Coding Games
How the US healthcare system incentivizes coding over care
We all have those acquaintances. They’re quick to tell you how they gamed the latest tax loophole. They know every credit and deduction. They’ll brag about getting half off their new car by running it through their S corp, or about setting up “employment” for their kids to double retirement contributions. They walk the line between illegal and unethical, extracting wealth by navigating rules rather than creating value.
There’s nothing inherently wrong with following the rules. The problem is a system so complex that it rewards exploitation of its byzantine structure.
That’s what healthcare has become.
American doctors aren’t rewarded primarily for being good doctors. They’re rewarded for mastering the billing labyrinth. The physician who can recite NCCI edits, apply the right modifier, and know which codes are bundled (or can be unbundled) is the one who thrives.
None of this is meant as coding advice, but the examples are everywhere.
Rounding on a post-op subdural patient in the ICU? The surgical global includes follow-up care, but bill ICU time under a separate diagnosis, and suddenly it pays. Closing a scalp laceration during a craniotomy? Without the right modifier, it’s bundled and worth nothing. Add it correctly, and it becomes billable. Assistant surgeons, co-surgeons, staged vs. same-day procedures… the list of coding maneuvers goes on.
The point is not that surgeons who know these things are unethical. It’s that the system is designed to reward arcane knowledge of billing almost as much as the ability to do surgery.
And there is data to back this up. A recent JAMA Surgery study found that “variability in billing and coding practices may contribute to lower compensation for women…women might be less likely to use codes that reflect greater complexity, technical difficulty, patient severity, or work intensity.” In other words, coding skill, not clinical skill, helped drive income disparities. Similarly, a Journal of Neurosurgery study showed that simply having coders round with the team increased departmental margins by 42%, without any change in clinical care.
This is not a story about greedy physicians. It’s a story about distorted incentives.
In a centrally planned system like CPT + RUC + CMS, payment is dictated not by patient value but by rulebook navigation. That is textbook rent-seeking: income earned by exploiting regulations rather than creating value. Hayek warned that central planners can never gather enough knowledge to allocate resources efficiently. The CPT system proves him right. Instead of rewarding better outcomes or more efficient care, the system rewards documentation tricks and modifier fluency.
Thomas Sowell’s distinction is even sharper: markets reward serving others, while central planning rewards serving the bureaucracy. Right now, American medicine pays the most to those who serve the bureaucracy best.
Doctors did not go into medicine to memorize CPT codes, chase modifiers, or calculate dollars per minute. Yet that is the rational behavior in a system where payment depends less on healing patients than on coding them.
Just as advocates of a flat tax argue that simplification would eliminate gaming and restore fairness, medicine needs reforms that simplify payment and realign incentives. A flat tax reduces tax arbitrage. Let’s reduce coding arbitrage. Only then can we reward good doctoring.