“An American Sickness” by Elisabeth Rosenthal

Instead, they would be compensated in proportion to the relative value units (RVUs) of the care they dispensed. RVUs are a measure of productivity used to determine medical billing.

Generalists like Dr. W. are assigned RVUs primarily according to the complexity of their exams and treatment plans, which are coded on a scale of levels 1 to 5. A simple level 2 visit may yield $60;  level 3, $120; level 4, $210; and so on. “What started to happen is lots of pinkeye was billed at a level 4,” he explained. There was a financial incentive: colleagues who were coding expansively could make twice as much – over $300,000 instead of $170,000.

Oncologists prospered buying chemotherapy drugs from manufacturers and infusing them in the office, generally with a hefty markup, a practice known as “buy and bill.”

As the wholesale price of the new drugs jumped again and again, doctors had little motivation to complain, because they were allowed a markup that was often a set percentage above cost. Doctors who used more expensive drugs earned far more. The practice of buy and bill increased dramatically in the late 1990s and into the new century.

With it, the median compensation for oncologists nearly doubled from 1995 to 2004, to $350,000. One study in 2013 attributed 65% of the revenue in a typical oncology practice to such payments. “Drugs and biologicals make up approximately 80% of all medical oncology charges submitted to Medicare each year.”

“Medicine is a business. It won’t police itself,” said William Sage, a doctor and lawyer who is a professor at the University of Texas. “People had a lot of faith in the American medical profession – that they would act differently than other businesses – but they were wrong.”

The financial stakes in coding are high. If you code for “heart failure” (ICD-9-CM code 428) when you could code for “acute systolic heart failure” (code 428.21), the difference is thousands of dollars. The coders who work for hospitals strive to get money.

In 1996, Medicare’s National Correct Coding Initiative made it clear that certain CPT codes couldn’t appear on the same bill because they were inherently part of the same procedure. (While ICD codes indicate diagnoses, CPT codes indicate medical services.) As a rule, an anesthesiologist could not, for example, separately bill for anesthesia and checking your oxygen level during your surgery. One subsumed the other. But the government created modifier 59 – a code that could be appended to other codes to allow doctors to take exceptions to that rule in rare cases.

An investigation by HHS OIG in 2005 found massive evidence of modifier 59 abuse. Forty percent of code pairs billed with modifier 59 in 2003 weren’t kosher, resulting in $59mm in overpayment.

When kidney dialysis centers were allowed to bill separately for dialysis and for giving injections of Epogen, a drug that can fight anemia, clinics were using huge amounts of the drug. Anemia is common in people with kidney failure. By 2005 Epogen had become the single largest drug for the Medicare program. That was true, even though studies showed Epogen was not particularly useful for most patients. Then Medicare announced a bundled payment scheme in which providers would, on average, receive $230 per treatment to cover dialysis, in cluding the cost of all injectable medication or their oral equivalents and typical lab test. The use of Epogen plummeted.