Direct Pay Medical Care: It’s Back to Basics

Joel Strom
Fellow, Unruh Institute of Politics, University of Southern California

It was not that long ago, as late as the 1960’s in fact, when third party payers – insurance companies and the government – did not play such a large role in the American health care system.  In those days, a majority of patients paid their doctors directly for primary health services while relying on other vehicles to pay for more extensive and expensive care.  Many physicians strongly believe that direct pay care provided more efficient, more available, better and cheaper care than is usually available today.

Under such a direct pay care system (DPC), patients shouldered more of the upfront costs for their primary care which helped keep overall insurance rates down for everyone.   This also created an environment for more value-oriented decision making with a distinct disincentive to over-utilize the system.   In short, the basics of a successful health care system, were rooted in a direct, transparent and trusted doctor patient relationship.

As third party payers assumed more of the primary care expenses, insurance rates began to rise noticeably.  And as patients began to pay smaller percentages for services while paying more and more for their insurance, the old disincentive was transformed to an incentive to spend; if patients paid so much for coverage why would they not seek to take advantage of their insurance benefits?

The third party payer system requires that physicians hire employees just to manage the interface between patients and insurance companies or Medicare, expending precious human resources on non-patient care.   Moreover, doctors are left to fight with insurance companies or the government in order to get paid for services rendered, sometimes waiting months to receive reimbursements.

With the passage of the ACA, physicians are feeling even more crammed by what they see as an endless bureaucratic black hole and an increasingly heavy-handed federal government;  ACA establishes over 100 regulatory boards and commissions certain to create countless new regulations as well as a far more complex billing system.   This has created a new sense of urgency for physicians to find their own solutions. And in a growing number of cases, they are deciding to back to the basics of private medical practice – direct pay.

DPC offices have been around for many years, but just after the turn of the Century, physicians slowly began adopting this model for their practices. The passage of the ACA has only accelerated that growth. Today, physicians from Maine to Florida from California to Washington are re-recasting their practices based on the old direct pay model.

Most DPC offices charge their patients a membership fee often less than $50 per month, with pediatric care below $20.   Appointments for routine services may require small co-payments in the range of $10 and patients can obtain referrals for specialty care at greatly reduced rates.

Patients then purchase high deductible plans solely for the more expensive surgical, hospital and high end testing procedures. Taken together with a direct pay relationship, patients can choose their own doctors, receive more prompt preventive care, experience a more transparent financial transaction and become better consumers of health care.

From all indications, doctors and their direct pay patients are happy with their arrangements.  Most believe that DPC achieves the stated goals of health care reform, without a byzantine, intrusive and costly third party payer system.   The jury is still out as to whether California’s health policy officials will agree and support these practices.

Patients and doctors nationwide are hoping that federal and state officials remember the last words from that wonderful Allstate ad – “it’s back to basics…and the basics are good”.

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