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A Low-Cost, No Hassle Program?
CNBC.com | September 12, 2011 | 05:08 PM EDT

What if doctor's offices were like gym memberships? Pay a monthly fee and come as often as you like: no insurance, no deductible, no paperwork, no bill.

Direct primary care (DPC), a low-cost alternative to conventional health care, works much like this and is sometimes described as the middle-class version of “concierge” or “boutique” medical practices started in the 1990s to cater to the wealthy.

"If you have a hunger for accessibility, continuity, and familiarity, it [DPC] is very valuable. It is so valuable that people are willing to pay extra to get it," says Kelly Devers, a senior fellow at the Urban Institute's Health Policy Center .

In addition, DPC providers will soon be allowed to compete within state-based insurance exchanges thanks to a provision included in the 2010 health-care reform legislation , The term “direct practice” was first used in legislation in Washington in 2007 that clarified these practices were not insurance companies under state law—but they do provide basic, preventive medical care.

Some analysts believe, however, that allowing direct-care providers to compete with insurers will dilute DPC's original success—and pose as an even greater challenge to uninsured Americans.

“The problem is that these [providers] lack a lot of the qualities that enable them to be a true insurance product. They have no experience managing risk. They also don't have the ability to reinsure that risk,” says Scott Gottlieb, a practicing physician and resident fellow at the American Enterprise Institute .

DPC remains a niche in the private health-care market, but with a growing number of physicians no longer accepting heath insurance, the approach is attracting more attention. Urban Institute's Devers says direct care is affordable, though not necessarily cheap, and can provide a viable solution for people who find primary care difficult to access.

"When I first heard of these practices, I thought, 'They are charging a pretty low monthly fee,' ” she said. “But when you add it up, $50 a month over 12 months—that's $600 a year.”

John Muney is a physician, and president of AMG Medical Group in New York, a direct-care practice that charges between $79 and $129 a month per patient and also accepts insurance. "By eliminating an insurance company, we offer both lower costs and better care," he says. "Eighty percent of people's medical needs can be met here in our center."

The first boutique medical practice was started in 1996 by Howard Maron and Scott Hall, who offered care to wealthy customers willing to pay hundreds or even thousands of dollars a month. A year later, Garrison Bliss and Mitchell Karton reformulated the concierge practice and opened Seattle Medical Associates , a monthly-fee practice with a maximum price of $65 per month.

Qliance Medical Group , Bliss' follow-on practice he founded in 2006, currently charges patients between $49 and $89 per month, depending on a patient’s age. The model is part of the long-term solution to affordable health care in America, he says.

"Universal health care may be attainable by combining competitive primary care—purchased by individuals directly from their doctor—and high deductible health insurance to cover catastrophic illness," says Bliss.

Patients at these practices are encouraged to have basic health insurance to pay for specialists and hospital care; otherwise uninsured patients pay out of pocket for care outside the direct practice.

So far, 21 states allow direct care. This model is estimated to serve as many as 100,000 patients, according to the Direct Primary Care Coalition . According to a 2010 American Academy of Family Physicians survey, three percent of respondents practice in a cash-only, direct care, concierge, boutique, or retainer medical practice.

"We have 62 percent fewer emergency room visits in our patient populations, compared to others in our region," says Bliss of Qliance, who claims the business model decreases wait times and reduces the costs of treating patients.

Changes Ahead

Despite that success, the DPC model is in for dramatic change. Come 2014, when most people in the U.S will be required to buy health insurance under the health-care reform law, these DPC providers can participate in state-based "exchanges," in which individuals and small businesses can shop for health care. These exchanges, or marketplaces, are expected to provide coverage choices for tens of millions of uninsured people, as well as some who are now insured and get their coverage from other sources.

Direct primary care medical homes are the only non-insurance-based entities allowed to compete in these exchanges. Under the new law, the federal government will allow insurers to offer coverage on the exchange if they meet the requirements of a Qualified Health Plan, as defined by the U.S. Department of Health and Human Services (HHS).

Consumers will choose a plan that works with a network of health-care providers with flat-fee, direct care medical homes membership as an option in the insurance exchanges, when bundled with a lower-cost "wrap-around" insurance plan that covers more expensive services outside the scope of primary care—such as specialist care, hospital stays or emergency room visits.

Earlier this year, new legislation introduced by Senator Hatch and Rep. Erik Paulsen (R-Minn.), known as The Family Retirement Health Investment Act , would allow patients and employers to use health reimbursement accounts ( HRAs ), health savings accounts ( HSAs ), and flexible spending accounts ( FSAs )to pay for these services.

“This is a virus that will catch on,” says Bliss.

“It pleases everyone, including insurance companies; eventually government will see the potential of this movement as the barriers are dropping away.”

But the idea worries some physicians.

"Unless you find a wrap-around health plan or a catastrophic health plan—you will essentially be left with a huge donut hole," says Roland Goertz, past president and current board chair of the AAFP. Some people still will need to see specialists and go to hospitals, he added, increasing the chances that there will be gaps in care.

Internist Albert Fuchs says that while the new legislation will generate a large number of newly insured patients, the "traditional model is not going to be able to expand quickly enough to accommodate.” Fuchs charges his patients an annual retainer fee and says he does not want to participate in the exchange. "It gives me a level of autonomy and independence that I don't have if I am working for the insurance company."

While proponents of direct care believe the model is a good alternative to the current health-care system, some say the legislation revisions would change the concept for the worse and require physicians to depend on insurance.

"Having to do business with insurance companies undermines the entire business model that direct primary cares have now," says Devers of the Urban Institute's Health Policy Center.

Many doctors have urged the HHS to use the Washington State primary care law as a model to make sure that federal regulations allow direct practices to remain independent of insurance companies. Doctors argue that without this independence it would be difficult for any practice to continue to offer high quality, affordable primary care.

"It is imperative to patient choice and the integrity of the direct primary care model that people be allowed to pay their direct primary care provider directly... Direct primary care practices also work because there is no insurance overhead, coding, billing, or paperwork to deal with in order to be paid," Bliss says.

It’s unclear how the new legislation will impact costs. Consumers fear the additional required wrap-around policy to cover "catastrophic events" defeats the purpose of using direct primary care as opposed to insurance.

"We are going back to square one. I don't have enough money to pay for insurance. That is the reason why I use DPC—to see a doctor," says Mona Witter, a student and direct care patient in New York. "The new policy is requiring that I have insurance."

And while the insurance exchanges will provide consumers with a choice of health plans, another concern is that the new regulations will create unhealthy competition among other health plan providers. A rush of companies, many not associated with health insurance, is also expected to jump into the market for health insurance exchanges—estimated to be worth billions of dollars.

As a result, DPC practices will begin competing with retail clinics in places such as Wal-Mart, CVS, and Walgreens , plus federally funded health-care centers, and clinics covered through Medicaid .

“I think this model could work in some markets and some entities may succeed, but I doubt it is something that can work everywhere and also doubt that it is a ‘solution,’ in that it is just another option for consumers willing to trade some things for others," says American Enterprise Institute's Gottlieb.

But Qliance's Bliss believes otherwise: “The insurance companies want to make our cost plus their cost equal less than the cost of their competitors who are just doing insurance... We want a situation where insurance companies win, and direct primary car, and patents win. If that works, then I think we have built something that can do that."

While attempts to control costs over the last decades have been largely unsuccessful, many consumers and small businesses are left having to make difficult decisions about health care. Both opponents and supporters of direct primary care are awaiting HHS regulations defining exactly how the practices will merge with wraparound coverage and be sold in exchanges. The HHS could not give specifics.

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