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Sunday, July 17, 2011

Cheating and Fraud vs. Gaming

The cheating scandal in the Atlanta Public Schools (APS) is a major embarrassment for a school system that was only recently basking in the glory of garnering national awards for elevating scores on standardized exams. As it turns out they were spectacularly successful because of blatant cheating. While the behaviors of the APS were clearly off the scale, as one moves away from this extreme, it becomes more and more difficult to separate cheating and fraud from gaming behavior.

Any high stakes activity will prompt agents to push the envelope in trying to maximize their chances for gain. In that sense, the APS scandal is not surprising. So much was riding on test score improvement that score improvement became the final goal. Whether it was actually associated with improved learning was irrelevant. In the same sense, the finances associated with health care are a high stakes game. While there are many examples of outright fraud perpetrated in health care such as billing for serves not rendered, there is also a huge segment of health care transactions which may not meet the bar for fraud but clear fail the smell test; those involved are clearly gaming the system for their own narrow interests .

The parties involved cover the entire spectrum of who health care touches, patients, providers, and payers (both private and state). The spectrum of behaviors ranges from cheating and outright fraud to behaviors which may not strictly break the rules but clearly violate the spirit and purpose of the rules.  What might be viewed as wrong by one party may simply viewed as getting one's fair share by another party. The nature of the behaviors is diverse but it includes any and all activities which may give someone of something an edge. While performance enhancing drugs may be illegal in sports, they are widely deployed on college campuses.  The number of students who have been diagnosed with ADHD is substantial and the number of students using drugs such as ritalin or Adderral  at exam time is startling. Is it illegal? Not likely but it gives some people an edge not available to others and creates an uneven playing field. This is what gaming does.

 Activities which qualify are found at all levels of government. The Federal Government created a cost sharing mechanism for Medicaid (to try to control costs?) which required states to provide matching funds. According to the National Conference of State Legislators as many as 44 states finance a portion of their Medicaid spending by imposing taxes on health care providers who are paid by the Medicaid program, increasing payments to those providers by the same amount, and then using that additional “spending” to increase their federal match. It was a clever response to ill conceived legislation but it clearly a gaming maneuver which in the long run was dysfunctional.

Less egregious examples play out every day in the over-regulated world of healthcare. The more byzantine the rules become, the more opportunity is created for adroit and connected people to game them for profit. Whether it’s Medicare, Medicaid, or the hundreds of agencies and commissions that write the rules, the outcome is invariably the same: people respond to incentives, once they have learned to get around the rules. The universe of people who can be deployed to probe the system for weaknesses is infinite and dwarfs any cadre of enforces who can be mustered to respond, who will always be in reactive mode, three steps behind and always in the dark.

Many of the gaming responses are in response to ill conceived but perhaps well meaning rules.  Take the example of forever available drugs such as colchicine or 17 hydroxy progesterone, or 17P. Both drugs had been around forever and available for very limited costs.  In the case of 17-HP, it was prescribed by doctors, largely to a poor and vulnerable patient population, to significantly reduce the risk of premature births that can cause severe birth defects.Physicians have been treating patients with a weekly injection over 4-5 months with 17P made by local compounding pharmacies. KVA Pharmaceuticals managed to get the compound assigned Orphan Drug status by the FDA, renaming it Makena and giving them a seven year monopoly on its manufacture. Because it has obtained Orphan Drug status, compounding will no longer be allowed. KVA’s price for Makena?: $1500 per injection, or $30,000 for a full course treatment, a 7400% increase. All perfectly legal. Similarly, Colcrys Pharmaceutical invested in clinical testing of colchicine  to demonstrate what decades of experience already showed, that colchicine was effective in treated acute gout. For this they received market exclusivity and an increase from $0.09 per pill to $4.85. Again all legal but there is no evidence to support they provided any actual value to patients.

Administrative pricing schemes create all sorts of opportunities and it tends to be a rolling set of new gaming options. For example, Medicare pays a flat fee of $2,200 for up to nine home health visits. When a patient receives a tenth session, the home health company gets another check of approximately $2,200. It was just amazing how many patients require just enough therapy to qualify the home health company for the additional $2,200, according to the Wall Street Journal in their story on Amedisys in April 2010.  From 2005 to 2007, few patients received only nine visits. In 2007, less than three percent received nine in-home therapy sessions, while nearly 10 percent had 10 visits.

Patients are avid gamers, with behaviors which span the scope between pushing the limits to outright fraud. Patients will push me to code something in their favor, even if it is incorrect. They are all too happy for someone to waive their co-pay. As we create more and more complex system, the opportunities for patient to game the system also becomes vast. For example, in Massachusetts in 2009, almost 1000 people signed up for coverage with  Blue Cross and Blue Shield of Massachusetts for three months or less and ran up claims of more than $1,000 per month while in the plan. Their medical spending while covered by insurance was more than four times the average for consumers who buy coverage on their own and retain it in a normal fashion, according to data the state’s largest private insurer.

We are left with a high stakes game where each set of rules creates perverse incentives which prompts gaming behavior followed by more arcane rules and more gaming. I am reminded of Richard Epstein's book "Simple Rules for a Complex World". The basic tenant of this work is that more rules is not always the best response to less desirable outcomes. As the complexity of rules increases and the tools to assess compliance with new rules are not sufficient to provide appropriate feedback, gaming gets out of hand and it creates an environment where gaming transforms to fraud and cheating. This analysis should not be used to justify the behavior. We live in a world where complex systems are made possible through the combined efforts of ordinary and deeply flawed people. Approaches using increasingly complex regulatory structures employing difficult to enforce rules to mitigate the flaws of those involved simply do not work.  

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