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‘Direct Care’ Could Help Ease Medical Costs

Jeffrey A. Singer

As a general surgeon I see patients every day who’ve had
batteries of preventive and screening tests that, after all is said
and done, yield nothing more than increased spending and increased
anxiety. Many doctors are unconcerned with the cost/benefit aspects
of the treatments or tests they offer, and often abandon taking a
detailed medical history and performing an extensive physical exam
— instead they rely on costly imaging studies to do the heavy

I blame the third-party payer system.

The healthcare consumer pays only 10 percent of every healthcare
dollar directly out of pocket. The third party — either an
insurance company or Medicare — pays the rest. With Medicaid
the government is the third party and pays 100 percent of every

Many of the cost drivers in healthcare today are symptoms of
this third-party payer system. When somebody else is paying the
bill, it’s easy for doctors and patients both to forget about the
cost-effectiveness of medical diagnostics and treatments.

When somebody else is
paying the bill, it’s easy for doctors and patients both to forget
about the cost-effectiveness of medical diagnostics and

Over-diagnosis and over-treatment in healthcare are well
documented. They are part of the reason healthcare spending has
increased as a share of Gross Domestic Product from 5 percent in
1960 to over 17.8 percent in 2015. According to a 2010 report from
the Institute of Medicine, they may be responsible for over 15
percent of healthcare spending.

Many blame over-testing and over-treating on “defensive
medicine,” i.e., practicing in fear of getting sued. But the
evidence does not support that hypothesis. In fact, many studies
suggest that major tort reform has no impact on healthcare spending
and, if anything, might lead to a slight increase in spending.

Patients are also a part of this healthcare culture. For
example, a 2012 analysis of 14 large studies by the RAND Corp.
found annual physicals for healthy adults don’t lower the risk of
serious illness. Yet millions get them, and this is not helped by
the fact that the Affordable Care Act mandates insurance companies
pay for an annual wellness exam at no out-of-pocket expense to the
patient. The cost/benefit relationships of numerous other
preventive measures have also come into question.

People every day consider cost/benefit when they purchase
shelter, food, cars, computers, smartphones, etc. They ask detailed
questions and expect satisfactory answers. Not so when it comes to
healthcare decisions. The public uncritically accepts screening,
early detection and early treatment as always worthwhile.

The public also accepts that having insurance is a critical part
of staying healthy. Yet insurance is supposed to protect against
unforeseen, high-cost, catastrophic events. As a result of years of
tax and regulatory policy, health insurance has morphed into a form
of prepaid healthcare, covering predictable, foreseen, pre-existing
and routine “maintenance” events in addition to the catastrophic
and unforeseen. Hospitals, labs, pharmacies and providers negotiate
fees with a third-party payer, not the consumer. Consumers are left
out of the loop, along with consumer-driven market forces.

The third party has deeper pockets than any consumer. That’s why
providers reflexively seek approval from third-party payers for new
and innovative services before considering the approval of the
actual consumers of those services.

Those taking part in the third-party payment healthcare system
are not crooks. They are rational beings, responding to rules and
incentives that have been in place for generations. Healthcare
providers, hospital administrators and patients have been
conditioned — acculturated — to play the game according
to these rules.

There is a healthcare community that is not a part of this
culture. It exists in a setting with minimal or no third-party
involvement. In service areas such as LASIK eye surgery, cosmetic
surgery, dental implants and cosmetic dentistry, and many general
dentistry practices, providers compete for the patients’ business:
in price, quality, service and accountability. Patients shop and
ask detailed questions. Competition drives prices down and quality

“Direct care” is a growing sector in healthcare offering primary
and specialized care, and even surgical hospital care, directly to
consumers for direct payment, absent a third party. More and more
providers are migrating to direct care from the third-party model.
Many others avail themselves of its cousin, the Health Care Sharing
Ministries. A 2014 Physicians Foundation Survey found 7 percent of
physicians were already doing direct care or “concierge” medicine;
13 percent said they were planning to make the move; and 17 percent
of doctors under age 45 plan to do so.

“Medical tourism,” another form of direct care is on the rise.
Consumers travel offshore, often considerable distances, to
purchase high-quality, sophisticated medical and surgical
treatments at very affordable cash prices. Firms and websites help
consumers shop and connect with these medical centers.

America’s healthcare system suffers from dysfunction and
dysphoria and is in cultural decline. Its last best hope may be
this counterculture called “direct care.”

Jeffrey A.
practices general surgery in Phoenix, Ariz., and is a
senior fellow at the Cato Institute.