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Comment by ceejayoz | Hacker News Reader

> It achieves lower costs in large part by cutting out the middle man of health insurance for basic services.

Is it actually lower cost? The cash fee for a PCP visit and what insurance actually pays are drastically different. If you're paying a membership fee just to get the same sort of rates insurance pays out at, there's no win here.

> A little known provision of the ACA makes Direct Primary Care a kind of legal loophole. When combined with a high deductible health plan or health savings account, Direct Primary Care can meet the requirements for basic coverage, thus getting you out of the tax penalty for not being properly covered.

That's not a loophole. That's "pay extra". You'd still need at least a Bronze plan, and any visits that bill against your DPC won't count towards your annual deductible or out-of-pocket caps.

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> The cash fee for a PCP visit and what insurance actually pays are drastically different. If you're paying a membership fee just to get the same sort of rates insurance pays out at, there's no win here.

You don't want to get the same rates that insurers pay - those are actually the inflated rates.

Billing is complicated. In short, part of the problem is that doctors who take public insurance (Medicare/Medicaid) actually take a loss on those patients, because Medicare reimburses about 7% less than the direct costs of services, in the aggregate. It's one of the reasons you see very few private practices which cater solely, or even primarily, to Medicare patients.

The way providers make this work, since they can't negotiate rates with Medicare, is to charge higher rates for private insurers. This ends up as an effective subsidy from private insurers to Medicare.

A doctor who doesn't accept any insurance whatsoever doesn't have to manage this indirect subsidy, so the amount they charge a self-paying patient could be a lot less than what another doctor would bill a private insurer for.

I would like to learn more about this. Some people here (who claim to be intimately involved with the actual financial aspects of running a clinic) say it's the opposite -- that Medicare actually pays the bills so the clinic stays open because the private insurers are so effective at getting out of paying anything.

Surely there is a reliable source that can confirm one way or another how this works in practice? I get that it is probably arcane and difficult to understand, but in a country as vast as the US there is probably someone who understands it well enough to summarize for a layman.

> Some people here (who claim to be intimately involved with the actual financial aspects of running a clinic) say it's the opposite -- that Medicare actually pays the bills so the clinic stays open because the private insurers are so effective at getting out of paying anything.

Oh no, definitely not. Granted, the number I cited is for the aggregate, so it's not going to be exactly true for all practices. Things might look different if you're talking about a public clinic that specializes in low-end care for the poor, but by and large, it's definitely the other way around. Medicare is actually quite notorious among physicians for taking ages to remit payments even for bills that they have approved.

That said, the dynamic usually goes like this:

1. Patient sees doctor for routine procedure 2. Doctor submits bill for $8,000 to private insurer 3. Private insurer says "no, that's way too much, and also you didn't document this part sufficiently" 4. Doctor resubmits bill with more supporting evidence for that part, but a lower total amount 5. Repeat steps 3-4 an arbitrary number of times 6. Insurer says, "okay, to save work next time we'll agree to pay you 400% of what Medicare does for all of these procedures for the next year".

So in that sense, private insurers negotiate their rates, so it seems like they're "getting out" of paying, but in reality they're still paying multiples of what Medicare is.

One confusing quirk: most Medicare patients[0] actually have their insurance plans managed by private insurers, so billing and reimbursements for those would be handled by the private insurers.

> Surely there is a reliable source that can confirm one way or another how this works in practice? I get that it is probably arcane and difficult to understand, but in a country as vast as the US there is probably someone who understands it well enough to summarize for a layman.

The numbers are available in Medicare's annual reports. That's not very user-friendly - last I checked, they were still available in full only on paper(!), and you have to understand financial accounting a little bit in order to parse the numbers yourself. (It's not like they want to make it easy for people to find out how they're under-reimbursing).

Though in terms of secondary sources, if you look at documents written by and for other hospital and insurance adminstrators, you'll find a lot of references to this practice. They don't really talk about it more broadly for political reasons, and also because it's something that's really difficult to explain to the public, and because I'm not convinced the public actually cares.

> but in a country as vast as the US there is probably someone who understands it well enough to summarize for a layman.

There probably is, but getting to my last point - I'm not sure people actually care enough. To be honest, I used to talk about it a lot more on HN (if you search my username + various combinations of "Medicare" or "health insurance", you might find other posts where I've gone into more detail and linked to other materials). But even on HN - let alone with the broader public - I get the sense that most people don't want to understand the complexities of billing and reimbursements and the interchange dynamics between insurers. It makes for a much more complicated narrative than most people are looking for, and so it's easy to gloss over in favor of a simpler one, especially one that fits more neatly into a partisan narrative.

[0] Not most people with Medicare (yet), but most Medicare patients (people with Medicare advantage are a minority, but they account for a disproportionate amount of people who actually use their plans - largely because Medicare is damn-near impossible to use as a patient if you're not on a private network. Ask me how I know that one.)

I'll bite, how do you know that one? This conversation is incredibly fascinating to me.

> I'll bite, how do you know that one? This conversation is incredibly fascinating to me.

I have lots of Medicare horror stories, from both personal and professional experience.

I founded a health-tech company aimed at ensuring that people who were discharged from the ER received proper outpatient followup care. This is a big problem - most people who leave the ER receive their next medical care from another physician in the ER (ie, a subsequent visit).

There are a lot of reasons that patients don't have followup care, but a big one is the amount of coordination and effort required. A lot of that we could automate or do efficiently, because we were handling the process for many patients at once. But dealing with Original Medicare[0] was particularly awful. Original Medicare's coverage is actually quite terrible (from the patient's perspective) and, to make matters worse, lots of providers don't accept Original Medicare[1], because it's a lot of hassle and may not even pay for itself. We had by far the hardest time with Original Medicare patients compared to Medicare Advantage patients. Even Medicaid was arguably better, for reasons which aren't relevant here.

