Medicare’s Problem Overpaying Hospitals

Medicare started releasing detailed data fairly recently, and some outsiders have been studying the data closely for anomalies, overcharging, and other problems. Leading the way has been The Wall Street Journal with a series of articles pointing to problems and inconsistencies. The latest study (subscription might be required) shows how Medicare might be overpaying some hospitals, especially for cases known as outliers.

Medicare’s problems with outlier payments underscore its challenge in avoiding waste in the fee-for-service system, under which providers have an incentive to provide more—and more-expensive—care. Officials overseeing the federal program for the elderly and disabled began trying to curb excessive outlier payments more than a decade ago.

“There’s still manipulation going on” in outlier payments, said Tom Scully, a former Medicare administrator under President George W. Bush who led a 2003 push to limit rising outlier payments when hospitals boost prices. Mr. Scully, now a lawyer and a private-equity investor, said efforts to curb excess payments are “like Whac-A-Mole.”