A new study reveals details on how U.S. hospitals exploited a loophole in the Medicare outlier payments program, reaping billions of dollars in excess revenue.
Haas School of BusinessAug 2 2024 A new study reveals details on how US hospitals exploited a loophole in the Medicare outlier payments program, reaping billions of dollars in excess revenue.
Medicare was warned about the loophole as early as 1988, and failing to close it had significant fiscal consequences 15 years later. The researchers also found that the consequences of the scandal reverberated through the health care system. "This scheme also drove up costs for other insurers because their hospital payment systems had similar loopholes," noted Sacarny.
Related StoriesIn contrast, the nonprofit hospitals allocated the excess Medicare funds to operating costs such as inpatient care, which the study found was associated with modest improvements in quality, including a reduction in patient mortality rates. The research also found that the financial impact extended beyond Medicare, with a similar increase in payments from other payers, which include private insurers. Hospitals increased their "chargemaster rates"-;a list of prices for services-;which are used in negotiations with private insurers. This strategy had long-term implications, as the study found persistent increases in hospital charges even after the loophole was closed in 2003.
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