Category: Incentives

We Need Market-Tested Innovation to Cure the Sadly Chaotic, Inefficient, Dishonest, and Unfair Organ Transplant System

The government contracts with, and ‘supervises,’ a network of nonprofits in a sadly chaotic, inefficient, dishonest, and unfair system to allocate scarce transplant organs. The government has set up perverse incentives, with unintended consequences, by telling the nonprofits that they will be evaluated on the basis of not wasting organs; those evaluated badly will not have their contracts renewed. So they have an incentive to get the organs out the door quickly, even if they do not go to patients higher on the waiting list. Hospitals know they will be evaluated on the basis of how many transplanted patients survive at least a year. So they have an incentive to reject below average organs, and, when they get above average organs, to ignore the waiting list, in order to transplant them into the most healthy patients.

The result is that the sickest and those who have waited the longest are frequently skipped over, instead of receiving the organ when it is their turn.

Why don’t we try something bold–allow for-profit entrepreneurs to engage in medical institutional innovation? For instance, if we allow it, one medical entrepreneurs might purchase from willing donors the right to allocate their organs if and when they become available. Another medical entrepreneur might set up an institution appealing to donors who do not want to be paid, but do want a guarantee that their organs will go to the poor at no charge.

In retailing Walmart and Amazon have different models, but both made major logistical innovations. We need a Walmart and an Amazon of organ transplantation. We need market-tested innovation (as Deirdre McCloskey might say).

Allowing some donors to be paid will reduce the scarcity of organs, which is the most basic constraint on this issue. Innovative medical entrepreneurs may find other ways to loosen this most basic constraint, such as mechanical organs, regrowing human organs from stem cells, and growing transplantable organs in pigs.

(p. A1) For decades, fairness has been the guiding principle of the American organ transplant system. Its bedrock, a national registry, operates under strict federal rules meant to ensure that donated organs are offered to the patients who need them most, in careful order of priority.

But today, officials regularly ignore the rankings, leapfrogging over hundreds or even thousands of people when they give out kidneys, livers, lungs and hearts. These organs often go to recipients who are not as sick, have not been waiting nearly as long and, in some cases, are not on the list at all, a New York Times investigation found.

Last year, officials skipped patients on the (p. A10) waiting lists for nearly 20 percent of transplants from deceased donors, six times as often as a few years earlier. It is a profound shift in the transplant system, whose promise of equality has become increasingly warped by expediency and favoritism.

Under government pressure to place more organs, the nonprofit organizations that manage donations are routinely prioritizing ease over fairness. They use shortcuts to steer organs to selected hospitals, which jockey to get better access than their competitors.

. . .

The Times analyzed more than 500,000 transplants performed since 2004 and found that procurement organizations regularly ignore waiting lists even when distributing higher-quality organs. Last year, 37 percent of the kidneys allocated outside the normal process were scored as above-average. Other organs are not scored in the same way, but donor age is often used as a proxy for quality, and data shows there is little difference in the age of organs allocated normally compared with those that are not.

And while many people in the transplant community believe ignoring lists is reducing organ wastage, there is no evidence that is true, according to an unreleased report by a group of doctors and researchers asked by the transplant system last year to study the practice.

. . .

In 2020, procurement organizations felt under attack. Congress was criticizing them for letting too many organs go to waste. Regulators moved to give each organization a grade and, starting in 2026, fire the lowest performers.

They scrambled to respond. They assigned more staff to hospitals to identify donors, grew more aggressive with families and recovered more organs from older or sicker donors.

Those steps increased donations and transplants, dozens of employees said. Both hit record highs last year, when there were 41,115 transplants.

At the same time, the organizations increasingly used a shortcut known as an open offer. Open offers are remarkably efficient — officials choose a hospital and allow it to put the organ into any patient.

. . .

Some procurement organizations sidestep the list because they believe it helps them place more organs. But it can also help their bottom lines.

In 2021, the South Carolina procurement organization phased out its allocation team and handed the task to workers who were already managing donors, testing organs and helping with surgeries. As a workaround, three former employees said, executives created a spreadsheet with preferred doctors’ phone numbers.

If the employees were too busy to do allocation, they said, they were told to give open offers to those doctors.

“They’d tell me to get rid of the organs quickly, so I could be done,” said Aron Knorr, one of the former workers, who said the directive made him uncomfortable.

. . .

Dr. Alghidak Salama, who led South Florida’s organization until August [2024], said open offers were financially beneficial: When organizations distribute organs, they are paid a set fee by receiving hospitals, regardless of what costs they incur. Speeding up allocation (p. A11) saves money on staffing.

. . .

When hospitals get open offers, they often give organs to patients who are healthier than others needing transplants, The Times found. For example, 80 percent of all donated hearts in recent years went to patients sick enough to be hospitalized, records show. But when lists were skipped, it was less than 40 percent.

Healthier patients are likelier to help transplant centers perform well on one of their most important benchmarks: the percentage of patients who survive a year after surgery. The government monitors that rate, as do insurers, which can decline to pay low-performing hospitals.

. . .

Federal regulators have known since 2022 that more people were being skipped, according to meeting notes obtained by The Times. But until last week, they had done little to address it.

The U.S. Centers for Medicare & Medicaid Services monitors hospitals and procurement organizations. The Health Resources and Services Administration tracks the system overall. But for years, they deferred to UNOS.

Records show that when the system’s oversight committee reviews instances of bypassed patients, it closes more than 99.5 percent of cases without action, usually concluding that the organ was at risk of going to waste. In the last five years, the committee has never gone further than sending “notices of noncompliance,” the mildest action it can take.

“The oversight is almost nonexistent, and that’s been true basically forever,” said Dr. Seth Karp, a Vanderbilt University surgeon who served on the committee, which he noted is largely made up of transplant doctors and procurement officials policing themselves.

For the full story see:

Brian M. Rosenthal, Mark Hansen and Jeremy White. “Organ Transplant System ‘in Chaos’ As Waiting Lists Are Ignored.” The New York Times (Monday, March 10, 2025): A1 & A10-A11.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story has the date Feb. 26, 2025, and has the same title as the print version.)

