Farid Fata Case Shows the Dangers of Fee-for-Service Medicine

September 30, 2015

Nicolas Buffie

Various news outlets have been reporting on the case of Farid Fata, the former hematologist and oncologist who has been sentenced to 45 years in prison after being found guilty of Medicare fraud. In many ways, the term “Medicare fraud” understates the severity of Fata’s misconduct: over the course of six years, Fata reportedly over-treated a number of his patients in ways that were harmful to their health, all for the sake of personal gain. In total, 553 of Fata’s patients received $35 million in needless chemotherapy. Some of the patients had cancer and were terminally ill; in these cases, Fata prolonged their misery with unnecessary chemo. Many were forced into bankruptcy to pay for this treatment. In other instances, Fata lied to perfectly healthy, cancer-free patients, telling them that they had cancer and needed chemotherapy. The results for many of his patients were disturbing (from Newsweek):

Fata also bamboozled patients into receiving additional doses of the immunosuppressive drug rituximab even after they were successfully treated for their lymphoma — in some instances, for as long as three years. By the time Fata was arrested, their immune systems had been permanently devastated. Others were left with decaying jaws and never-ending bouts of intense pain by the bone cancer–fighting drug Zometa.

In other instances, the repercussions were even more severe (from Business Insider):

The FBI also alleges that after one patient fell and hit his head in Fata’s office, the doctor told him he should complete chemo before going to the hospital, according to the AP. The patient reportedly died from his head injury.

Moreover, Fata actually made more money by prescribing these unnecessary treatments. He reportedly raked in over $17 million from the fraudulent billings. At his own trial, he claimed to have been motivated by “power and greed.” This matches the findings of federal investigators and prosecutors (from Today):

Fata, a trusted oncologist, preyed on patients to pad his pockets, prosecutors say. Just last week the FBI hauled evidence from his offices in upscale Michigan neighborhoods…

Prosecutors say Fata was motivated by money, billing Medicare for false claims, all the while living in a lavish mansion in a ritzy suburb.

While no blame should be removed from Fata personally, it’s worth noting that Fata’s case is only possible in a fee-for-service medical system, where doctors’ income is based on the specific services they provide, not the quality of care. In fee-for-service systems, doctors are paid for each surgery they perform, each prescription they write, each medical test they run, etc. This means that doctors can profit by prescribing unnecessary — and even harmful — medical treatment. In a normal market, consumers (patients, in this scenario) would simply avoid buying products that could do them harm. However, because proper medical practice requires a high degree of technical knowledge and expertise, patients often can’t discern whether they truly need a given treatment.

There are other ways to pay doctors. Many insurers use a capitation system under which doctors are assigned a certain number of patients and paid a set rate per patient. In other cases, doctors are paid a straight salary. And in some cases they get paid a salary with bonuses for high-quality care or for low costs. All of these systems have problems, but at least they do not give doctors an incentive to subject patients to treatments they do not need.

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