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  • Cash-Only Docs: A Promising Advancement in Consumer-Driven Health Care

    Dr. James Eelkema, a Burnsville, MN family practice physician was fed up with the costly paperwork insurance companies required and the second guessing of his medical decisions by company bureaucrats. So when he learned that up to a third of his pay was to become contingent on “measures such as whether his patients got pap smears or whether he got them to stop smoking,” Dr. Eelkema decided enough was enough and converted to a cash-only practice.

    Dr. Eelkema’s decision represents a growing trend of medicine returning to its fundamental role as a market-oriented, patient-driven profession. Cash-only practices have a number of advantages over traditional practices. First, they allow the doctor to save time and personnel on insurance paperwork and redirect resources to patient care, simultaneously passing savings on to the consumer. Second, they encourage a closer doctor-patient relationship, free of interference from third parties such as insurance companies or government programs. Most importantly, cash-only practices curtail expenditures by linking health care decisions and cost directly to consumers; after all, when the insurance company is paying for your checkup, who bothers to ask how much it costs?

    The experience of Dr. Vern Cherewatenko demonstrates the merits of cash-only practices for physicians, patients, and the health care system at large:

    Six years ago, Cherewatenko was drowning in paperwork and red ink, accepting more than 300 different insurance plans with 7,500 different medical codes.  “We were losing $80,000 a month. We were inundated with paperwork. What we found is the more patients we saw, the more money we lost, and it was devastating,” he says. Unable to survive, Cherewatenko discovered what he says is a better way — a cash-only practice that’s grown into a national network of 1,600 doctors. “We have lowered our fees anywhere from 30 percent to 50 percent on some of our services which is incredible,” he says. ‘And it’s really charging less and making more.’

    Cash-only doctors serve as an excellent counterpart to consumer-driven health care plans, which include high deductible health insurance plans and health savings accounts (HSAs).  High deductible insurance plans offer lower premiums and supplement the cash-based market, ensuring consumers have coverage for catastrophic and unforeseen events.  For all other medical costs, patients would pay out of pocket, using HSAs for predictable health expenses like checkups and lab tests.  This system empowers the patient while enhancing affordability of care.  Cash-only practices complement and enhance the beneficial aspects of this system by providing more consumer control of care and a better doctor-patient relationship, all at equal or less cost to the consumer.

    So what’s keeping these practices from becoming more widespread? As usual, big government has its fingerprints all over the crime scene. Unfortunately, such ideas are discriminated against by the federal tax code in its virtually exclusive treatment of comprehensive, employer-provided health insurance. Every dollar paid directly to a doctor, without going through the bureaucratic apparatus of a third party payment system , must of necessity be an after tax dollar. The most effective, though limited, relief from this tax discrimination against direct payment is the health care savings account. But Congress caps the maximum contribution employees and employers can make to an HSA. Congressional policy, in other words, divorces the economic principles of supply and demand.

    In reforming health care, lawmakers should create a level playing field for different types of care. This means that Congress should not be picking winners and losers, or favoring one type of health care delivery system over another. It means that cash-only practices and other consumer-driven options should not be on the receiving end of official discrimination in either law or regulation. Patients should make the choice of how they get care.  As Heritage’s Ed Haislmaier writes, “[Maximizing value] can be achieved in health care only if the system is restructured to make the consumer the key decision maker. When individual consumers decide how the money is spent, either directly for medical care or indirectly through their health insurance choices, the incen­tives will be aligned throughout the system to gen­erate better value—in other words, to produce more for less.”

    Co-authored by Vivek Rajasekhar.

    Posted in Obamacare [slideshow_deploy]

    8 Responses to Cash-Only Docs: A Promising Advancement in Consumer-Driven Health Care

    1. John Inderdohnen says:

      Congress created Medicare in 1965, in effect making individual insurance for those over 65 obsolete. Subsidized, unrestricted healthcare for seniors led to an unprecedented frenzy of spending by patients and doctors. Combined with Medicare, the HMO Act eventually eliminated the market for affordable individual health insurance. If we return the buying power to the individual, we can take steps in the right direction. Every other type of insurance that I can think of is based on an individual choosing the plan/coverage that best fits the individual’s situation. Not 30 minutes goes by on any television channel I watch where I don’t see a commercial for Progressive or GEICO car insurance. A little competition for my dollars would be a step in the right direction.