Fraudulently Doctored Images and “Suspect Data” in Many Leading Cancer Research Papers

Charles Piller in his Doctored paints a damning picture of doctored images and suspect data rampant in the leading scientific literature on Alzheimer’s disease. Not only were leading scientists guilty of fraud, but the key institutions of scientific research (journals, universities, and government grant-making agencies) failing their oversight duty, and when outsiders stepped in to provide oversight, delayed and minimized their responses. Practicing and turning a blind eye to fraud matters, since Alzheimer’s patients are depending on this research. And researchers who do not commit fraud suffer because they appear to have worse research records than those compiled by the fraudsters. So the honest get worse academic appointments and fewer grants.

After reading Doctored I was depressed, but I at least hoped that this pathology was limited to this one (albeit an important one) area of medical research. But in the article quoted below, evidence is presented that there is substantial similar doctored images and suspect data in the field of cancer research.

A side issue in the quoted article is worth highlighting. In the absence of credible oversight from the institutions tasked with oversight, oversight is being done by competent volunteers, with the aid of A.I. These volunteers do not receive compensation for their work, and in fact are probably pay a price for it, since they alienate powerful scientists and scientific institutions. But if science is a search for truth, and truth matters for cures, they are doing a service to us all, and especially to those who suffer from major diseases such as Alsheimer’s and cancer.

On the connection with the Doctored book, it is worth noting that the article quotes Dr. Matthew Schrag, who is the most important source in Doctored. The article also quoted Elisabeth Bik, who does not have an MD like Schrag but has a PhD in microbiology, and who is another important source in Doctored.

(p. A1) The stomach cancer study was shot through with suspicious data. Identical constellations of cells were said to depict separate experiments on wholly different biological lineages. Photos of tumor-stricken mice, used to show that a drug reduced cancer growth, had been featured in two previous papers describing other treatments.

Problems with the study were severe enough that its publisher, after finding that the paper violated ethics guidelines, formally withdrew it within a few months of its publication in 2021. The study was then wiped from the internet, leaving behind a barren web page that said nothing about the reasons for its removal.

As it turned out, the flawed study was part of a pattern. Since 2008, two of its authors — Dr. Sam S. Yoon, chief of a cancer surgery division at Columbia University’s medical center, and a more junior cancer biologist — have collaborated with a rotating cast of researchers on a combined 26 articles that a British scientific sleuth has publicly flagged for containing suspect data. A medical journal retracted one of them this month after inquiries from The New York Times.

Memorial Sloan Kettering Cancer Center, where Dr. Yoon worked when much of the research was done, is now investigating the studies. Columbia’s medical center declined to comment on specific allegations, saying only that it reviews “any concerns about scientific integrity brought to our attention.”

Dr. Yoon, who has said his research could lead to better cancer treatments, did not answer repeated questions. Attempts to speak to the other researcher, Changhwan Yoon, an associate research scientist at Columbia, were also unsuccessful.

The allegations were aired in recent months in online comments on a science forum and in a blog post by Sholto David, an independent molecular biologist. He has ferreted out problems in a raft of high-profile cancer research, including dozens of papers at a Harvard cancer center that were subsequently referred for retractions or corrections.

From his flat in Wales, Dr. David pores over published images of cells, tumors and mice in his spare (p. A17) time and then reports slip-ups, trying to close the gap between people’s regard for academic research and the sometimes shoddier realities of the profession.

. . .

Armed with A.I.-powered detection tools, scientists and bloggers have recently exposed a growing body of such questionable research, like the faulty papers at Harvard’s Dana-Farber Cancer Institute and studies by Stanford’s president that led to his resignation last year.

But those high-profile cases were merely the tip of the iceberg, experts said. A deeper pool of unreliable research has gone unaddressed for years, shielded in part by powerful scientific publishers driven to put out huge volumes of studies while avoiding the reputational damage of retracting them publicly.

The quiet removal of the 2021 stomach cancer study from Dr. Yoon’s lab, a copy of which was reviewed by The Times, illustrates how that system of scientific publishing has helped enable faulty research, experts said. In some cases, critical medical fields have remained seeded with erroneous studies.

“The journals do the bare minimum,” said Elisabeth Bik, a microbiologist and image expert who described Dr. Yoon’s papers as showing a worrisome pattern of copied or doctored data. “There’s no oversight.”

. . .

Dr. Yoon, a stomach cancer specialist and a proponent of robotic surgery, kept climbing the academic ranks, bringing his junior researcher along with him. In September 2021, around the time the study was published, he joined Columbia, which celebrated his prolific research output in a news release. His work was financed in part by half a million dollars in federal research money that year, adding to a career haul of nearly $5 million in federal funds.

. . .

The researchers’ suspicious publications stretch back 16 years. Over time, relatively minor image copies in papers by Dr. Yoon gave way to more serious discrepancies in studies he collaborated on with Changhwan Yoon, Dr. David said. The pair, who are not related, began publishing articles together around 2013.

But neither their employers nor their publishers seemed to start investigating their work until this past fall, when Dr. David published his initial findings on For Better Science, a blog, and notified Memorial Sloan Kettering, Columbia and the journals. Memorial Sloan Kettering said it began its investigation then.

. . .

A proliferation of medical journals, they said, has helped fuel demand for ever more research articles. But those same journals, many of them operated by multibillion-dollar publishing companies, often respond slowly or do nothing at all once one of those articles is shown to contain copied data. Journals retract papers at a fraction of the rate at which they publish ones with problems.

. . .

“There are examples in this set that raise pretty serious red flags for the possibility of misconduct,” said Dr. Matthew Schrag, a Vanderbilt University neurologist who commented as part of his outside work on research integrity.

. . .

Experts said the handling of the article was symptomatic of a tendency on the part of scientific publishers to obscure reports of lapses.

“This is typical, sweeping-things-under-the-rug kind of nonsense,” said Dr. Ivan Oransky, co-founder of Retraction Watch, which keeps a database of 47,000-plus retracted papers. “This is not good for the scientific record, to put it mildly.”

For the full story, see:

Benjamin Mueller. “Cancer Doctor Is in Spotlight Over Bad Data.” The New York Times. (Fri., February 16, 2024): A1 & A17.

(Note: ellipses added.)

(Note: the online version has the date Feb. 15, 2024 [sic], and has the title “A Columbia Surgeon’s Study Was Pulled. He Kept Publishing Flawed Data.”)

Piller’s book mentioned in my initial comments is:

Piller, Charles. Doctored: Fraud, Arrogance, and Tragedy in the Quest to Cure Alzheimer’s. New York: Atria/One Signal Publishers, 2025.

