The Senate Finance Committee has begun an investigation into four big home-health agencies that, it alleges, artificially inceased their home therapy visits to take advantage of higher Medicare billing rates. A May 12 letter from committee chairman Max Baucus (D-MT) and senior Republican Charles Grassley (R-IA) asked the four for-profit agencies–Amedisys, Almost Family Inc. Gentiva Health Services, and LHC Group– for records and internal documents relating to these visits from 2006-2009. The firms all either deny the allegations or say they will cooperate fully with the investigation.

It will be interesting to learn whether this is a scam or not, but the probe misses the point: The Medicare payment system encourages this sort of thing all the time.   

The controversy, first reported in The Wall Street Journal,  involves changes Medicare made to its reimbursement rules for home therapy. In essence, The Journal alleged that when Medicare paid a $2,200 bonus to agencies that provided 10 visits, the firms boosted their number of visits to 10 so they could claim the bonus. When Medicare changed the payment triggers in 2008, the firms once again adjusted their visits to maximize their payments. 

I don’t know if the firms (and the physicians who ordered the therapies) were manipulating these visits to squeeze the most revenue out of the Medicare reimbursement system. And I don’t know if these practices are more widespread than just these four firms.

But if the allegations are true, my question for the lawmakers is: What did you expect? As we heard throughout the health debate, Medicare reimbursement is based on piecework. Most health providers get money for each separate visit, test, and procedure they do. We pay them like they are auto mechanics when we should be paying them a single rate to do what is necessary to fully treat an illness or injury in the most effective way possible.  

Today, docs are paid for each test they order. So, it should be no surprise that they order lots of tests. Some doctors will ask a Medicare patient to come to their office to learn the results of, say, a routine blood test. They could deliver the news by phone but don’t. Why? Because they get paid for the office visit but not for the phone call.

Health providers are like the rest of us: They will maximize their profits within the bounds of business ethics. If Congress doesn’t want home health agencies to add visits to earn a bonus, it should change the Medicare payment system to stop rewarding the firms for that extra visit. If it wants doctors to communicate with patients by phone or email it should change Medicare payments to encourage those practices.

The new health law includes some small steps in this direction. But this is about much more than home therapy visits. If The Journal’s allegations are correct, they are just more evidence of how badly the entire payment system is broken.