Healthcare is increasingly a data-driven enterprise. The accelerating adoption of evidence-based medicine, the coming revolution in personalized medicine, the advent of the electronic health record and the dedication of stimulus funds and reformers’ political capital to the institutionalization of comparative effectiveness research all speak to the growing centrality of empirical data in medical practice.
For medical technology and other life science enterprises, FDA market clearance is subject to ever-higher evidentiary standards; the Centers for Medicare and Medicaid and private insurers conduct rigorous and data-dependent coverage policy analyses; reimbursement levels are the product of statistical manipulation of large cost and/or charge data sets; and public company share prices fluctuate with the character and quality of clinical research data as it becomes public.
No one but the most confirmed Luddite could argue that reliance on data in medicine or in business – rather than custom or intuition – isn’t a good thing. Knowing beats guessing every time; progress in technology and clinical practice demand sound and verifiable evidentiary bases. The workings of the market – for sorting winning technologies from the losers, for setting provider prices, for valuing companies – are lubricated by the widespread availability and accessibility of ample quantities of relevant data. The desktop computer may be the greatest healthcare innovation in the last 30 years.
But the power of data to advance medicine, and our growing reliance on that data, introduce a fundamental problem. Efficient markets require data that are accurate, symmetrical and freely available. Data ceases to be useful when we cannot trust it. It corrupts the market if it is too expensive for some competitors, or if some competitors have access to more of it than others. At bottom, one of the most important objections to the public option in the healthcare reform debate is that a government-controlled insurer will exercise excessive control over information, thereby stifling rather than increasing marketplace competition.
No matter that the legislative health reform proposals seek to preserve a level playing field, forbidding – for example – use of Medicare payment rates and subsidies from the public treasury. The problem, critics argue, is deeper: The government, unlike private enterprises, can’t be trusted to play by the rules of the market. If that is the case, the objection needs to be taken seriously.
But it is not the case. Indeed, the proposition is laughable and the opposite is true, at least in the healthcare arena. The Medicare program, for example, is characterized by extraordinary data transparency in reimbursement rate-setting, coverage determination processes, quantification of services provided and annual financial accounting. Any citizen can see the formulas used to establish rates; can provide comments (which are available for public inspection on the Internet) on payment methodology proposals, payment determinations, coverage analyses and other critical decisions; and can expect to have decision-makers respond in some detail to those comments.
Private insurers, in contrast, make all of these decisions in secret and with no transparency. They typically hold information about their payment rates and financial performance as proprietary and confidential and generally do everything they can to prevent enrollees from gaining access to the kinds of data Medicare disseminates freely as a matter of course. When it comes to data symmetry, cost and transparency in health insurance, the public sector is a better market player than the private.
Where the case is really closed, however, is in the area of data integrity. Medicare hasn’t been perfect here; there have been occasions when proposed payment rates are affected by calculation errors and/or data handling errors. But the transparent nature of public program processes has allowed affected parties to raise objections, demand corrections and – in a surprising number of cases – win the argument.
The program does this so well and so openly that analysts presume that when there are disputes over data, the program will try to get things right and justice will prevail. For example, a recent proposal for revised payment to chronic dialysis facilities contained an amount for outpatient prescription drugs deemed grossly inadequate by providers; the consensus of analysts following the industry is that the error will be corrected in response to comments on the proposal.
Not so with private insurers, who provide no equivalent recourse. Where there have been data management abuses, they have been in the private sector. Take, as a case in point, the example of Ingenix.
The company describes itself as “a global health care information, technology and consulting leader;” its home page displays the tagline “Information is the Lifeblood of Health Care.” A wholly owned subsidiary of UnitedHealth Group, Ingenix is a rich resource for data on healthcare services and costs. One important line of the company’s business is contracts with insurance companies to supply data on geographic area “usual and customary charges” for different healthcare services. Its customers include parent company United HealthCare, Aetna, Cigna and diverse others.
Prevailing charge data are important to insurers in their negotiation of contracts with providers. But they are particularly important in establishing what the insurer will pay when enrollees seek services “out of network” from non-contracted providers. Typically, insurers will pay something on the order of 80 percent of the prevailing charge for the service in the geographic area, with the remainder of the bill – the difference between actual charges and 80 percent of usual and customary charges – the co-payment responsibility of the patient.
In February 2008, New York State Attorney General Andrew Cuomo announced an industry-wide investigation into allegations that the Ingenix database intentionally skewed “usual and customary” rates downward through faulty data collection, poor pooling procedures and a lack of audits. As a result, consumers were saddled with too much of the cost of out-of-network healthcare and physicians absorbed substantial revenue losses.
“Getting insurance companies to keep their promises and cover medical costs can be hard enough as it is,” Cuomo said. “But when insurers create convoluted and dishonest systems for determining the rate of reimbursement, real people get stuck with excessive bills and are less likely to seek the care they need.”
Within a year, Ingenix had paid $50 million to fund development of a new charge database to be run by a not-for-profit entity with no industry ties and United, Aetna and Cigna had all made substantial settlements to avoid litigation or prosecution. The data being used industry-wide to set physician payments rates was acknowledged to be dirty. The game had been fixed.
These are the private companies that opponents of the public option argue need to be protected from unfair government competition.
Edward Berger is a senior healthcare executive with more than 25 years of experience in medical device reimbursement analysis, planning and advocacy. He’s the founder of Larchmont Strategic Advisors and the vice president of the Medical Development Group. Check him out at Larchmont Strategic Advisors.