Rampant Fraud in ‘Skin’ Bandages Paid by Medicare

A “quirk” in the Medicare law allows ‘skin’ bandage firms to charge, and have Medicare pay them, exorbitant prices. Are such quirks accidents or intentional? Medicare rules are so voluminous and obscure that few have an incentive to look carefully at the details. But the firms selling ‘skin’ bandages had an incentive. Entrepreneurs within these firms saw an opportunity and seized it. But they are what William Baumol called “destructive entrepreneurs.” Their energy and talent works against the general good.

Since patients are not paying, they have little incentive to reveal the fraud. So the taxpayers are robbed. In a system where the patients are the payers they would have an incentive to reveal fraud, and to seek alternatives to over-priced medical therapies.

But what of the poor, you ask? Susan Feigenbaum proposed an insurance system where patients would receive lump sum payments for different ailments. Then poor patients could be payers, and have the incentives of payer.

(p. 1) Seniors across the country are wearing very expensive bandages.

Made of dried bits of placenta, the paper-thin patches cover stubborn wounds and can cost thousands of dollars per square inch.

Some research has found that such “skin substitutes” help certain wounds heal. But in the past few years, dozens of unstudied and costly products have flooded the market.

Bandage companies set ever-rising prices for new brands of the products, taking advantage of a loophole in Medicare rules, The New York Times found. Some doctors then buy the coverings at large discounts but charge Medicare the full sticker price, pocketing the difference.

Partly because of these financial incentives, many patients receive the bandages who do not need them. The result, experts said, is one of the largest examples of Medicare waste in history.

Private insurers rarely pay for skin substitutes, arguing that they are unproven and unnecessary. But Medicare, the government insurance program for seniors, routinely covers them. Spending on skin substitutes exceeded $10 billion in 2024, more than double the figure in 2023, according to an analysis of Medicare data done for The Times by Early Read, a firm that evaluates costs for large health companies.

Medicare now spends more on the bandages than on ambulance rides, anesthesia or CT scans, the analysis found.

. . .

(p. 19) . . . experts in health care costs said the spike had been driven . . . by sellers and doctors taking advantage of Medicare’s pricing rules. The government will reimburse any price that a company sets for brand-new skin substitutes, even if it is far above the market average. The higher the price, the larger the doctors’ cut.

And the bigger the bandage, the more they can charge. For one patient in Nevada, Medicare spent $14 million on skin substitutes over the course of a year, according to billing records reviewed by The Times. The wound of a patient in Washington State persisted after Medicare paid $6 million for the coverings. A man in Texas got $1.3 million of bandages despite having no wound at all. Health executives trying to ferret out suspicious spending identified these patients and shared their stories with The Times.

As the Trump administration — and particularly the new Department of Government Efficiency run by Elon Musk — aims to shrink the federal purse, profligate Medicare spending is a ripe target, experts said.

Companies have billed Medicare for hundreds of thousands of urinary catheters that doctors never ordered. Other schemes have peddled urine tests and knee braces. In 2023, a federal watchdog agency flagged skin substitute spending as wasteful for both taxpayers and Medicare enrollees, who ultimately pay the costs with higher premiums.

“It’s the patients, it’s the taxpayers — unfortunately everyone is footing a part of the bill for this outsized spend,” said Dana Rye, an executive with Duly Health and Care, a Chicago-based medical group where payments for skin substitutes have risen 1,400 percent since 2022.

. . .

Five years ago, the most expensive skin substitute cost $1,042 per square inch, while some were as cheap as $45. Today, the three most expensive products on the market each cost more than $21,000. (Samaritan Biologics, a company in Memphis that sells the three products, did not answer questions about why they cost so much.)

Companies can set such high prices because of a quirk in Medicare pricing rules, industry experts said. For the first six months of a new bandage product’s life, Medicare will set the reimbursement rate at whatever price a company chooses. After that, the agency adjusts the reimbursement to reflect the actual price paid by doctors after any discounts.

To circumvent the reimbursement drop, some companies simply roll out new products.

In April 2023, Medicare began reimbursing $6,497 for every square inch of a bandage called Zenith, sold by Legacy Medical Consultants, a company in Fort Worth, Texas. Six months later, Zenith’s reimbursement fell to $2,746.

That month, October 2023, Medicare began reimbursing $6,490 for a new Legacy product, a “dual layer” bandage called Impax.

Marketing materials for the two products use identical photographs and similar language. The company describes both products as providing “optimal wound covering and protection during the treatment of wounds.”

Since 2022, spending on Zenith and Impax has exceeded $2.6 billion, according to Early Read’s analysis.

. . .

A cottage industry of doctors and nurses make house calls to treat wounds. Some skin substitute companies pitch themselves to wound care doctors by offering a cut of the rising bandage prices.

Dr. Caroline Fife, a wound care doctor from Texas who often writes about industry excesses, shared on her blog last year an email she received from an undisclosed skin substitute company. The company boasted that other doctors had developed “a healthy revenue stream” from its bandages and that a patch smaller than a credit card “would generate a little over $20,000 for your practice.”

Some companies offer doctors a “bulk discount” of up to 45 percent, according to doctor interviews and contracts reviewed by The Times. But doctors then collect a Medicare reimbursement for the full price of the product.

For the full story, see:

Sarah Kliff and Katie Thomas. “‘Skin’ Bandages Cost Medicare, And Doctors Get a Cut of Billions.” The New York Times, First Section. (Sun., April 13, 2025): 1 & 19.

(Note: ellipses added.)

(Note: the online version was updated April 14, 2025, and has the title “Medicare Bleeds Billions on Pricey Bandages, and Doctors Get a Cut.”)

The article by William Baumol praised in my initial comments is:

Baumol, William J. “Entrepreneurship: Productive, Unproductive, and Destructive.” The Journal of Political Economy 98, no. 5, Part 1 (Oct. 1990): 893-921.

The article by Susan Feigenbaum praised in my initial comments is:

Feigenbaum, Susan. “Body Shop’ Economics: What’s Good for Our Cars May Be Good for Our Health.” Regulation 15, no. 4 (Fall 1992): 25-31.

