Medicare/Medicaid Programs

The creation of this Oligopoly falls at the feet of the federal government. In its production of the Medicare/Medicaid Programs, it created a uniform billing system; then, by its effort to control medical costs by creating Health Maintenance Organizations (HMOs), that helped eliminate competition. The leading causes of the Oligopoly is the failure of the law enforcement agencies, the Department of Justice’s (DOJ) Antitrust group, failing to enforce the consumer protection laws; but Still greater, the failure of the Internal Revenue Service (IRS) due to its lack of knowledge of contract law and not enforcing Generally Accepted Accounting Principles (GAAP) for accrual taxpayers and the collection of taxes mandated by the tax code. Under the accrual method of accounting, revenues and deductions are recognized by financial instruments like bills and checks, not by cash flow.

The Medicaid program created a pool of federal money, divided into twelve regions, with each region getting a weighted amount, with each region annually proportion determined by the increase in charges for medical services. To increase a region's share of the pool of money, it motivated a competition for increasing charges or matching the increases in other regions. Through this writer's efforts, this competition was eliminated.  

The government programs designed a breach of accepted accounting principles for the first time in our history from the accepted accrual accounting methodology, in that the amount listed on the beneficiary's bill was not the actual debt owed to the provider, this is unlike the amounts listed on the private-pay patients' bills. The government programs created two accrual accounting systems. The new invoice was and still is a fake invoice that only contains medical and billing information, but does not create a debt or legal liability owed to the provider.

In 1973 Congress passed the HMO law, allowing insurance companies to create provider networks, to select and direct their insured members to the lower charging providers in a geographic area. The idea was that the providers would compete with each other by lowering their charges to get access to the insurance companies' members. The law was and is a restraint of trade. HMOs did not take off until the late 1980s, but for a different reason; the insurance companies began choosing higher charging providers rather than lower charging providers but demanding that the provider accept a smaller payment amount than the standard charges listed. The difference not paid was nick-named a "secret discount"; the insurance companies and providers called the "secret discounts" trade secrets, removing medical billing transparency. The "secret discounts" went from zero percent in 1983 to eighty-five percent today.

In 1983, to control the spiraling beneficiary costs, Medicare went from the proportionate reimbursement of the expenses to the Prospective Payment System, the government grouped related procedures based on diagnostics, and set a fixed reimbursement amount for each group (DRGs). The idea was that a provider could make a more significant profit by lowering its costs. The idea was that they would get higher returns by reducing their costs. It sounds like a great idea, but there was a flaw built in the reimbursement methodology. The new law required an annual increase in the reimbursement rates; the new amounts would be determined based on a bread basket full of indexes, with each index having different weights. The heaviest weighted indexes are under the control of the industry; they are the medical charges, the physicians' pay, and the Consumer Price Increase (CPI); the CPI included the fees listed on the patients' bills. Since 1983 medical charges index has always been higher than the CPI, bringing the CPI higher. So, by increasing medical charges and physicians' pay, the government pays out more money, and each year the pot of gold in the federal budget gets more significant, and so does our taxes. From this point in time, health care revenues begin to climb; the major contributing factor is an increase in medical charges.

The largest financial group of medical patients is the privately insured patients, at seventy percent. The insurance companies pass through the increasing charges by increasing their premiums to their customers, the nation's employers. But they were not willing to pay the higher fees for the medical providers to get more money from the government. Fraudulent accounting fixes the problem of increasing charges and maintaining the same costs. In 1983 the healthcare industry introduced the "secret discount," which is not a discount but a kickback paid to the insurance company in the form of a cancellation of debt. A legal discount is placed on the bill at the time of issuance and deducted from the gross amount given you a new net amount.

