In-Office Testing By Doctors Lifts Medicare Costs — WSJ

Some of fastest-growing payments stem from physicians using new devices, latest data show

By Christopher Weaver and Coulter Jones 
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Robert Boyd, a doctor with a family practice in Woodbridge, N.J., began to test more patients in recent years for an unusual neurological condition.

He used a device to test whether people sweat in response to a low-voltage current, a way to diagnose nerve damage. In 2014, he collected $105,905 from Medicare for the procedures.

Testing for the condition rose nationwide in recent years after a device became available that allows doctors to perform tests in their offices — and to make more profit from Medicare for doing so. The federal program for seniors and disabled people paid out $16.7 million for the test in 2014, according to the latest data, a 10-fold increase from two years earlier.

Such increases are commonplace after the introduction of medical devices that allow doctors to provide services in their offices that they used to refer elsewhere. A Wall Street Journal analysis of recently released Medicare billing data showed that four of the top 10 fastest-growing Medicare services from 2012 to 2014 involved new devices.

Medicare’s tab for those four services rose by $123.5 million from 2012 to 2014, to $135 million, the data show. In each case, a small cadre of doctors adopted the services much faster than their peers. Less than 10% of doctors accounted for more than half the rise in spending for each service, the Journal found. The Journal studied only services performed throughout that period with at least $5 million in 2014 payments.

Those totals aren’t large in comparison to Medicare’s $600 billion annual budget, but spikes in any of the thousands of services the government pays are one big driver of runaway health costs. The agency paid doctors, labs and other medical providers for at least 11,448 services in 2014, billing data show.

Dr. Boyd, one of the doctors who receives the most Medicare payments for the sweat test, says the procedures are helpful for his patients. “A lot of times, you show a patient a report, you can see that there’s something there and that can motivate them,” he says.

Some neurologists who are experts on the nerve condition say there hasn’t been any major increase in incidence, and that it isn’t clear the new test is an improvement on older methods.

The way Medicare sets payments for new services can make doing the tests lucrative for doctors who invest in the machines. Medicare sets prices each year based on assumptions about the costs and time required to provide each of thousands of services. Sometimes new devices disrupt those assumptions or require regulators to make guesses.

Improvements in medical technology, such as the emergence of genetic testing in recent years, naturally lead to growth in those services as doctors employ better science. Financial incentives for medical providers can be as big a driver of adoption as scientific breakthroughs, according to former Medicare officials and experts who study the program.

“We don’t want to deny lifesaving technologies or even things that would make older people feel better,” says Rita Redberg, a cardiologist at the University of California, San Francisco and chairwoman of a Medicare advisory committee that examines new technology. “But, right now, the balance is leaning toward just paying for things.”

Medicare spokesman Aaron Albright says the agency closely monitors spending on each service so “we can correct [billing] codes that may be misvalued and identify possible improper payment without limiting patient access to important new therapies.”

A test to measure the saltiness of tears — known as tear osmolarity — was among the 10 fastest-growing services with high billings. In 2012, a company called TearLab Corp. introduced a device that allows eye doctors to perform that service in their offices and bill separately for it. The test is meant to help doctors diagnose whether patients’ eyes are too dry.

Overall, about 3,000 medical providers, mostly ophthalmologists and optometrists, received $14.8 million in 2014 payments for the tear test, up from $1.75 million in 2012, when the test was introduced and Medicare began covering its use.

The top biller for the test in 2014, Brooklyn, N.Y., ophthalmologist Stanley Bykov, received $130,795 for it from Medicare that year, billing data show. He tested 84% of his Medicare patients at least once in 2014, compared with a median of about 11% for medical providers that the billing data show did the test. Medicare suppresses data for providers who bill for a service for 10 or fewer patients, and most eye specialists didn’t do the test at all on Medicare patients.

In an interview at his Brighton Beach medical office, where an “Accredited Dry Eye Center” certificate from TearLab hangs on the wall, Dr. Bykov said dry-eye conditions have increased as more people wear contact lenses and spend longer hours staring at computers. He says the tests help him identify cases in which the patients aren’t yet complaining of symptoms. He said Medicare withheld some payments for the test.

Esen Akpek, an ophthalmology professor at Johns Hopkins, says she uses TearLab sometimes in her practice, for instance before eye surgery. “The data is still conflicting on how useful this test is” for broad use, she says. The company says it recommends testing most dry-eye patients about three times a year.

Nearly all of TearLab’s devices have been provided free of charge to clients who order testing supplies, which is how the company makes money, says TearLab Chief Executive Seph Jensen. He says such arrangements are common in the industry. Dr. Bykov says he has such an arrangement.

In some cases, Medicare eventually adjusts payment levels to doctors using new technologies.

Another of the fastest-growing services is a technology called electronic brachytherapy, or EBT. It uses X-ray energy in place of small amounts of radioactive material oncologists use to treat some cancers. Doctors can use the devices, made by companies including iCAD Inc.’s Xoft subsidiary, in their offices.