Private Sector Succeeds Where Public Sector Fails at Operating a Successful Passenger Train

The New York Times recently ran a surprising (for them) article highlighting the success of the privately owned Brightline passenger railroad on the east coast of Florida. The Times contrasts the private success of Brightline with the public failures of Amtrak and California’s mostly undone proposed bullet train. Amtrak ran an operating deficit of over $700 million in 2024. The long-planned, barely-begun, pared-back California bullet train is now estimated to require over $100 billion to reach completion.

Maybe Brightline succeeds because the private sector allows entrepreneurs to use what Deirdre McCloskey calls trade-tested innovation to pursue their projects.

The private sector allows innovative dynamism.

The New York Times article is:

Michael Kimmelman. “What’s So Hard About Building High-Speed Trains?” The New York Times (Sat., April 19, 2025): B4-B5.

(Note: the online version of the article was updated April 18, 2025, and has the title “What’s So Hard About Building Trains?”)

McCloskey discusses trade-tested innovation in:

McCloskey, Deirdre N. Bourgeois Equality: How Ideas, Not Capital, Transformed the World. Chicago: University of Chicago Press: Chicago, 2016.

I discuss innovative dynamism in:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

Feds Set Up Medicare “Advantage” So Insurance Firms Earn Higher Profit When They Deny Prior Authorization of Medically Beneficial Services

Medicare “Advantage” insurers earn higher profits when they refuse to pay for medical services, whether the services benefit patient health or not.
This is what is known as a perverse incentive. The firms often respond to such an incentive, especially when the services are expensive.

The federal designers of Medicare “Advantage” plans thought the plans would both save taxpayers money and provide more services to patients. Instead they have done the opposite. To taxpayers and patients, such a plan is a disadvantage. Only to insurance firms is such a plan an advantage, handed to them members of congress, some of whom receive benefits from lobbyists and some of whom are well-intentioned, but ignorant of the plans’ perverse incentives and unanticipated consequences.

[In the first paragraph below it is perhaps misleading to say that the federal funds per patient are “fixed.” It is true that they do not vary based on actual medical services the patient receives (as is the case with traditional Medicare). So in that sense they are “fixed.” But they do vary based on the diagnostic codes assigned to each patient. So in that sense they are not “fixed.” Congress set the plans up so that insurance firms can make more profits either by assigning more diagnostic codes to patients, or by providing patients with fewer services.]

(p. D3) Medicare Advantage plans are capitated, meaning they receive a fixed amount of public dollars per patient each month and can keep more of those dollars if prior authorization reduces expensive services. “Plans are making financial decisions rather than medical decisions,” Mr. Lipschutz said. (Medicare Advantage has never saved money for the Medicare program.)

Such criticisms have circulated for years, bolstered by two reports from the Office of Inspector General in the Department of Health and Human Services. In 2018, a report found “widespread and persistent” problems related to denials of prior authorization and payments to providers. It noted that Advantage plans overturned 75 percent of those denials when patients or providers appealed.

In 2022, a second inspector general’s report revealed that 13 percent of denied prior authorization requests met Medicare coverage rules and probably would have been approved by traditional Medicare.

By that point, a KFF analysis found, the proportion of prior authorization denials overturned on appeal had reached 82 percent, raising the possibility that many “should not have been denied in the first place,” Dr. Biniek said.

. . .

Responding to the inspector general reports, and to a rising tide of complaints, the federal Centers for Medicare and Medicaid Services has established two new rules to protect consumers and streamline prior authorization.

. . .

“Medicare Advantage makes us jump through so many hoops,” said Dr. Sandeep Singh, chief medical officer of the Good Shepherd Rehabilitation Network in Allentown, Pa. “It’s created such stress in the health care system.” A few years ago, his organization had one “insurance verification specialist” whose job was to handle prior authorization requests and appeals; now, it employs three.

. . .

Will Medicare’s new rules make a difference? So far at Good Shepherd, “we continue to see the same level of resistance” from Advantage plans, Dr. Singh said.

Mr. Lipschutz, of the Center for Medicare Advocacy, said, “It’s clear the intention is there, but the jury’s still out on whether this is working.”

“It comes down to enforcement,” he said.

For the full commentary, see:

Paula Span. “Some Insurers Erect Roadblocks.” The New York Times (Tuesday, May 28, 2024): D3.

(Note: ellipses added.)

(Note: the online version of the commentary has the date May 25, 2024, and has the title “When ‘Prior Authorization’ Becomes a Medical Roadblock.”)

The 2018 report mentioned above is:

Levinson, Daniel R. “Medicare Advantage Appeal Outcomes and Audit Findings Raise Concerns About Service and Payment Denials.” Office of Inspector General, 2018.

The 2022 report mentioned above is:

Grimm, Christi A. “Some Medicare Advantage Organization Denials of Prior Authorization Requests Raise Concerns About Beneficiary Access to Medically Necessary Care.” Office of Inspector General, 2022.

Disintermediate Healthcare

Many of the problems of our broken healthcare system could be fixed if insurers and healthcare providers were competing directly and transparently for the dollars of patients. But their are middlemen between patients and providers–mostly employers and governments. The goals and knowledge of the payers overlap, but are not the same. The payers may prioritize lowering their costs and may not care as much, or even know, the full costs to the patients.

The patients have a much better knowledge of the value of the healthcare or insurance that they are receiving, but they are very constrained in their ability to switch to insurers or healthcare providers who provide better services, or do so more efficiently. For many workers healthcare and health insurance are bundled with their work. They can leave their work, but other components of the bundle matter.

And nothing is transparent.

The fancy word for cutting out the middleman is “disintermediation.”

(p. 1) Weeks after undergoing heart surgery, Gail Lawson found herself back in an operating room. Her incision wasn’t healing, and an infection was spreading.

At a hospital in Ridgewood, N.J., Dr. Sidney Rabinowitz performed a complex, hourslong procedure to repair tissue and close the wound.

. . .

But the doctor was not in her insurance plan’s network of providers, leaving his bill open to negotiation by her insurer. Once back on her feet, Ms. Lawson received a letter from the insurer, UnitedHealthcare, advising that Dr. Rabinowitz would be paid $5,449.27 — a small fraction of what he had billed the insurance company. That left Ms. Lawson with a bill of more than $100,000.

“I’m thinking to myself, ‘But this is why I had insurance,’” said Ms. Lawson, who is fighting UnitedHealthcare over the balance. “They take out, what, $300 or $400 a month? Well, why aren’t you people paying these bills?”