From a personal standpoint, I've seen how frustrating it is to arrange for proper care for family members on Medicare, and that's with the knowledge we have about how the whole system works together. For ongoing care, such as physical therapy or dialysis[2], Medicare will often cover a small amount, but not enough to really make an impact. Say, you need three sessions a week, but Medicare only covers one. However, because providers can't bill a patient directly for services that Medicare does cover (even if Medicare won't cover that service, because the patient has hit their cap, or whatever reason), that means you... can't receive it from that same provider. So you have to find a different provider for the remainder, which means you now have two different providers and all the problems that means. That is, of course, assuming you manage to find one who will let you self-pay, and you have to cover it out of pocket.

To be fair, that last point applies both to Original Medicare and Medicare Advantage; Original Medicare just happens to be worse about it.

[0] Original Medicare is the term used for Medicare plans that aren't offered through private insurers

[1] e.g. http://www.oregonlive.com/finance/index.ssf/2015/10/medicare...

[2] Dialysis is actually particularly heinous for another reason - due to a legal loophole, Medicare basically forces private insurers to pay for nearly all dialysis, albeit indirectly.

Medicare reimburses some smaller facilities at a higher rate than other facilities.

"critical access hospital" is a good search term. Basically every small town hospital that has an ER.

Another term is "rural health clinic"

to help clarify this -- they pay 1% more than the normal rate. to CAH's

https://www.ruralhealthinfo.org/topics/critical-access-hospi...

The 101% of cost reimbursement is a different payment model than used for bigger hospitals (Prospective Payment Systems https://www.cms.gov/medicare/medicare-fee-for-service-paymen... ).

And no one else pays anywhere near 100% of 'reasonable costs' (they pay more, or in the case of Medicaid, less). So I wouldn't call it the normal rate.

I was curious, too. I found this older article on Forbes, which cites MedPACs annual report- http://www.forbes.com/sites/aroy/2011/09/21/medpac-64-of-hos...

Note, many of these hospitals are nonprofit, and benefit from donations and grants too- so it isn't entirely clear that they need to earn a profit or even break-even on "patient care" alone.

With all that being said, the Forbes article seems to be promoting the idea of making patients pay higher co-pays in order to prevent them from actually using their Medicare benefits, and reducing the demand for health care overall.

It seems to me like a much better strategy would be to increase the supply of care (More training facilities to increase #'s of doctors, better, more streamlined regulations to reduce the operating costs, etc).... but it doesn't seem like the politicians are interested in fixing the real problems in healthcare. We shall see what the new Congress/President brings to the take, but I don't hold much hope

As a family physician, i can tell you that most physicians lose money on medicare rates b/c of the added administrative costs. And that just got worse 1/2017 with the addition of 962 pages of new laws (medicare:macra/mips).

So why don't those physicians stop doing medicare work? If you have a client for whom your work is loss-making in aggregate, why not fire that client?

If you take Medicare patients, the fee you charge them is the floor for everyone else. You can't charge anyone less than you charge Medicare.

The reason most facilities take Medicare is that Medicare typically covers the marginal cost (and then some) of whatever services the patient is using. You can't sell yesterday's hospital bed, so better take the pittance from Medicare than get nothing for it.

> The reason most facilities take Medicare is that Medicare typically covers the marginal cost (and then some) of whatever services the patient is using. You can't sell yesterday's hospital bed, so better take the pittance from Medicare than get nothing for it.

Actually, Medicare doesn't cover the marginal cost. In the aggregate, they reimburse 7% less than that.

Many facilities take Medicare because they are literally obligated to. Right now, many providers (hospital networks, but some practice groups) are actually trying to figure out ways to restructure their businesses so they can legally drop Medicare, but it's difficult.

What law/regulation/contract is requiring healthcare providers to take Medicare?

> because Medicare reimburses about 7% less than the direct costs of services, in the aggregate. It's one of the reasons you see very few private practices which cater solely, or even primarily, to Medicare patients.

Could you please point us to the source of this information?

It was my understanding, from a news article I read a few years ago, that Medicare evaluates each medical procedure and comes out with a fair price that guarantees fair profit for the provider.

I think it might be that providers cannot charge insane profits to Medicare so they rather avoid dealing with them.

Medicare negotiates a MFN clause, so they are - out of the gate - at the lowest rate any clinic ever charges, with no eye towards profitability.

Because it's well known in healthcare economics (or at least finance/administration) I thought the ~7% aggregate number would be widely published and that I'd be able to quickly find a link for you. For reasons I don't understand - it is not - but here is a link that has a chart/graph from Davita that talks about the phenomenon (in micro, not macro):

  - http://www.rationalwalk.com/?p=14802

Why would any provider provide services to medicare/medicaid, if they are reimbursed less than their direct costs?

We here this question a lot - how do i afford the insurance PLUS the membership. To which we try to show how can you afford your insurance WITHOUT the membership. BC the directcare model can decrease the patients out of pocket expenses dramatically on visits, copays, procedures, medicines and labs.

i've been a direct care doc since 9/2010 and happy to answer any questions. to (quickly) define the model: $10-100/patient/month for unlimited home/work/office/technology visits, no copays, any procedure we can do in the office is included free, and wholesale savings on medicines, labs, imaging, pathology of up to 95% (yes!)

We can then take all of this value and go back to an employer and help decrease insurance costs by 30-60%.

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