Opinion

The Cash Trend

Ever since the passage of the Affordable Care Act in March of 2010, the majority of monitoring, analysis, and litigation in Washington healthcare circles has revolved around the law’s ongoing implementation. Simultaneously, a different healthcare trend has begun to emerge: the advent of cash-pay and concierge medicine, particularly in family medicine.

There are many reasons for the rise of the cash-pay model. Physicians and insurance companies have battled for decades regarding compensation, but the government has added to the fray. With its recent track record of “patching” the Sustainable Growth Rate formula via multiple short-term extensions of existing payment rates (and sometimes using the patch deadlines as political footballs), the federal government has failed to support the physicians upon which the entire healthcare system rests. Furthermore, overall declining reimbursement levels for Medicare and Medicaid in relation to rising practice costs have created a general environment of fiscal difficulty for physicians.

The Affordable Care Act can be partially blamed here as well. During the 90-day grace period for health exchange enrollees who have yet to pay their premiums, insurers are only required to pay claims for the first 30 days. For the remaining 60 days, plans can withhold payment. If a plan is ultimately cancelled the insurer has no liability to pay physicians for any services rendered. Furthermore, physicians across the country are saying payment rates for exchange plans are lower than standard private insurance rates.

Thus, it should be no surprise that the number of physicians who have opted out of participating in Medicare tripled from 3,700 doctors in 2009 to 9,539 in 2012, according to figures the Centers for Medicare and Medicaid Services (CMS) provided to the Wall Street Journal last year. While the numbers indicate this still comprises a small percentage of the nation’s physicians overall, one does have to wonder where they went, and the numbers indicate many have gone into cash pay models.

In 2012 the American Academy of Family Physicians said about 4% of survey respondents reported taking only cash, up from 3% in 2010. Another survey by Medscape found 6% of physicians were utilizing cash-only businesses in 2013, up from 4% in 2012. Again, while the numbers are still small, the trend towards cash-pay is apparently growing.

Why does this happen? Currently, participating physicians must bill Medicare for any covered service even if a Medicare patient is willing to pay cash. In order to adopt a cash-pay model under current law, physicians must choose to opt out of the Medicare program for a period of two years in which they cannot bill Medicare for any services. This is a daunting choice for any physician.

Is Congress doing anything to lower that barrier? So far, not much. Some lawmakers are worried that wide adoption of the cash-pay model would undermine the traditional healthcare system that seniors are used to and comfortable with. Many more are focused on bigger things going on in the U.S. healthcare system.

Congressman Tom Price, MD (R-GA) and Senator Lisa Murkowski (R-AK) have long-championed a bill known as the Medicare Patient Empowerment Act which would allow patients and physicians to enter into a contractual agreement for the patient to accept charges for their medical services and self-pay for those charges. This would benefit patients willing to pay out of pocket for physician services without requiring those physicians to opt-out of the program altogether. The bill would also allow Medicare beneficiaries to see physicians who are no longer accepting Medicare patients and have Medicare cover a share of the charges while the patient agrees to pay any remaining balance. Even with strong support from the physician community, including the American Medical Association, the bill has failed to gain traction in either chamber of Congress since its initial introduction in 2011. Since this policy could have a broad impact in how some seniors finance their healthcare, perhaps it has been met with some of the aforementioned reticence by members who are wary to shake up the traditional Medicare benefit voters are used to.

However, other policies have been proposed that would take a smaller, but meaningful step towards creating more flexibility for cash-pay trends. Take, for example, the Accelerating Innovation in Medicine (AIM) Act introduced by Congressman Erik Paulsen (R-MN), who Co-Chairs the House Medical Technology Caucus. This bill would allow medical device manufacturers to choose to exempt a new product from Medicare coverage for a three-year period. This means that upon Food & Drug Administration (FDA) approval or clearance, the device will be immediately available as a treatment option for physicians and for Medicare patients who choose to self-pay, with no red tape, paperwork, or administrative costs. Ultimately, under the AIM Act a physician could offer an AIM product to Medicare beneficiaries who are willing to self-pay without being subject to any penalty and without having to opt-out of the Medicare program entirely. Congressman Paulsen is joined by several other lawmakers – both Republicans and Democrats – who serve on committees with jurisdiction over Medicare.

This is a simple way to provide more flexibility to physicians who are wary to leave Medicare but want to give their patients more control over their healthcare decisions, something more and more consumers in this country have come to demand. In recent years, Americans have begun to favor high-deductible health plans with Health Savings Accounts (HSAs) or Flexible Spending Arrangements (FSAs) over traditional health insurance models. High-deductible plans are now the second most commonly offered plans behind preferred provider organizations (PPOs). As the number of patients with HSAs and FSAs increases, it makes sense to provide them with access to products for which they can utilize those funds.

For the product’s manufacturer, it allows them to gather postmarket data on safety and outcomes while receiving cash-based reimbursement during the three year non-covered period. Once an AIM product has established outcome metrics and a value proposition for Medicare, the manufacturer can approach the agency armed with data which will allow the two parties to determine an adequate reimbursement level. The legislation requires manufacturers to continue discussions with CMS regarding newly gathered evidence for the device within the three-year exclusion period, ensuring a smooth and timely transition to coverage at the conclusion of the period and assuaging concerns that these products would remain outside the Medicare program in perpetuity. In the end, innovation is encouraged by the stability the AIM Act would give to manufacturers and investors looking to estimate post-market revenue streams.

Due to the fact that Medicare will not be paying for AIM products during the opt-out period, the AIM Act should also reduce Medicare expenditures. Thus, the bill could be a “win” for providers, beneficiaries, manufacturers, Congressional leaders, and taxpayers.

Perhaps it is time for Congress to pay more attention to the benefits of the cash-pay model this bill could provide. Until then, expect physicians to continue the trend without them.

Jeffrey J. Kimbell is the founder and President of Jeffrey J. Kimbell & Associates, a Washington-based consulting firm focused on the executive and legislative branches of the U.S. federal government and specializing in providing strategic solutions to a select group of healthcare sector clients seeking creation, modification, or proper implementation of public law. Kenneth L. Hodge is the Director of Government Affairs & Legislative Policy with the firm, where he has worked for four years.