The answer is a little-known data analytics firm called MultiPlan. It works with UnitedHealthcare, Cigna, Aetna and other big insurers to decide how much so-called out-of-network medical providers should be paid. It promises to help contain medical costs using fair and independent analysis.

But a New York Times investigation, based on interviews and confidential documents, shows that MultiPlan and the insurance companies have a large and mostly hidden financial incentive to cut those reimbursements as much as possible, even if it means saddling patients with large bills. The formula for MultiPlan and the insurance companies is simple: The smaller the reimbursement, the larger their fee.

Here’s how it works: The most common way Americans get health coverage is through employers that “self-fund,” meaning they pay for their workers’ medical care with their own money. The employers contract with insurance companies to administer the plans and process claims. Most medical visits are with providers in a plan’s network, with rates set in advance.

But when employees see a provider outside the network, as Ms. Lawson did, many insurance companies consult with MultiPlan, which typically recommends that the employer pay less than the provider billed. The difference between the bill and the sum actually paid amounts to a savings for the employer. But, The Times found, it means big money for MultiPlan and the insurer, since both companies often charge the employer a percentage of the savings as a processing fee.

In recent years, the nation’s largest insurer by revenue, UnitedHealthcare, has reaped an annual windfall of about $1 billion in fees from out-of-network savings programs, including its work with MultiPlan, according to testimony by two of its executives.

. . .

(p. 18) In some instances, the fees paid to an insurance company and MultiPlan for processing a claim far exceeded the amount paid to providers who treated the patient. Court records show, for example, that Cigna took in nearly $4.47 million from employers for processing claims from eight addiction treatment centers in California, while the centers received $2.56 million. MultiPlan pocketed $1.22 million.

. . .

In examining MultiPlan’s dominant role in this secretive world, The Times reviewed more than 50,000 pages of confidential corporate records, legal filings, claims information and other documents. The Times also interviewed more than 100 patients, doctors, billing specialists, advisers to employer health plans and former MultiPlan employees.

. . .

Mary Reinbold Jerome had been diagnosed with ovarian cancer at age 62 and received treatment at Memorial Sloan Kettering. Because the hospital was outside her plan’s network, she was billed tens of thousands of dollars.

. . .

She stood beside Andrew M. Cuomo, then the attorney general, as he announced his office’s blistering conclusions: A payment system riddled with conflicts of interest had been shortchanging patients, and at its core was a data company called Ingenix. Insurers used the company, a UnitedHealth subsidiary, to unfairly lower their payments and shift costs to patients, the probe found.

. . .

But amid the triumph, a key detail in the attorney general’s agreements with insurers largely escaped notice: The companies were required to use the nonprofit database for only five years.

When that term expired in 2014, MultiPlan was well positioned to capitalize.

For decades, the company, founded in 1980, offered a traditional approach to managing out-of-network claims by negotiating rates with doctors. Insurers got discounts and assurances that patients would not have to make up the difference.

But after MultiPlan’s founder sold it to private equity investors in 2006, the company pursued a more aggressive approach. It embraced pricing tools that used algorithms to recommend lower payments, and no longer protected patients from having to pay the difference, documents show.

Meanwhile, private equity ramped up investments in physician groups and hospitals and, in some instances, began billing for extraordinary sums. Once insurers were no longer obligated to use the nonprofit database, FAIR Health, they began looking for ways to combat that billing and other charges they considered egregious.

. . .

Internal documents show that UnitedHealthcare began a campaign to persuade employers to switch from FAIR Health. In a 2019 email, a UnitedHealthcare senior vice president emphasized creating a “sense of urgency” and helping companies still using FAIR Health “understand they don’t want to be on that program anymore.”

UnitedHealthcare had a big incentive to encourage this change. When it processed claims from employer plans using FAIR Health, the insurer collected no additional fee, according to legal testimony. But when it used MultiPlan, documents show, it typically charged employers 30 to 35 percent of the difference between the billed amount and the portion paid.

MultiPlan, too, charged a percentage of the savings, meaning it could make more by recommending lower payments. (FAIR Health charged a flat fee.)

. . .

(p. 19) Some providers said they had begun requiring payment upfront or stopped accepting patients with certain insurance plans because appealing for higher payments can be time-consuming, infuriating and futile. Others have tried to sue insurers or MultiPlan. Dr. Rabinowitz, who repaired Ms. Lawson’s incision, hopes to collect the remaining balance from UnitedHealthcare in an ongoing case.

Surprise bills for some types of care are no longer an issue, insurers said, thanks to the law that went into effect in 2022. Brittany Perritt didn’t realize the anesthesiologists at her 3-year-old’s brain tumor treatments in 2020 were out-of-network until the claims went to MultiPlan. If that care occurred today, she likely would be spared the calls from debt collectors, because she didn’t go out of network by choice.

But MultiPlan assured investors shortly before the law’s passage that it was likely to have “limited impact” on the company. In fact, MultiPlan said, 90 percent of its revenue involved out-of-network claims that wouldn’t be affected.

. . .

Even when patients figured out where to direct complaints — the Employee Benefits Security Administration — they described the process as draining and mostly fruitless.

. . .

Insurers can set negotiation parameters for MultiPlan, including not negotiating at all, records and interviews show. Multiple providers and billing specialists said that in recent years they had increasingly been told their claims weren’t eligible for negotiation.

“It wasn’t this bad before,” said Tiffany Letosky, who oversees a small practice specializing in surgeries for endometriosis and gynecologic cancers.

Former MultiPlan negotiators said their bonuses had been linked to their success at reducing payments, incentivizing a hard-line approach.

Ms. Young, the former negotiator critical of the process, said she had occasionally called a provider from a cellphone — knowing that her work line was recorded — and advised against accepting her own offer.

Another former negotiator said the pressure to get bigger discounts had made her physically ill. “It was just a game,” she said. “It’s sad.”

For the full story see:

Chris Hamby. “Patients Hit With Big Bills While Insurers Reap Fees.” The New York Times, First Section (Sunday, April 7, 2024): 1 & 18-19.

(Note: the online version of the story was updated April 9, 2024, and has the title “Insurers Reap Hidden Fees by Slashing Payments. You May Get the Bill.”)

