Corporate Greed is the Real Threat to Medicare

Now that fiscal hatchet man Paul Ryan is on the Republican ticket, the presidential race has turned into a free-for-all over the future of Medicare.

Recognizing the unpopularity of their goal of slashing entitlement spending, Ryan and Romney are instead straining credulity by painting themselves as defenders of Medicare against $700 billion in cuts scheduled under the Affordable Care Act.

This, of course, is a reprise of the tactic long used by opponents of healthcare reform of deliberately conflating Obamacare’s negotiated cuts in payments to healthcare providers with cuts in actual services to seniors.

Such obfuscation can have some success because most people continue to view Medicare solely as a government social program, when it is also a massive system of contracts that transfer more than $500 billion in taxpayer funds each year to the private sector. Medicare took the profit out of providing health insurance to seniors but it left untouched the profit motive in the delivery of their medical services. In fact, Medicare’s billions have played a central role in building the commercial healthcare industry into the leviathan it is today.

Not content with making a reasonable amount of money from serving this huge market legitimately, providers regularly try to bilk the system for more than what they are entitled to. This is not just a matter of the proverbial Medicare mills in which individual physicians or small operations charge for services provided to imaginary patients or else overbill when treating real ones.

Some of the biggest instances of Medicare fraud have been perpetuated by Fortune 500 companies such as for-profit hospital operators, medical device manufacturers and pharmaceutical producers.

Let’s start with the drugmakers, since they have been at the center of several recent cases involving the illegal marketing of their pills for unapproved purposes, which among other things results in more high-priced medications getting prescribed for Medicare patients, thus inflating system costs. A few weeks ago, Glaxo SmithKline agreed to pay $3 billion to resolve federal criminal and civil charges relating to the improper marketing of its best-selling anti-depressants.

In May, Abbott Laboratories agreed to pay $1.5 billion to settle similar charges relating to the off-label marketing of its drug Depakote. Although Depakote was approved only for treating seizures, Abbott created a special sales force to pressure physicians to use it for controlling agitation and aggression in elderly dementia patients. This was both a safety risk and an added financial burden for Medicare and Medicaid. Illegal marketing charges had previously been settled with companies such as Novartis, AstraZeneca, Pfizer and Eli Lilly—in other words, pretty much the whole industry.

Medical device makers also contribute to escalating Medicare costs by pressing doctors to use their expensive products in place of cheaper alternatives or perhaps when they are not really medically necessary. Last December, Medtronic paid $23.5 million to resolve federal charges that it paid illegal kickbacks to physicians to induce them to implant the company’s pacemakers and defibrillators. Several months earlier, Guidant paid $9 million to settle federal charges of having inflated the cost of replacement pacemakers and defibrillators for Medicare and Medicaid patients.

And then we have the for-profit hospitals. A decade ago, HCA, one of the pioneers of the industry and still its biggest player, paid a total of $1.7 billion in fines in connection with charges that it defrauded Medicare and other federal health programs through a variety of overbilling schemes. Chief executive Rick Scott—now the Republican governor of Florida—was ousted but managed to avoid prosecution.

It now looks HCA is at it again. The New York Times just published a front-page exposé of how the company—now controlled by a group of private equity firms including Bain Capital—is making fat profits through “aggressive” billing of Medicare as well as private insurers. The Times reported that HCA’s tactics are now “under scrutiny” by the Justice Department.

The debate over Medicare’s supposedly out-of-control costs is surprisingly devoid of discussion of how much of the problem is the result of aggressive billing or outright fraud by the likes of HCA, the device makers and the pharmaceutical producers. Seniors cannot be expected to suffer cuts in their benefits as long as the giant corporate healthcare providers continue to gouge the system.