      Let the market shake out a lot of the unneeded administration of health care. I remember going to my family doctor as child in the 70s and being greeted by the receptionist, who also served as the billing clerk and the girl who would bring me to the exam room and put a fresh piece of paper over the exam bed. Now my PCP has 3 different people for each of those jobs, plus a staff of ten more who do I don’t know what. There is a huge layer of unnecessary administration. If the individual can deal directly with the provider, fair market price will eventually be achieved. I use as an example the Lasik eye surgery. When this first came out, each procedure would cost as much as $10k. Why? Because it was new and there were only a few providers. HMO’s rightly called that a cosmetic treatment and refused to pay. Wear glasses or pay for it yourself. Well now that the industry has matured, you can get Lasik done just about anywhere and what is the price? Usually less than $1000 for both eyes. Need another example? I have chronic back pain due to some car accidents and the construction industry when I was a young man. I found that once or twice a week trips to the chiropractor for a quick manipulation allowed for better range of motion and less pain. HMOs however do not get the concept of maintenance. They want the chiropractor to “fix” me, in the way a surgeon would. Instead of covering the yearly costs for my weekly trip, they pay for a maximum of 8 trips per year. All of course with the $30 co-pay for each visit. Want to know what the HMO rates as fair and competitive price for the 2 minute back manipulation? $31.35. Subtract the $30 co-pay and the good doctor gets a whopping check from the HMO for $1.35. So what did my chiropractor and I do? We arranged for unlimited chiropractic care for $45 per month. There is no reason this couldn't be the standard rather than the exception. In fact, some PC doctors have tried this approach, only to be smacked with cease and desist orders because they are “acting like insurance companies.” Health care costs should be coming down, not rising, as competition for individual care leads to greater efficiencies. Instead, we have a perverted market where doctors compete to obtain the biggest block of members in one felled swoop. Then the HMOs and Medicare tell the doctors what they are going to pay for a particular procedure, rather than the other way around. To make up the difference, doctors have to charge the uninsured 10x what they get from the HMOs and Medicare for the same procedure. Doctors want to make a certain salary level. It’s like squeezing a balloon – if you artificial deflate the balloon in one area, then the other areas have to compensate.

      Real reform would put decision-making back in the hands of the patients. Doctors would advertise. The best doctors will command higher prices, but the poor would still have access to what they can afford. Charity will have to cover the truly indigent. My boss has a saying regarding payroll, “Leave it to the employees to notice every penny.” In other words, if your payroll check is wrong, you are going to bring it to the owner’s attention because “hey! That’s my money!” Patients empowered the same way will make the best decisions because now it will be their money. Some will want more complete coverage and will supplement with their own dollars, some will prefer to use their money elsewhere. The system will be reformed in such a way that artificial pricing structures that penalize the individual will be greatly reduced, giving greater access to those seeking doctor care.

    2. Thomas Furr says:

      Great perspective on addressing the ability to reduce health care costs without effecting patient care.


      Tom Furr

    3. Melisa Kirby Rotting says:

      Multiple staff layers in physician offices these days are necessary to manage the web of hoops and obstacles to getting paid. When health care payments were moved from the patient-consumer to some Entity, the public began to believe someone else was responsible for the costs of their care, and physicians began to get paid less, and long after care was provided (and overhead paid). If doctors can provide care and get paid same day or within the business standard of 30 days, and eliminate the layers of insurance and bureaucratic time and costs, then we could see a real reduction in health care costs and real improvements in care. National discussions involving new bureaucratic layers all but guarantee exactly the opposite.

    4. DAN MOFFATT says:


    5. Barry N. Schmidt, D. says:

      Tom, I totally agree with you. I started my dental practice in California just prior to a government program called "Denti-Cal" came into being in the early 1970s. The Denti-Cal program was supposed to be offered to those who were too "poor" to pay for any dental services. The problem was that as the years went by, the number of "poor" grew and grew to the point where people were borrowing the Denti-Cal identification cards given to the original owners, leaving it up to us in the dental office to police who those patients actually were.

      Following their own "get-it-for-nothing" lifestyle, these patients rarely assumed responsibility for their own dental health and would arrived late or never at all for their appointments. We often would not get paid for the time spent with these people if we failed to dot the I's anc cross T's, and get the paperwork (gobs of it) sent in on time.

      One patient (and his wife) called themseleves "artists," and, although healthy, were on the Denti-Cal program for years—-until I stopped accepting Denti-Cal patients after my office administrator threatened to quit.

      I have concluded that free health care is nothing less than a device to force those of us who are producers in society to become "enablers" for those who don't care to take responsibility for their own lives. A free-market approach to health care would definitely streamline the entire system, including that of patient attitudes toward themselves regarding their own responsibilities regarding health care.

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