Is “Fee for Service” Medicine Inevitable?

The Affordable Care Act and the End of the Beginning

With the 114th Congress settling in and Republicans in control of the agenda, one of the more interesting developments is pollsters reporting of Obamacare popularity and the general sense that the law so vigorously opposed by the then Republican minority is likely here to stay. Sure, lawmakers will fiddle with certain aspects representing small (and mid-sized) victories here and there for a handful of health industry-related groups, but the bulk of the landmark legislation is expected to remain intact.

So with more “covered lives” in the system, generally representing higher risk profiles, as well as employer mandates regarding what must and may be provided as a health benefit, where does this leave the health consumer? One thing we know is healthcare costs have and are projected to grow at a rate faster than overall inflation and GDP. This has a few implications for both companies and their employees.

The first is Human Resource departments will remain under pressure to find acceptable solutions that meet the needs (and perceptions) of their employees, and also pass muster with their Finance department. This will not be easy for every company in every industry, as inflation and GDP growth tend to be common corporate denominators and few escape a “reversion to the mean” in performance. Instead, what is likely to remain is a balanced equation of corporate profit growth, employee wage growth and benefit cost containment. Plainly, healthcare costs will continue to be a subject of executive focus. Expect more enterprise-driven “innovation” in the area of employee health programs.

Second, governments will need to acknowledge their programs are not immune from fiscal reality. Medicare and Medicaid face the same demographic profiles as corporate entities, only at the longer end of the tail. Even the US Secretary of Defense has publicly questioned the sustainability of healthcare costs for his department’s overall budget. As healthcare consumes a greater portion of US GDP, the money and resources must be pulled from other segments of the economy.

Finally, for the consumer adjusting to this new law of the land, a different strategy to healthcare is likely to emerge. While the coming “2018 Cadillac Tax” levied against employers who offer health plans deemed too generous will begin to shift corporate health planning, certain employees are already beginning to see what high deductible health plans and healthcare consumerism mean in today’s environment. Further, many still remember a day not long ago where 30-minute visits with physicians were the norm. Nowadays the intersection of corporate sponsored health insurance with organized doctor groups has resulted in eight-minute doctor visits, on average, according to a recent NYTimes article. This comes as no surprise to both patient and healthcare provider.

Are consumers likely to pay $400 a month for a $5,000 out of pocket high deductible plan for the privilege of 8-minute doctor visits, and at the in-network carrier negotiated rate of $120 per visit (again, cash out of pocket)? The law requires consumers carry health insurance, and the alternative to the $400 per month HDHP may be a $550 per month PPO health plan which still requires a $1,000 out of pocket deductible, without the advantage of access to a health savings account because it does not meet IRS guidelines to qualify as a true high deductible health plan (these numbers are for illustrative purposes only).

For the difference of $150 per month ($550 minus $400), so $1,800 a year ($150 x 12) in savings through the selection of a HDHP over a PPO, an employee or family can offset most of the cost of today’s $2,300 per year concierge or fee-only medicine plan with doctor groups. These small but growing consumer health offerings generally provide round the clock, mobile phone accessible doctors with a modified “all you can eat” health maintenance and visit schedule. Sick kid? Covered. Flu? Covered. Twisted knee? Covered. 60-minute annual checkup? Covered. While the consumer health retail environment is rapidly evolving and pricing experimental, annual doctor plans for individuals are in the range of $1,200 to $1,500, while family plans are $2,000 to $2,500.

Perhaps not surprisingly, doctors who have converted their practices to fee only report higher levels of professional satisfaction, as they can spend much more time with their “customers,” (patients) while also reducing the administrative burden of insurance carrier processing. And, with doctor dissatisfaction at an all time high and health industry pundits reporting a looming doctor shortage, Adam Smith might project a new industry equilibrium will be reached. Certainly business-trained managers will pattern match this environment as characteristics of other industries susceptible to “disruption,” borrowing a Silicon Valley-ism. Growing consumer discretionary purchasing will simply be additional fuel to the (innovation) fire.

So will a new paradigm emerge where the monthly “savings” associated with high deductible health plans create an interstate onramp to concierge medicine? In this world employees and families choose and pay for the type of doctor experience they want, while also carrying the “catastrophic” insurance coverage to protect against the unseen (and financially destructive) health development. This model has developed, more or less, in other countries that have moved to open access medicine. Countries like the UK and Canada offer a base of accessible healthcare to all its citizens, and for those who want access to different doctors they can pay on top of what their taxes provide.

While we are still early days on our grand consumer healthcare experiment, one can imagine consumers beginning to “vote with their wallet” and grow increasingly comfortable with direct contracting for doctor visits and services. These retail-governed consumer interactions will drive transparency, accountability (both sides) and even competition that should, coincidentally, help achieve some of the goals of the original healthcare legislation. The 2009 Patient Protection and Affordable Care Act is likely to remain the law of the land, and to borrow from Churchill, “now is not the end…but it is, perhaps, the end of the beginning.”