have led to our current system of fragmented reimbursement schemes where benefits initially meant to help patients, create unintended consequences leading to wasteful spending. Long-term solutions to counteract our increasing federal deficit require bending the cost curve of health care. Taking a careful look at Medicare reimbursements that don’t make sense could potentially save millions of health care dollars and improve quality of care.

Special thanks to Donald List, LCSW-C, for assisting with obtaining the costs of the therapies and services mentioned in this article.

Originally published on on February 23, 2013