S.B.A. “Forgives” Most Covid “Loans” Even Though at Least 17% Were Issued to Fraudsters

We used to handle suffering during crises by mutual aid societies or by giving philanthropy to those we know best–our friends and neighbors. The potential fraudster is less likely to defraud their brother or neighbor, than some unknown taxpayer in a distant state. And the local philanthropist is more likely to be able to judge which relative or neighbor will benefit from aid. Giving billions to fraudsters fueled the future inflation that ordinary decent citizens would latter struggle with.

If the federal government wanted to reduce the pain from the pandemic, the best way would have been to reduce the number, and shorten the length, of mandates. Handing so much money to fraudsters, with so little due diligence, is outrageous.

[Admission: I was the victim of identity theft when the S.B.A. gave a fraudster, using my name, tens of thousands of dollars for a potato farm supposedly run by me. Then the S.B.A. had the audacity to start sending me threatening letters about my alleged failure to pay back the loans they had given to the fraudster.]

(p. A1) When J. Bryan Quesenberry first learned that the federal government was sending out hundreds of billions of dollars to help businesses survive during the Covid-19 pandemic, he thought: “There’s going to be fraud here. There just has to be.”

A few months later, Mr. Quesenberry started sifting through a list of businesses that received Paycheck Protection Program loans, which were intended to help small businesses ravaged by the pandemic continue paying their employees. The Oregon lawyer said he knew businesses were not allowed to receive more than one loan during a single round, so he searched for “double dippers.”

He soon found dozens of businesses across the country that appeared to improperly obtain P.P.P. loans. During the summer of 2020, Mr. Quesenberry started suing those firms to try to help the government recover funds.

“It just blows my mind,” Mr. Quesenberry said. “That’s tax money that comes out of your pocket and that comes out of my pocket.”

As federal officials try to retrieve billions in stolen pandemic relief funds, private citizens are scouring public data, company websites and social media pages to help identify potential cases. Those who have filed suits say they are motivated by the desire to root out wrongdoers and expose corporate fraud.

But there is also a strong financial incentive. Under the False Claims Act, private citizens can file lawsuits on behalf of the federal government against those who may have defrauded the United States. If the government recovers funds, those citizens can typically earn between 15 and 30 percent of that amount.

. . .

(p. A15) The armchair sleuthing highlights how widespread pandemic fraud was and how federal investigators have struggled to keep up with it. In its haste to stave off an economic crisis and provide immediate aid to Americans, Washington distributed billions of dollars with few strings and little oversight. The Small Business Administration’s inspector general has estimated that more than $200 billion — or at least 17 percent of the pandemic loans the agency distributed — was awarded to “potentially fraudulent actors.” The majority of P.P.P. loans have been forgiven by the federal government.

While federal investigators have gone after some of the biggest perpetrators of fraud, limited resources have hindered their ability to go after the estimated thousands of people who improperly took government money.

. . .

Some private citizens said that it often took hours to investigate leads, and that they were unearthing cases that might otherwise slip through the cracks. Although Mr. Quesenberry said he relied primarily on information available on the internet to build cases, he said it was a time-intensive process that often required combing through government websites, Yelp pages, news articles and LinkedIn profiles. He said he thought he added value because he was pulling together evidence to “paint the picture of fraud.”

Mr. Quesenberry has earned more than $400,000 from 10 cases that have helped the federal government recover more than $3 million, according to a review of documents from U.S. attorney’s offices. Mr. Quesenberry said he had been investigating pandemic fraud for about four and a half years and was now working on his cases full time.

. . .

Hadar Susskind, the president and chief executive of Americans for Peace Now, said officials thought they had qualified for the loan because they did not consider the nonprofit to be a political organization. He said they had settled because it could have been costlier to go to court.

Mr. Susskind said he had never met Mr. Abrams, but he believed the complaint was “very much ideologically motivated” because of the nonprofit’s work to promote Israeli-Palestinian peace.

In an email, Mr. Abrams said: “In America these anti-Israel organizations have the right to spin, distort or even outright lie about Israel. However, they do not have the right to subsidize their activities with government monies for which they were not eligible.”

Mr. Abrams said he had long done other activist work, including recently representing a Jewish high school student who was the victim of antisemitic bullying. He said that he did not charge fees in those matters, and that the “whistle-blower cases do generate significant revenue so things more or less balance out.”

For the full story see:

Madeleine Ngo. “Fraud Hunters Earn Windfalls Tied to Covid.” The New York Times (Monday, November 25, 2024): A1 & A15.

(Note: ellipses, and bracketed date, added.)

(Note: the online version of the story has the date Nov. 23, 2024, and has the title “They Investigated Pandemic Fraud, Then Earned Thousands.”)

Healthcare Innovations Can Be Effective AND Cheap

Many are resigned to accept our current mess of a healthcare system because they fear that if the system was changed into a fully free market system they would not be able to afford anything approaching their current level of healthcare. But they do not understand what would change. If patients paid for their own healthcare there would be competition to provide cheaper healthcare services to the many. Henry Ford got rich finding ways to make cars better and cheaper. Bill Gates got rich mainly by making adequate operating systems cheaper.

If we made healthcare a free market, then healthcare would find its Henry Ford and Bill Gates. If patients directly paid for healthcare, then healtcare services would be more consumer oriented–for instance the value of patients’ time would be respected. Medical entrepreneurs would compete to bring us more cures and cheaper cures.

The problem is not that we are “fixated on profits” as is suggested in the last paragraph quoted below. The problem is that our non-market healthcare system creates perverse incentives and perverse regulatory constraints, so that simple frugal innovations are not rewarded.

[Below I first quote a few passages from The New York Times obituary of Cash, and then from The Wall Street Journal obituary of Cash.]

(p. A21) Richard A. Cash, who as a young public-health researcher in South Asia in the late 1960s showed that a simple cocktail of salt, sugar and clean water could check the ravages of cholera and other diarrhea-inducing diseases, an innovation that has saved an estimated 50 million lives, died on Oct. 22 at his home in Cambridge, Mass. He was 83.

. . .

Dr. Cash, the son of a doctor, arrived in East Pakistan, today Bangladesh, in 1967 as part of a project through the U.S. Public Health Service. There he worked with another young American doctor, David Nalin, to respond to a cholera outbreak outside the capital, Dhaka.

The two had already been researching a simple oral rehydration therapy and knew of other, previous efforts, all of which had failed. But they believed that the therapy held promise, especially in the face of mounting deaths.

