Direct Primary Care

Epistemic Status: PSA and raising questions

Medical care in the US is expensive. There aren’t that many demonstrated ways to make it drastically cheaper.

Direct primary care seems to be an exception.  It makes routine medical expenses 95% cheaper.

Yes, really.

If you have a cash-only, or “direct”, primary care practice — i.e. you don’t accept insurance — you can negotiate much lower wholesale rates from providers of tests (like EKGs, MRIs, blood tests) or prescription drugs. Why? Because you can guarantee the providers immediate payment, rather than the uncertainty and inconvenience of insurance reimbursement.  They’re willing to give you a discount for that.

Direct primary care also cuts down on paperwork for doctors, because they don’t have to document everything with the ICD codes that insurance companies require.

Atlas MD is an EMR designed for direct primary care practices that use a subscription model, founded by Dr. Josh Umbehr, who also uses it in his own direct primary care practice in Wichita.  I’ve spoken to him via phone and tried to poke holes in his model, and came away even more impressed.

My question is, could this model scale up nationwide — and would it still be as effective at cutting costs if it did?

Right now, as I understand, direct primary care practices negotiate individually with suppliers to get discounts. I imagine that it would be much more efficient if done by a nationwide chain of direct primary care practices.  Bulk wholesale purchases, after all, could be even cheaper than what a single practice might hope to get.

With Amazon moving into healthcare, direct primary care might get a chance to shine. Amazon has a lot of experience cutting prices through economies of scale & supply chain optimization. Jeff Bezos even funded direct primary care startup Qliance, which went bankrupt last year.

Direct primary care only works as a complement to insurance that pays for more catastrophic care like emergency room visits and specialists.  And if you can get a “minimalist” insurance plan that’s not redundant with the direct primary care membership, your total healthcare costs (membership + premiums) can be much lower.  The potential problem arises if it’s difficult (or illegal) to sell sufficiently “bare-bones” insurance plans — in that case patients wouldn’t be willing to pay out of pocket for a direct-care membership in addition to their already pricey insurance.

Umbehr has managed to negotiate deals with insurers to offer lower premiums when patients bought insurance along with direct care subscriptions, but maybe Qliance, which apparently struggled to keep customers, didn’t successfully pull it off.

At any rate, if I’m not missing something, this seems like an ideal opportunity for Amazon to make healthcare a lot more affordable. Are there barriers I haven’t thought of?

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13 thoughts on “Direct Primary Care

    • I haven’t easily been able to find out what percent of medical expenses are “primary care”. https://healthpayerintelligence.com/news/top-10-healthcare-spending-categories-in-the-united-states gives a cost breakdown from the CDC, which puts 40% of medical expenses as hospital-based, which sets an upper bound of 60%.
      About 10% of medical costs are prescription drugs, which could definitely be covered by direct care, so that’s a lower bound.

      Basically, whether something fits into a direct care model or not is going to be a function of its wholesale cost, and nobody knows what wholesale costs are until negotiating for them! But I think it’s reasonable to expect that anything requiring a hospital stay isn’t a good fit for direct care since space in a hospital bed is never cheap for the hospital.
      However, as Dr. Umbehr mentions, there are a lot of things *associated* with hospital stays that can be low-cost — your surgery might need to be covered by insurance, but the MRI before the surgery can be cheap and included with your direct primary care membership.

      There’s also the additional weirdness that all of these numbers are endogenous. A lower percentage of costs might be for hospital stays if people went to the hospital less, and they might go to the hospital less if they got better primary/preventative care, and they might be more likely to get preventative care if it were cheaper. This is kind of a long and speculative chain of reasoning, but enough people believe it that there’s a whole industry based around trying to help patients with wellness and compliance and remembering to go to the doctor, on the argument that it’ll save money by keeping them out of the ER. I’ve never seen truly impressive cost-effectiveness numbers from that sort of thing, nothing at all like the Atlas.MD numbers, but it’s a *big* field and I haven’t researched much of it (just the subset that applies to cancer.)

