The cost of health care is too high. Too many Americans don’t have insurance. Something must be done! It was a sincere desire to solve problems like these and “do something about it” that inspired politicians to pass the Affordable Care Act on March 23, 2010. Unfortunately, good intentions from government often don’t lead to good results. Out of the many lofty ideas contained in the landmark legislation, the concept of digitalizing records and billing to increase efficiency and reduce costs seemed like a no brainer. It seemed to make practical sense. Reduce paperwork and postage, just like online banking and paperless billing for utilities, and save money. But now this from September 21, 2012 edition of the New York Times:

“… in reality, the move to electronic health records may be contributing to billions of dollars in higher costs for Medicare, private insurers and patients by making it easier for hospitals and physicians to bill more for their services, whether or not they provide additional care.
Hospitals received $1 billion more in Medicare reimbursements in 2010 than they did five years earlier, at least in part by changing the billing codes they assign to patients in emergency rooms, according to a New York Times analysis of Medicare data from the American Hospital Directory. Regulators say physicians have changed the way they bill for office visits similarly, increasing their payments by billions of dollars as well.

So what is the explanation for this phenomenon? The same article suggests that new billing systems help doctors remember to bill for services they were forgetting to bill for before. That’s right according to the article, before electronic records doctors were under billing Medicare!

“Many hospitals and doctors say that the new systems allow them to better document the care they provide, justifying the higher payments they are receiving. Many doctors and hospitals were actually underbilling before they began keeping electronic records, said Dr. David J. Brailer, an early federal proponent of digitizing records and an official in the George W. Bush administration. But Dr. Brailer, who invests in health care companies, acknowledged that the use of electronic records “makes it faster and easier to be fraudulent.”

So if it weren’t for doctors under billing before and over billing now (fraud) this new federal policy would be great, right? Wrong. Even before the passage of the Affordable Care Act, the health care system in the United States was one of our most heavily government schemed and regulated industries. So while making records and billing electronic in an open marketplace may reduce costs. It won’t always work when slathered on top of an already inefficient and broken system. This has implications for healthcare reform in general. We have serious challenges that need to be solved. And while it may feel good to hear politicians say they have a solution, the truth is government central planning almost never works.