They realized that a main problem was volume: Past efforts had resulted in too little or too much hydration. Dr. Cash and Dr. Nalin conceived a trial in which they carefully measured the amount of liquid lost and replaced it with the same amount, mixed with salt and sugar to facilitate absorption.

They divided 29 patients into three groups, with one group receiving an IV drip, another an oral treatment through a tube, and the third an oral treatment by drinking from a cup.

Other doctors and nurses found their experiment bizarre and tried to stop them. But Dr. Cash and Dr. Nalin persisted, splitting the work between them in two 12-hour shifts, to ensure the integrity of the trial.

The results were definitive: Only three of the tubed patients — and only two who drank the solution — needed additional IV treatment.

. . .

“We’re enamored by high technology,” he said at the Council on Foreign Relations. “And we’re not in love with low-tech. Low-tech is always seen in our eyes as second-class. Why would you do this, when you could do that? And I would argue just the opposite.”

For the full obituary from The New York Times that is quoted above, see:

Clay Risen. “Richard A. Cash, 83, Who Saved Millions From Dehydration, Dies.” The New York Times (Monday, November 4, 2024): A21.

(Note: ellipses added.)

(Note: the online version of the obituary has the date Nov. 2, 2024, and has the title “Richard A. Cash, Who Saved Millions From Dehydration, Dies at 83.”)

(p. C6) Half a liter of water, plus a pinch of salt and a fistful of sugar. As scientific insights go, it can’t compare to the intricate equations developed to split the atom or map the planets’ paths. But its simplicity was crucial to its monumental impact.

That simple solution—the cornerstone of Oral Rehydration Therapy, or ORT—has proved extraordinary in staving off and reversing the devastating consequences of dehydration caused by cholera and other diarrheal diseases, saving tens of millions of lives since its development nearly six decades ago. In 1978, an editorial in the Lancet called ORT “potentially the most important medical advance of the century.”

. . .

Cash saw this ethos of simplicity and accessibility as instructive for a western medical system that’s infatuated with high-tech solutions, dismissive of low-tech ones and fixated on profits—and where, consequently, an overnight stay in the hospital for dehydration can result in a four-figure bill. “A solution that can’t be applied,” he told Harvard Magazine, “is really no solution at all.”

For the full obituary from The Wall Street Journal that is quoted immediately above, see:

Jon Mooallem. “A Doctor Whose Simple Treatment Prevented Millions Of Cholera Deaths.” The Wall Street Journal (Saturday, Nov. 9, 2024): C6.

(Note: ellipsis added.)

(Note: the online version of the obituary has the date November 7, 2024, and has the title “Richard Cash, Whose Rehydration Therapy Saved Millions of Lives, Dies at 83.”)

Some Heavily Subsidized Hospitals File Liens Against Poor Patients, Rather Than Bill Medicaid

Laws that were once well-intentioned but are now outdated often remain on the books. The laws that allow hospitals to take out liens on the property of poor patients are an example. Some policy experts have proposed that each law or regulation should have a “sunset clause” that gives a date on which they expire unless they are passed again. Another solution to the lien practice would be if all hospitals were managed on the basis of ethical side-constraints. They would then not take advantage of the perverse incentives that the lien laws create.

Even without ethical side-constraints, exploiting the outdated lien laws would be harder if greater competition between hospitals created greater transparency about shady practices–the reputation of unethical hospitals would suffer, and they would lose patients.

(p. A1) When Monica Smith was badly hurt in a car accident, she assumed Medicaid would cover the medical bills. Ms. Smith, 45, made sure to show her insurance card after an ambulance took her to Parkview Regional Medical Center in Fort Wayne, Ind. She spent three days in the hospital and weeks in a neck brace.

But the hospital never sent her bills to Medicaid, which would have paid for the care in full, and the hospital refused requests to do so. Instead, it pursued an amount five times higher from Ms. Smith directly by placing a lien on her accident settlement.

Parkview is among scores of wealthy hospitals that have quietly used century-old hospital lien laws to increase revenue, often at the expense of low-income people like Ms. Smith. By using liens — a claim on an asset, such as a home or a settlement payment, to make sure someone repays a debt — hospitals can collect on money that otherwise would have gone to the patient to compensate for pain and suffering.

They can also ignore the steep discounts they are contractually required to offer to health insurers, and instead pursue their full charges.

The difference between the two prices can be staggering. In Ms. Smith’s case, the bills that Medicaid would have paid, $2,500, ballooned to $12,856 when the hospital pursued a lien.

“It’s astounding to think Medicaid patients would be charged the full-billed price,” said Christopher Whaley, a health economist at the (p. A19) RAND Corporation who studies hospital pricing. “It’s absolutely unbelievable.”

The practice of bypassing insurers to pursue full charges from accident victims’ settlements has become routine in major health systems across the country, court records and interviews show. It is most lucrative when used against low-income patients with Medicaid, which tends to pay lower reimbursement rates than private health plans.

. . .

Hospitals have come under scrutiny in recent years for increasingly turning to the courts to recover patients’ unpaid bills, even in the midst of the coronavirus pandemic. Hospitals, many of which received significant bailouts last year, have used these court rulings to garnish patients’ wages and take their homes.

But less attention has been paid to hospital lien laws, which many states passed in the early 20th century, when fewer than 10 percent of Americans had health coverage. The laws were meant to protect hospitals from the burden of caring for uninsured patients, and to give them an incentive to treat those who could not pay upfront.

. . .

When states have permissive hospital lien laws, some hospitals take advantage in ways that hurt patients. These hospitals tend to be wealthier, The New York Times found, and many of those that received hundreds of millions of dollars in federal bailout funding during the pandemic are among the most aggressive in pursuing payment through hospital liens.

Community Health Systems, which owns 86 hospitals across the country, received about a quarter-billion in federal funds during the pandemic, according to data compiled by Good Jobs First, which researches government subsidies of companies.

One of its hospitals in Tennessee refused to bill Medicare or the veterans health insurance of Jeremy Greenbaum after a car crash aggravated an old combat wound to his ankle. Instead, the hospital filed liens in 2019 for the full price of his care, records show.

For the full commentary, see:

Sarah Kliff and Jessica Silver-Greenberg. “The Upshot; Waiting for Insurance Payout? A Hospital May Collect It First.” The New York Times (Tuesday, February 2, 2021 [sic]): A1 & A19.

(Note: ellipses added.)