The designers of the Prospective Payment System relied upon the enforcement of other laws. Under the Consumer Protection Law, also known as the Antitrust Law, the prices are the same for all private-pay patients. The Department of Justice (DOJ) is responsible for the enforcement of these laws, especially price discrimination, and price-fixing. It is easy to look at the providers' bills and decide all patients have the same amounts listed, especially since there are no discounts listed on any patient's bill. The DOJ failed to recognize is that different amounts collected are what determine price discrimination, not the charges listed on the patient's bill.  When the provider collects more from the un-insured patient than from the insured patient, the provider is violating the price discrimination laws, which makes them subject to criminal and civil lawsuits.

When it comes to billing the beneficiaries of the government programs, the bill does not create the legal obligation. Congress determines reimbursement amounts. The providers charge the government patients the same price as the private-pay patients but do not collect the full amount. The difference between the amount billed and the amount collected is a partial cancellation of debt. Canceled debt given to the government goes unreported to the Internal Revenue Service due to the fact the government does not pay itself taxes. In 1965, for financial reporting, to distinguish between the canceled debt given to the private insurance companies and given to the government, the Financial Accounting Standards Board (FASB) created the contract adjustment account for government canceled debt deductions. In 1983 the industry began using the account for both government and private business canceled debts.

In the healthcare industry, a kickback paid to someone for referring a patient is illegal; it has criminal and financial penalties for the giver and receiver. The tax code states that no deduction from gross income is allowed for kickbacks. The tax code does not recognize contract adjustments as a legitimate deduction. The tax code only has two legal reductions from gross income, bad debts and canceled debts.

It is easy to argue that even though the insurance companies overcharge for their services and the costs for the medical services are lowered by the canceled debt; their profits would increase and be taxed. For the kickbacks given to the insurance companies, the insurance companies reciprocate by steering their insured members to the providers. When an insured member goes to an out-of-network provider, the insurance company charges the patient a higher variable co-payment, a percentage based on the billed charges rather than a lower fixed amount required by the HMO law, for additional administrative purposes. This practice is economic duress, and its requirement is in the contract between the in-network providers and the insurance company; its sole purpose is for the insured members to boycott the out of network providers. This practice is a restraint of trade.

The proper implication of the anti-trust laws and some other tax laws for the effectiveness of the oligopoly system that the Government of USA properly enforced it. The anti-trust laws, consumer protection laws and the tax laws have protections for the citizens included in them. The secret contracts between the providers and the insurance companies violate these laws. The anti-trust laws make it illegal for any person or third-party payer, to solicit and receive a lower price for services that other patients have to pay. All private-pay patients have to pay the same prices. It is illegal for the insurance company to seek a lower price for medical services or for provider to give a lower price to an insurance company. The health care providers say they charge everyone the same price for comparable services and goods but collect different amounts.  The law is very clear under the anti-trust and consumer protection laws of the definition of price; it is the actual amount collected. The tax law is perfectly clear, under the accrual method of accounting, price is the net amount listed on the bill.

The provider may have somewhere between four and fifty insurance companies it forms contracts with. Each of these companies has many insurance products they sell, varying the amounts they pay for covering medical services. Each insurance company negotiates with the provider their own approved payment rate for the different services. The provider has no set discount rates for the insurance companies, all rates are negotiated. In the secret contracts the discount rates are not fixed the same for all services but are negotiated, therefore through careful auditing and calculations the insurance companies can get the best financial payout rates to match their insured member’s probable medical needs. The overall hospitals costs are shifted to different medical diagnostics. This is also cost shifting. It causes one group of patients to carry a heavier burden of costs.

In the contract between the provider and the insurance company there is included a clause that states the insurance company must charge a second co-payment if the insured member goes to an off-network provider. This is a penalty, it is financial duress, to make the insured members boycott the off-network providers. It is a restraint of trade. It is illegal. It is price fixing. The original intent of a co-payment was to encourage the patient to select the lowest cost medical provider, there was never any need for a second co-payment.

The original intent for the HMO law was for the insurance company to select the lowest charging medical provider. Today this system has completely broken down; the insurance company does not care what the medical provider charges, because they just pass the charges on through higher premiums, but selects the provider that gives it the greatest kickback. This is a restraint of trade.