Consumer Driven Fee-For-Service Health Care Makes A Comeback
Remember when the choice of a doctor was yours and your care and treatment was left to just him/her and not some distant stranger whose only interest is “cost containment” and not your well-being?
If so, then you’ve lived long enough to appreciate “what goes around comes around”.
Consequently what is coming around is the return to Consumer Driven Fee-For-Service medical and dental care.
The leading proponent of the “new” old approach to health care is a Seattle based non-profit group named American Association of Patients and Providers (AAPP). They named their approach “SimpleCare”.
SimpleCare was the brainchild of two Seattle physicians, Vern S. Cherewatenko and David McDonald, who tired of 3rd party payers underpaying to the point of loosing money on each treatment performed.
The doctors decided to offer substantially lower fees to patients who would pay cash at the time of service. That change in procedure allowed them to avoid 3rd party payers and dramatically lower their administrative costs.
In a typical treatment scenario, the doctor sees a patient who has come in suffering from the flu. The visit lasts 10 minutes for diagnosis and medication prescription. The staff submits a $79.00 bill to the patients HMO. After a wait of 90 days the doctor’s office receives payment of $43.00 for the service.
The administrative cost for processing the bill is about $20.00, leaving the doctor with a “profit” of $23.00. Not so fast, the overhead for that patient is $30.00. Simple math shows the doctor lost $7.00 treating that patient.
This is not a hypothetical situation. Before SimpleCare, Cherewatenko’s practice had 55 doctors and was losing $80,000 a month due to 3rd party underpayments.
Since implementing SimpleCare, the doctors now charge the flu patient $35.00 if they pay by cash, check or credit card. Again, simple math shows the doctor earned $5.00 instead of a loss of $7.00. The doctors can now avoid bankruptcy, a very real threat to many doctors due to low reimbursements from all 3rd party payers, both public (Medicare and Medicaid) and private (HMO’s, PPO’s etc.).
The consumer wins too. They get the full attention of the doctor, free of “maximum per-patient time limits” and not treatment determined by a distant stranger. The concept of SimpleCare represents a dramatic departure from the “business as usual” model in health care financing. Most important, the patient receives the best healthcare at a reasonable cost.
Today, most health care is paid for through an expensive system known as 3rd party payers, where the 3rd party is an insurance company or a government agency. Many health care experts point to this system as the primary reason we in the U.S. face double-digit health insurance premium inflation and intrusion into our doctor’s decision-making process.
According to renowned economist Milton Friedman, in his analysis, “How To Cure Health Care”, two simple observations are key to the high level of spending on medical care and the dissatisfaction with that spending. The first is that most payments to physicians or hospitals or other caregivers for medical care are made not by the patient, but by a 3rd party. The second is that nobody spends somebody else’s money as wisely or as frugally as he/she spends their own.
Friedman also adds, “no 3rd party is involved when we shop at a supermarket. We pay the supermarket clerk directly. The same for gasoline for our car, clothes on our back and so on down the line.”
The majority has no choice in their health plans since the plans are employer provided. As a result they have no incentive to spend health care dollars wisely, nor do they have much, if any, opportunity to participate in the health care process.
Studies have shown that consumers tied to 3rd party payers may feel they are spending “someone else’s money” and therefore tempted to request unnecessary tests, treatments and other services. Insurers have responded by installing “gate keepers” to review and approve or deny requests for treatments.
James Henderson, author of Health Economics and Policy (Southwestern Publishing, 1999) and professor of economics at Baylor University, describes a classis example of how spending someone else’s money distorts the decision making process.
Henderson writes about a documented case where a 70-year-old man suffering from a ruptured abdominal aortic aneurysm was brought to the hospital and spent weeks in an intensive care unit. The bill approached $275,000, none of which was paid by the patient.
The man’s physician determined that poor eating caused by poorly fitting dentures caused his slow recovery. The doctor requested the hospital dentist perform the needed adjustments. Later the doctor discovered the man had not allowed the hospital dentist to perform the needed adjustments. When asked for a reason, the patient replied, “$75.00 is a lot of money.” Medicare would not pay for the adjustment, so it would have been an out of pocket cost.
The nations reliance on 3d party insurance is expensive and getting more so every year. The cost of health care and insurance coverage has been inflated many times over to cover the expense of having a 3rd party involved in the process.
Is it any wonder then, that programs that promise to return to the older model of patient choice and responsibility are increasingly more popular?
What started out with two doctors has grown into about 500,000 doctors and providers in all disciplines serving nearly 6,000,000 patients in all states. Even some of the largest insurance companies are venturing into the world of Consumer Driven Health Care, but their efforts look a lot like their insured plans with controls and “cost containment”. They just will never learn.
Compliments to Conrad F. Meier and Milton Friedman.
