Last month, this column explored the promise and pitfalls of an innovative approach to employer-provided health coverage called “reference based pricing.” This month, we will explore “direct primary care” which takes a different and in some cases complementary approach in the effort to improve the health care experience of employees while (hopefully) reducing costs.

Since direct primary care plans are often built on a reference based pricing plan framework, let’s quickly recap the key components of reference based pricing.

In short, reference based pricing plans are built on the premise that discounts negotiated between health care providers (i.e., hospitals) and health insurance companies are insufficient. For example, a reference based pricing plan would contend that, if a hospital accepts $300 from Medicare for an MRI, they should be happy to accept $600 from a reference based pricing plan (instead of a “negotiated network rate” of often $1,000 or more from an insurance plan) for the procedure.

Rather than relying on the pre-negotiated discounts available within traditional network based plans, reference based pricing plans tie reimbursements for hospital care to some percentage above the rate which the hospital in question accepts reimbursements from Medicare. They then attempt to encourage the provider to take their offered price for services while simultaneously attempting to dissuade the provider from balance billing the employee.

Typically, the savings under reference based pricing plans can be significant; however, challenges can arise for employees who may find themselves with a lack of access to care for their non-emergency needs (i.e., if the hospitals get wise to the approach and block their attempts to make an appointment). Alternatively, employees who do receive treatment may be caught off-guard by follow-up bills from the hospital for the difference between the hospital’s billed amount and the health plan’s payment.

Since reference based pricing plans take an aggressive stance against the cost of high-dollar hospital claims incurred by a minority of claimants, they are sometimes paired with direct primary care in an effort to soften the claimant experience by provide direct, pre-paid “concierge type” care for the more commonly utilized primary care needs. In other words, direct primary care is often the carrot that fits alongside the reference based pricing stick for employees.

Direct primary care provides employees with, as the name suggests, direct access to primary care services in a model not dissimilar to the concierge medicine practices that have been utilized by well-heeled Americans since the early 2000s. The employer generally pays the monthly retainer for enrolled employees that, in effect pre-pays for the services received such that office visits, basic lab and consulting services are “free” to the employee.

Arguably the biggest benefit to retainer model primary care relates to access. According to a recent article in the American Journal of Medicine, “the primary advantage… is that the panel of patients is smaller” and, as a result the “physician sees six to eight patients per day compared with 20 to 24 patients for the typical primary care physician.” For those that may not be familiar, “panel size” refers to the number of patients for which a single primary care physician is responsible. For direct primary care physicians, the panel size is often in the range of 600 to 800, compared with 2,000 to 3,000 in a typical primary care practice.

Needless to say, smaller panel sizes allow for more appointment availability and more focused attention. By making primary care services more accessible for employees, the goal is that employees will more readily avail themselves of preventative and basic maintenance care that will reduce their likelihood of having large claims down the road.

By all accounts, direct primary care is a great concept and, given the supply side challenges the health care system currently has with regard to primary care, it is a solution to a very real problem.

Nonetheless, for employers considering the approach, there are a few potential pitfalls. First, direct primary care will add around $100 - $120 per month per member to benefit plan fixed costs. This is the reason why direct primary care is often “funded” in essence by savings expected to be generated by the reference based pricing “backend” of the health plan.

The second challenge is that, as the model is growing, many direct primary care vendors are struggling in their effort to recruit enough physicians in order to ensure adequate access. In particular, for large employers and multi-site, multi-state employers, many direct primary care provider models will struggle with the ability to provide consistent service for all employees given that physician recruitment often lags client acquisition.

Nonetheless, it is encouraging to innovative ideas emerging in the health care industry and I expect that, in the years ahead, we will all be hearing more about direct primary care as it slowly, but surely, becomes a more mainstream solution to one of our nation’s important health care needs.

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Madison Hogan is the Lifestyle Editor of the Marietta Daily Journal, Cobb Life Magazine and the Cobb Business Journal. Follow her on Twitter @madisonhogan for the latest and greatest in lifestyle news around Cobb. Send tips to mhogan@mdjonline.com

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