Medicare contractors initially set prices for the service back in 2007, based on the assumption radiation oncologists would use it mostly for breast-cancer treatment, a complicated procedure.

But dermatologists discovered the machines also could be used to treat some kinds of nonmelanoma skin cancer, a much easier service to perform, and one that could be done in-house.

In 2013, Medicare paid doctors around $11,700, on average, for a typical eight-visit course of EBT to treat a single skin tumor, compared with the average payment of about $600 to doctors performing a common surgery to remove it, according to a Journal analysis of a sampling of Medicare claims.

Medicare’s payments for EBT grew to $95 million in 2014, from $7.8 million in 2012, the billing data show. The sampling of claims records show about 95% of claims were for skin cancer.

At the Dermatology and Laser Surgery Center of San Diego, four skin doctors received $4.6 million from Medicare for EBT treatments in 2014, about 83% of their total payments from the federal program. In 2012, the doctors didn’t do the procedure at all. Mark Willoughby and Erick Mafong, the San Diego practice’s top two dermatologists billing Medicare for EBT in 2014, didn’t respond to requests for comment.

Evidence is growing that the technology is helpful for certain cancers, but some dermatologists say they aren’t yet sure EBT is as safe for skin cancer as surgery.

Doctors who offer EBT have to pay for the devices and cover the fees of oncologists they hire to operate them. Marketing materials sent by iCAD’s Xoft unit in 2014 and reviewed by the Journal say some doctors’ practices treating 12 cancers a month would retain an estimated 67% of those payments.

“I think the explosive growth we have seen is purely the effect of excellent marketing,” says David Beyer, a Sedona, Ariz.-based physician and president of the American Society for Radiation Oncology.

Ken Ferry, chief executive of iCad, says the company didn’t initially plan to market to dermatologists. He says its projections of doctors’ extra revenue don’t factor in various practice costs.

In 2014, Medicare contractors, who set Medicare prices for some services including EBT, began to notice the uptick in utilization and approached a panel that helps the agency assign billing codes. The panel assigned a new, separate code for skin cancers, and the Medicare contractors gave it lower prices.

Mr. Ferry says the company supported the shift in discussions with the panel.

The new prices range from about $3,000 to $4,000, he says, and are a “more practical, realistic reimbursement.”

Medicare’s spending on the sweat-scanning test Dr. Boyd performs rose after several companies introduced devices. The test can be one piece of an examination to detect so-called autonomic neuropathy, often in diabetic patients, doctors say. The autonomic nervous system controls involuntary functions such as breathing and sweating.

When nerves are damaged by diabetes or other conditions, it can lead to problems including pain, the loss of some of those involuntary functions and potentially fatal complications. If hands and feet don’t produce sweat normally, that can be a sign of such nerve damage.

Erica Hightower, a Houston doctor who specializes in treating diabetics, says she uses one of the devices, called Sudoscan, to monitor diabetics with signs of nerve damage. She says she sometimes sets more aggressive targets for their blood sugar if they show signs of sweating problems.

Some neurology experts say using the test that way might be helpful, although they caution that supporting evidence remains murky.

One neurologist, George Tavoulareas of Brooklyn, N.Y., billed for testing about 4,000 patients in 2014, around 72% of those he saw. He received about $1.3 million in Medicare payments that year, roughly eight times as much as the No. 2 biller for the service.

Dr. Tavoulareas said other doctors ordered the tests and he interpreted them for a diagnostics company. A lawyer for that company declined to comment.

Until Sudoscan and other devices reached the U.S. market beginning in 2012, neurologists mostly used a testing method that took about 45 minutes and involved applying sweat-inducing ointments in a lab and measuring sweat output.

By contrast, the new devices take from three to 10 minutes to run, according to companies’ marketing materials. The two testing techniques pay the same — an average of about $160 per test nationally in 2014 — because Medicare’s prices are based on the older method.

Brian Callaghan, a neurologist at the University of Michigan, says the test’s utility is so specialized that “not even general neurologists should be doing it” routinely. He says he received a research grant from Sudoscan’s maker, Impeto Medical SAS, to examine its effectiveness.

Impeto Chief Executive Philippe Brunswick says the value of the test has long been recognized, and its rising use is partly because an effective tool for rank-and-file doctors to perform it wasn’t available until recently. He contends some of Impeto’s competitors are encouraging improper use.

A 2014 financing statement shows Dr. Boyd bought a device sold by one of Impeto’s rivals. He says the tests are necessary for patients he treats at health fairs around New Jersey.

“We give [patients] the test results and encourage them to follow up with their own doctor,” he says.

Write to Christopher Weaver at christopher.weaver[a]wsj.com and Coulter Jones at Coulter.Jones[a]wsj.com

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