If you think Big Brother is watching the healthcare industry now, wait until 2020.
The rapid growth in the elderly population will compound steadily rising costs in the healthcare sector to create a mushrooming outflow of federal dollars.
"As the cost of Medicare and healthcare in general goes steadily up, you will see the government taking more and more action," says Michael Dyer, a former official with HHS' inspector general's office in Chicago who is now a consultant at PricewaterhouseCoopers.
Expect the government to take a closer look at tax information submitted to the Internal Revenue Service, mergers and acquisitions, and -- of course -- healthcare fraud and abuse.
It's easy to see why the government is concerned.
In 1998, the federal government spent $210 billion on Medicare and another $101 billion for its share of the Medicaid program. By 2009, the Congressional Budget Office estimates those costs will hit $443 billion for Medicare and $243 billion for Medicaid. There's no official projection for 2020, but the figures are likely to be staggering.
"People involved in healthcare are going to look back fondly on 1999 as a time when HCFA and the agencies were friendly to the industry," Dyer says. "The government is not very good at track maintenance, but it's good at train wrecks. And as the financial train wreck of Medicare approaches, you will see all sorts of new laws and monitoring, and enforcement will be a large part of that."
HHS estimates that as much as $12 billion of last year's Medicare payments were erroneous. It's not known how much of that amount can be attributed to fraud, but the government won't be scraping the bottom of the healthcare fraud barrel anytime soon.
"There's no shortage of healthcare cases," Dyer says. "My experience at the inspector general's office was that I had many more promising fraud cases than agents to assign them to."
Some have argued that like the purge of the defense industry, anti-fraud efforts in healthcare will eventually fade when the pipeline of cases runs dry.
Not so, Dyer says.
"There's a lot more money in healthcare, and you've got thousands of contractors in healthcare," Dyer says. "In the defense industry, there were a few contractors, and once you cleaned them up, that was it."
It's not clear how far the enforcement pendulum will swing, says Doug Hastings, a lawyer with Epstein Becker & Green in Washington.
"Criminal sanctions and whistleblowers are newer in healthcare than rules and regulations," Hastings says. "To some degree, those new (enforcement) techniques are politically and publicly popular."
The tax man cometh
In 1995, the year after Hospital Corporation of America merged with Columbia Healthcare Corp. to form Columbia/HCA, some predicted the decline of not-for-profit healthcare.
But a quick glance at the statistics shows that not-for-profits are on the rise and are sure to be a dominant part of healthcare's future -- not to mention the subject of regulatory scrutiny.
Healthcare organizations now represent only 16% of all organizations with a 501(c)(3) tax exemption. However, they account for 37%, or $423.4 billion, of all 501(c)(3) assets, and 55% of all the revenues in the 501(c)(3) sector.
Those big numbers are likely to grow even larger over the next 20 years, says James McGovern, a former IRS official now with the Washington office of consulting and accounting giant KPMG.
"Because of the significant size and impact on the (tax-exempt) sector, exempt healthcare is the top priority of the IRS' exempt organizations division," McGovern says.
T.J. Sullivan, another former IRS official who is now a tax attorney with Gardner, Carton & Douglas in Washington, agrees.
"Regulation will grow no matter what," says Sullivan, who also helped found the Coalition for Nonprofit Health Care. "Globalization of the economy and improved communications mean there will be nowhere to hide from increased regulation."
In coming years, it's likely that the IRS will start performing limited scope audits on targeted issues, McGovern adds. That would lead to a significant increase in audit coverage, he says.
But the government might not have to play regulator on its own. From medical innovations broadcast on the Internet to the availability of not-for-profits' tax documents, healthcare information is more accessible than ever to consumers. And they will use it.
"Consumerism is going to be a big driving force," says Mark Horoschak, an antitrust attorney and a former Federal Trade Commission official. "We're going to see much more of that than we do today because the average person is going to have a lot more information at their fingertips."
The information revolution -- mainly in the form of the Internet -- will tip the scales in favor of patients, who for centuries have been the victims of "informational asymmetry," Horoschak says.
"The provider has so much more information than the consumer, and that has prompted many people to say that's unfair," Horoschak says. "I think just in talking to people in the industry generally, there's a sense that that asymmetry will diminish or be eliminated completely."
With information empowering consumers, the healthcare marketplace will work more efficiently than a regulatory model. Ultimately, that favors a free-market approach rather than heavy-handed government regulation, Horoschak says.
"You may find more generic competition among entities on price and so on," Horoschak says. "That will make healthcare more like the economic norm than it is now."
But with more information comes a new problem: privacy.
"Consumer access to information will change medical practice, but it triggers lots of issues like privacy that will need to be regulated," says Hastings, who has written about the future of healthcare regulation. "It will trigger regulatory initiatives we can't even predict today."
Another problem, Sullivan says, is that the information revolution makes the government's job a lot harder.
"The executive branch, always less political but more cautious, will face increased demand to regulate swiftly, if not with all due deliberation," Sullivan says.
That doesn't mean antitrust enforcement will become obsolete.
"There will be a continuing need for antitrust enforcement, but I also see something that's totally unrelated to any regulatory superimposition," Horoschak says. "The information revolution will lead to a rise in consumerism, and that will, in effect, police the market."