Over the past month an article written by Robin Fields and originally printed in Pro Publica has attracted a great deal of attention and earned a reprint in The Atlantic. The article, about Medicare’s dialysis benefit, illustrates the problems at the heart of much of American health care.
In 1973, faced with the specter of the wealthy receiving life-saving dialysis while stingy insurance companies denied coverage to the poor, Congress passed a law amending the Social Security Act so that every patient in need of dialysis treatment would receive it. Nearly four decades later, this once-obscure program has ballooned, gobbling up nearly six percent of Medicare’s budget.
Today, Medicare spends $77,000 a year on each dialysis patient (most likely the highest rate in the world) and the US has the world’s highest fatality rate for dialysis patients. The story of how this came to pass illustrates a lot of the problems with US health care.
As Fields’ article makes clear, people respond to incentives. When the system compensates health care providers for each procedure performed – as the US health care system’s fee-for-service model generally does – you get a lot of treatment procedures done, at a high pricetag. Since its inception, Medicare’s dialysis program has paid treatment centers a flat fee for each patient treated without regard to the efficacy of treatment or health outcomes.
Thus, Medicare’s dialysis program produced a burgeoning number of clinics where people could receive treatment, but the treatment is, judged by worldwide health care standards, subpar. A higher percentage of Americans in dialysis treatment die than in any developed country. Fee-for-service means that treatment centers are just interested in completing and billing out procedures, even if their substandard treatment ultimately kills the patient who lays the golden egg.
A fee-for-service model also means that any outcome that does not get compensated falls by the wayside. Because treatment centers are paid for how many patients they treat and not for how healthy they keep the patients, it’s not uncommon for the the clinics to be dirty and infection-prone, their walls smeared with contaminated blood.
Because American health care professionals are mostly compensated on a fee-for-service basis (unlike in much of the rest of the world), American dialysis patients are more likely to suffer from complicating factors like diabetes and hypertension than patients elsewhere. The typical American doctor has no financial incentive for preventing his patients from developing Type II diabetes or hypertension, or for controlling those conditions. The typical American doctor is compensated only for seeing and treating those patients, so our dialysis patients are also less healthy than in the rest of the world.
Fee-for-service health care, as we have in the US, also dooms price controls to failure. As the price of dialysis machines fell, treatment centers were making money hand-over-fist as the treatment was less expensive to provide while the reimbursement rates remained high. Medicare realizing it could cute reimbursement rates, while still enabling operators to make a profit, did just that.
What happened? The use of certain expensive injectable drugs, such as Epogen – that are used to treat side effects – skyrocketed. Medicare was continuing to provide generous reimbursement rates for these injectable drugs so patients who did not need these drugs got them. Italy, which has the lowest dialysis mortality rate in the world, gives Epogen to half as many of its dialysis patients. Today, doses of Epogen are Medicare’s single highest pharmaceutical expenditure.
The US badly needs to move away from the fee-for-service model toward a model that provides incentives for high-quality, low cost care. The same Health Affairs study from a couple months ago that pegged the direct and indirect costs of medical malpractice lawsuits at two percent of our heath care spending, said that the cost of medical errors was dwarved by the costs added by fee-for-service.
The good news is that next year Medicare is rolling out a new reimbursement system. Treatment centers will no longer be able to bill separately for injectables. And we’ll see the debut of at least one outcome-based (rather than fee-based) metric: clinics could lose as much as two percent of their Medicare funding if they fail to meet certain minimal thresholds for anemia-management and dialysis-adequacy, as measured by patient blood tests.
It’s a modest start, but it’s a step in the right direction. And, in the meantime, let’s stop acting like American health care is going bankrupt compensating those who have been maimed and killed by medical errors.

This blog is maintained by the Boston medical malpractice lawyers at The Law Office of Alan H. Crede, P.C. The blog neither offers nor contains legal advice.