  1. Many things have difficulty scaling because as they increase in scale the market for lemons effect increases even more rapidly. This is a problem in education (more than half a public’s school budget is devoted to special needs children who make up around 10-15% of the student body), housing (the reason real estate doesn’t become centralized, local knowledge dominates), recruiting (principle agent problems), dating, subculture community management, NGO interventions etc. You’ll see lots of local ‘better’ solutions pop up that are secretly benefiting from various selection defects that keep them screened off from at least some portion of the lemons.
    This argument also proves too much in the sense that it could be taken to mean that you shouldn’t try to innovate in any of these areas. I’m not arguing that. This next part is hard to articulate. I think having an explicit plan for dealing with this effect is taken as a negative signal in the marketplace of ideas because it very very often treads on taboo tradeoffs. So people who do have a plan on dealing with it are probably not going to talk about that publicly. This makes it harder for grant makers to evaluate who to take seriously. Even assuming the grant maker really cares about the underlying thing and isn’t just hill climbing the local incentives.
    This will always happen when complex bundles of goods are subject to being bundled in different ways and the marketplace has no good way of discovering when the lines of unbundling and rebundling are along the dimension of legible and illegible ways the thing actually helps you. It isn’t that there’s a benign information asymmetry. It’s that there’s an incentive to make the information asymmetry worse and then sit on the legibility gate and collect rent.

    • So, in this case, the thing is something like “Dr. Umbehr has a bunch of healthy Kansan patients and this wouldn’t work in a different community where people had a ton of health problems?” Or “Dr. Umbehr is great at negotiating wholesale deals because people know and like him personally and they wouldn’t give those deals to some big chain”?
      (I’m a bit skeptical of the latter because Walmart and Amazon exist; big chains are totally capable of negotiating low prices from suppliers!)

      • Insurance companies, too, negotiate low prices from suppliers… they just throw a lot of red tape in the way, because it’s in their interest to pay out as little as possible.

      • One answer is “Dr. Umbehr doesn’t have to worry about being defrauded because unlike an insurance company, he’s not giving any of his own money to people.” His patients exclude anyone that has a third party pay for their care; any third party, such as an insurance company or government, that was responsible for lots of people and promised no red tape would soon lose its ability to avoid making fraudulent payments.

      • I’m not claiming special knowledge about what selection filters are in play. That’s a hard problem that professional actuaries deal with. But I think it’s an important part of evaluating better solutions in a space where it is expensive to answer the question: why hasn’t anybody else done this obvious thing, but even more expensive to fail.

  2. I really like this, and I think it can pretty readily dovetail with my preferred solution for the healthcare system, universal catastrophic coverage.

    Ed Dolan has done a lot of work promoting this and it’s the preferred solution of the Niskanen Center (see for instance https://niskanencenter.org/blog/could-we-afford-universal-catastrophic-health-coverage/). Essentially you set a percentage of a household’s income above the poverty line as a deductible (say 10%) and put a household-wide out of pocket maximum of say 20% of income, and then all expenses above that can be paid for. This way, people in poverty can be completely covered on the first dollar, while middle class people have reasonable rates (similar to the medium to high deductible plans on the ACA), and the rich pretty much just have to pay for everything themselves.

    We might modify it slightly by providing everyone with a health savings account prefilled to some reasonable level to pay for their primary care services.

  3. I doubt that willingness to give discounts for being superior will scale well, and a few other objections raised above make sense, but that doesn’t mean it will be reduced to nothing.

  4. I don’t think he’s actually saying 95%, cheaper, only the standard bullshit of “up to 95% cheaper.”
    95% cheaper would be very suspicious. If he can do this, why can’t socialized medicine do it? British healthcare is about half the cost of American, but I think it’s pretty evenly half the cost, not this part 5% and the rest the same. (The rest of Europe has less coherent systems and thus less negotiating ability, but they have the cited advantage over the American system of actually paying bills.) If there is some part of health care that he claims to deliver much cheaper than NHS, you should be suspicious and that would be a good place to look for new barriers. Of course, you should seek to do better than NHS; I’m just saying that it’s probably not easy. And maybe it is easy to match it.

    • My expectation regarding the efficiency of the NHS is much greater than US medical but much MUCH less than Japanese medical, for instance, which manages 1/4th the price with a much older population..

      • I draw attention to NHS because of the specific strategy of negotiation (and the topic of scaling), not because I think it’s particularly good. I don’t have an opinion on whether British medicine should be better or more efficient than, say, French medicine, but I think it’s pretty mysterious that they’re so similar, both in cost and in specific treatments, despite the different organization of NHS and the existence of NICE.

        Japan spends about as much as Britain. Maybe adjusting for age it should count as 4x as efficient as US, but your statement appears to double count this adjustment. Does anyone compile such adjustments, to compare Europe to Japan?

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