The Medicare payment reform law Congress passed in 2015 intended to reward doctors for value and good outcomes rather than the number of services they provide, but it may have an unintended consequence: causing more primary care doctors to opt out of Medicare in favor of direct pay practice models.
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That’s because under the reform law, known as the Medicare Access and CHIP Reauthorization Act (MACRA), most independent primary care physicians will have to document and report their progress on a variety of quality-related measures to be paid for their services to Medicare patients. For doctors already feeling frustrated and overburdened by paperwork and government requirements, MACRA could be the final impetus to finding a different way to practice medicine—such as direct pay.
“People are looking for any way out, and direct pay is one way to not have to deal with the requirements of MACRA,” says Philip Eskew, DO, JD, founder of DPFrontier.com, a resource for direct pay practices.
According to Eskew, about 400 practices in 540 locations use some form of direct pay. That’s up from 141 practices in 273 locations cited in a 2015 article in the Journal of the American Board of Family Medicine, using data collected in 2014. Direct pay practices are clustered largely on the east coast and in Florida, Texas and Colorado.
But in spite of its rapid growth, direct pay is not right for everyone or in all circumstances, experts say. Making it work requires the right combination of a physician’s personal characteristics and patients’ willingness to accept a very different way of paying for their healthcare. Moreover, large numbers of practices converting to direct pay likely would raise questions about access to care for Medicare patients, or those unable to afford a monthly fee.
The attraction of direct pay
What makes direct pay an attractive alternative is that practices employing the model don’t accept payments from third-party payers, whether public or commercial. Instead, practices charge patients a monthly fee—usually between $50 and $75—that generally covers all visits and standard services found in a primary care practice. (Some practices also levy small per-visit charges.)
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In addition, direct pay practices usually have smaller patient panels—typically around 600 per physician, compared with the 2,500 or so found in most standard primary care practices. The smaller panels allow physicians to spend more time with each patient than their fee-for-service counterparts.
Even with the income from membership fees, though, direct pay practices’ gross revenues often are less than in fee-for-service. That means they must also reduce overhead costs—a goal made easier by the fact that they no longer need employees for tasks such as billing insurers, obtaining prior authorizations and checking on the status of patient copays and deductibles.
According to Larry Bauer, chief executive officer of the Family Medicine Education Consortium Inc. (FMEC), a direct pay educational and advocacy organization, overhead costs for direct pay practices typically consume between 25% and 30% of practice revenue. That compares with 50% to 55% for most fee-for-service practices.
Some practices that call themselves direct pay maintain contracts with some third-party payers and continue treating some patients on a fee-for service basis. Eskew refers to these as “hybrid” practices to distinguish them from “pure” direct practices that accept no third-party payments.
“These practices like the security of those regular payments they were accustomed to getting,” Eskew says, even though it means their overhead costs are usually higher—and their panels are larger—than in pure practices.
Another direct pay option for physicians is to work for a company that provides primary care services to large self-insured employers, such as corporations or government bodies. These companies, such as Iora Health, R-Health, and Qliance generally focus on providing care to employees of corporations and governments, although some also include individual memberships.