This post originally appeared at https://www.badgerinstitute.org/new-wisconsin-bill-directly-solves-the-problem-with-growing-healthcare-costs/

Direct primary care can complement insurance

Healthcare spending continues to grow. Average per person spending was $13,493 in 2022 in the U.S., or $4.5 trillion total, according to federal data.

Fortunately, a bill being considered in the Legislature, SB905, provides a solution that could make it both cheaper and more accessible via direct primary care. 

The problem

A recent RAND report makes it clear that hospital consolidation, via both vertical and horizontal integration, is on the rise and decreasing competition. 

It doesn’t appear that the consolidations, which work against free and open markets, are helping to control costs. Generally, consumers have not shopped around because they cannot see prices — and the legacy reimbursement model of health coverage has not traditionally incentivized them to pay attention to prices anyway. 

That is starting to change. Because deductibles are often high, many people must pay full price, are becoming price-sensitive, and are beginning to shop. The elements are almost in place now for a market to work.

Free and competitive markets can only operate, however, if consumers can see prices.

The recent birth of price transparency

It is only recently, thanks to the federal Hospital Price Transparency Rule, that transparency has been mandated. Starting Jan. 1, 2021, hospitals were required to provide “clear, accessible pricing information online.”  

Price transparency has uncovered some surprising financial realities about the medical industry, such as that prices in hospitals are higher when using insurance. One example is the provider-negotiated price for a colonoscopy, which is over $5,000, compared with the national median cash price (i.e. no insurance) of $1,635. 

Johns Hopkins University accounting professor and health policy expert Ge Bai spoke recently at the Healthcare Economics Summit at Concordia University Wisconsin and noted that her study, published last year in Healthcare Affairs (April 2023),  led her to conclude, “Health-care prices rise in America because most Americans have insurance” (Washington Post, April 11, 2023). She did an analysis of pricing data from 2,373 hospitals across the U.S. and found that cash prices in general were lower than those negotiated by hospitals with insurance companies. 

It is because of these inflated prices when insurance is used that there has been growth in paying cash for drugs, rather than using insurance. Consumers are increasingly using tools such as GoodRx or Mark Cuban’s Cost Plus Drug Co., as well as Amazon Pharmacy and Amazon One Medical, the latter of which provides primary care at $9 per month and offers 24/7 on-demand virtual care (including for mental health), with on-site clinics in some cities. Walmart and others are offering similar low-cost direct pay services for primary care. These are a type of direct primary care. 

Direct primary care is a much-needed complement to insurance

The direct delivery of care, outside of the opaque reimbursement-driven model that is associated with insurance, Medicare or Medicaid, is called direct primary care, or DPC.

Care is obtained directly from providers such as physicians, without the direct involvement of insurance, though additional services such as surgeries and in-hospital procedures might then use insurance. 

DPC and insurance are complementary. A patient can choose to use insurance for certain more expensive procedures, presuming they also have insurance through, for example, their employer or the federal Affordable Care Act exchanges. 

Under a DPC arrangement, typically with an individual physician or a small physician group, patients pay a monthly fee, typically $40 to $100, in exchange for a wide variety of services. Membership is voluntary and can be canceled or entered into at any time. Patients have 24/7 access to comprehensive and personalized primary care. Lab tests and imaging are offered at nominal extra cost.

The arrangement avoids bureaucracy, paperwork and costly claims processing. Physicians do not engage in any kind of risk analysis for billing and consider age only in deciding how much to charge for membership rates. 

The advantage of direct primary care is that no approvals are needed for procedures or services, so the physician and patient are more empowered. Care can be obtained faster and at lower cost. 

DPC is a form of access to healthcare that is not meant to replace insurance, and is not insurance — so should not be regulated as insurance. Regulating DPC as if it were insurance would restrict providers’ flexibility to innovate and at least partly negate DPC’s cost and service advantages that stem from having less overhead for expenses such as the large buildings, infrastructure and administrative staff of hospitals.

DPC legislation in Wisconsin

More than 30 other states have already enacted laws to ensure that DPC arrangements are not regulated as if they were insurance. Such legislation was discussed in Wisconsin in 2021, but it never made it to the floor for a vote. 

I attended the public hearing for that bill, 2021 Senate Bill 889, on Feb. 8, 2022, and spoke in favor of it along with DPC physicians, including Wendy Molaska, the former president of the Wisconsin Medical Society. One of the bill’s sponsors, Sen. Mary Felzkowski (R-Tomahawk) spoke at our annual Healthcare Economics Summit about the importance of DPC, especially for rural communities.

The current iteration of the bill, SB905, was introduced on Jan. 11 of this year. The Senate Health Committee advanced it on a 4-2 vote on Feb. 9. If the bill does not pass the Assembly before it wraps up its session at the end of this week, then it’s dead for this year. If the Assembly passes it, the Senate could take it up in March before it adjourns.

The bill includes a better recognition of the role that employers play, including them among those who may sign a DPC agreement. Employers are important stakeholders, as they typically provide healthcare benefits to employees, and the change allows DPC to be offered as an option.

The current bill also extends the criteria by which DPC providers cannot reject new patients. Previously, providers could not reject new patients based on pre-existing medical conditions. Now, the list includes race, gender, religious affiliation and disability, among others. 

Among other disclosures that must be given to DPC patients by providers:

• DPC is not insurance.
• Patients must expect to pay for things that are not included in the DPC subscription fee.
• Patients are strongly encouraged to discuss the DPC plan with their insurance provider, adviser or employer-sponsored plan. 

Arguably, these notifications might scare away patients new to direct-pay options. Fortunately, this version of the bill also requires that patients be made aware of the fact that “some services covered under the agreement may be covered under any health insurance the patient has.”

It is good for consumers to learn that they can sometimes pay cash and sometimes use insurance, and that the two approaches are complementary. While incumbent players in an anticompetitive healthcare system might resist, direct payment will control costs while also empowering patients, physicians and employers that pay for benefits.  

Daniel Sem, Ph.D., MBA, JD is associate vice president for research and innovation, as well as a professor of business and of pharmaceutical sciences at Concordia University Wisconsin. He is also the CEO of Bridge to Cures Inc. and advisor to Retham Technologies, co-founder and vice president for business development of Estrigenix Therapeutics and serves as director of the Remedium eXchange (Rx) Think Tank.

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