Financial engineering is a derisive term given to private equity firms who spruce up the value of their portfolio companies by manipulating cash flow statements on Excel spreadsheets.
Technically, the company is performing at the same level as before, but on paper it looks much better.
In healthcare, we find a similar phenomenon, called clinical engineering. By manipulating the documentation and reimbursement coding, healthcare systems can appear to provide greater value to their patients than what they really offered.
We find this among health systems that offer Medicare Advantage plans, the latest rendition of health management organizations (HMOs) and preferred provider organizations (PPOs). They use different payment mechanisms to receive financial remuneration for clinical services rendered, instead of the traditional fee-for-service model, where a set amount is given for a specific clinical service. These health systems incorporate a far more complicated financial scheme.
Centers for Medicare and Medicaid Services (CMS) rates Medicare Advantage plans based on over 40 quality measures. These measures are then benchmarked against other similar health plans across the nation. Reimbursement becomes a complex mix of base compensation and premium reimbursements, which often have less to do with clinical care and more with financial incentives.
Most patients are not aware of the payment differences. To them, it is all the same, because the premiums paid by members of Medicare Advantage and traditional Medicare plans remain roughly the same. But the reality is these two payment models could not be further apart – and with different financial structures come different financial incentives.
The Office of Inspector General (OIG) acknowledges as much, and in a scathing report last Fall took many Medicare Advantage plans to task, particularly the United Healthcare plans, citing overly aggressive documentation practices as the primary driver of clinical value, more than any true clinical improvements in patient care.
The Commonwealth Fund confronts this uncomfortable notion at face value and evaluates the clinical value gleaned from Medicare Advantage plans compared with traditional plans.
It discloses every moral hazard and exploitable opportunity available in Medicare Advantage plans as they are currently structured. It details the very mechanisms of clinical engineering so many Medicare Advantage plans have enjoyed for nearly half a decade.
It concludes by demonstrating little to no true clinical value gained in Medicare Advantage plans relative to traditional Medicare plans. The implications prompt an awkward question we should all be asking: Should we have less regulation and oversight in healthcare?
Medicare Advantage plans were touted as the latest and greatest attempt to improve the almighty behemoth that is healthcare. Yet it is susceptible to the same failures as all other prior so-called-saviors in healthcare. The recurring failed attempts show an undeniable fact: When clinical value depends on the quality of documentation, it ceases to be an appropriate metric for quality of care.
This presents an interesting paradigm, known as Goodhart’s Law: “When a measure becomes a target, it ceases to be a good measure”. When clinical documentation becomes the primary driver to measure quality in healthcare, the documentation becomes a poor marker of quality.
This is a uniquely challenging quagmire for regulators. The federal government has created a system of oversight ostensibly reliant on documentation. But if the very metric to regulate healthcare becomes a poor marker of quality of care, then regulators must question their very basis of oversight.
We assume clinical data is good and we reward Medicare Advantage plans for maintaining good clinical records. But the value of data quickly deteriorates when it becomes nothing more than the tool which health plans use to manipulate clinical outcomes.
In the ever litigious culture of healthcare, we gravitate toward the quantitative. We value what we can measure. And we regulate whatever can be measured. But eventually, what we measure ceases to be a good metric of what we are targeting. And for Medicare Advantage plans, it seems we are at this point, particularly where every measurable metric provides some form of reimbursement.
Perhaps we should focus less on measuring the seemingly endless array of metrics, and relieve health systems of the burden of measuring metrics as a whole.
We may find something more valuable than a metric to measure: We may find the implicit motivation to improve patient care.
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