(Note: the online version of the commentary was updated Feb. 12, 2021 [sic], and has the title “The Upshot; How Rich Hospitals Profit From Patients in Car Crashes.”)

Warren Buffett Said Obamacare Is “Two Thousand Pages of Nonsense”

Our health system is a mess. The latest major effort to “fix” it was Obamacare (the so-called “Affordable Health Act”)–two thousand pages cobbled together by lobbyists, deep state staffers, and legislative log-rolling that resulted in high costs, opaque rules, perverse incentives, and unintended consequences.

(p. A15) Medicare doles out reimbursements for services that may or may not be real, helpful to the recipient, or reasonably priced. It’s very hard to know. Congress doesn’t want doctors and hospitals back home closely policed. Result: Medicare controls spending, perversely, with blanket low reimbursement rates for necessary and unnecessary services alike.

. . .

. . . government programs are born in chaos—with congressional horse trading and payoffs to appease interest groups. That’s why government programs make so little organizational sense. Remember when we had to pass Obamacare to find out what was in it? (“Two thousand pages of nonsense,” said Warren Buffett at the time. “The problem is incentives.”)

For the full commentary see:

Holman W. Jenkins, Jr. “Business World; Elon Musk’s Useful Experiment.” The Wall Street Journal (Wednesday, Feb. 12, 2025): A15.

(Note: ellipses added.)

(Note: the online version of the commentary has the date February 11, 2025, and has the title “Business World; DOGE Is Elon Musk’s Useful Experiment.” In both the online and print versions, the phrase “born in chaos” appears in italics for emphasis.)

Feds Set Up Perverse Incentives in Healthcare; Health Insurance Companies Do Not Rise Above the Incentives

Vertical integration is admirable when it results in efficiencies of production that in the end benefit the consumer. But the federal government has set up an opaque healthcare system with unintended perverse incentives for health insurance firms to vertically integrate–where the firms own pharmacies, pharmacy benefit managers (P.B.M.s), hospitals, and doctors practices. Reimbursement rates for drugs are set by P.B.M.s. So the insurance company’s in-house P.B.M. reimburses its in-house pharmacy generously, but reimburses outside independent pharmacies stingily–often so stingily that the outside independent pharmacies go bankrupt, increasing the customer flow to the insurance company’s in-house pharmacy. Consumers do not benefit.

I mainly blame the government. But I do not praise the insurance firms. Libertarian philosopher Robert Nozick in Anarchy, State, and Utopia argued that profit maximization was ethical and served the common good, as long as it was done subject to ethical side-constraints. The three big health insurance firms, and especially United Health, have NOT set a conspicuous example of following Nozick’s advice.

What a pitiful, frustrating, inefficient, unfair mess.

(p. D3) The small-town drugstore closed for the last time on a clear and chilly afternoon in February. Jon Jacobs, who owned Yough Valley Pharmacy, hugged his employees goodbye. He cleared the shelves and packed pill bottles into plastic bins.

Mr. Jacobs, a 70-year-old pharmacist, had spent more than half his life building his drugstore into a bedrock of Confluence, Pa., a rural community of roughly 1,000 people. Now the town was losing its only health care provider.

Obscure but powerful health care middlemen — companies known as pharmacy benefit managers, or P.B.M.s — had destroyed his business.

This has been happening all over the country, a New York Times investigation found. P.B.M.s, which employers and government programs hire to oversee prescription drug benefits, have been systematically underpaying small pharmacies, helping to drive hundreds out of business.

The pattern is benefiting the largest P.B.M.s, whose parent companies run their own competing pharmacies. When local drugstores fold, the benefit managers often scoop up their customers, according to dozens of patients and pharmacists.

The benefit managers’ power comes from two main sources. First, the three biggest players — CVS Caremark, Express Scripts and Optum Rx — collectively process roughly 80 percent of prescriptions in the United States. Second, they determine how much drugstores are reimbursed for medications that they provide to patients.

Pharmacies buy those drugs from wholesalers, in the hope that P.B.M.s will reimburse them at a profit when the medications are provided to patients. But the largest benefit managers have strong incentives to set those rates as low as possible. A key reason: They make money in part by charging employers more for certain drugs than what the P.B.M.s pay pharmacies for them.

P.B.M.s frequently pay the pharmacies at rates that do not cover the costs of the drugs, according to more than 100 pharmacists around the country and dozens of examples of insurance paperwork and legal documents.

To take just one example: For a month’s supply of the blood thinner Eliquis, several pharmacists in different states said, the big three P.B.M.s routinely paid them as much as $100 less than what it cost the pharmacies to buy the medication from a wholesaler.

By contrast, the P.B.M.s sometimes pay their own pharmacies more than what they pay local drugstores for the same medications.

Independent pharmacies are powerless to fight back. As the unprofitable transactions pile up, some are unable to stay afloat.

. . .

(p. 26) The evidence that P.B.M.s pay their own pharmacies more than independent drugstores for the same medications is not just anecdotal. One study, paid for by a pharmacy association, found that the markup that P.B.M.s were charging on brand-name drugs was 35 times higher when the drugs were sold through their own mail-order pharmacies than when the drugs were sold by independent drugstores.

Government studies have identified a similar phenomenon.

Those extra costs are borne by taxpayers or employers and can be passed on to patients in the form of higher premiums — at odds with the benefit managers’ mandate of lowering drug costs.

. . .

(p. 27) In Mississippi, . . ., the state board that regulates pharmacies said this month that Optum Rx paid independent pharmacies less than it paid itself to dispense generic drugs. On a single day in 2022, Optum Rx paid itself 22 times what it paid six independent drugstores to fill generic Prilosec, a heartburn medication. Optum Rx declined to comment on the audit.

For the full story see:

Reed Abelson and Rebecca Robbins. “Powerful Firms Driving Out Local Pharmacies.” The New York Times, First Section (Sunday, October 20, 2024): 1 & 26-27.

(Note: ellipses, and bracketed date, added.)

(Note: the online version of the story has the date Oct. 19, 2024, and has the title “The Powerful Companies Driving Local Drugstores Out of Business.” Where the wording of the two versions differs (sometimes considerably), the quotes above follow the online version.)

The academic article co-authored by Evans is:

Wu, Lingfei, Dashun Wang, and James A. Evans. “Large Teams Develop and Small Teams Disrupt Science and Technology.” Nature 566, no. 7744 (Feb. 2019): 378-82.