Can We Reduce Health Care Costs with Better Primary Care?

Primary care is the only health care component where an increased supply is associated with better population health and more equitable outcomes.

That’s the conclusion of a report by the National Academies of Sciences, Engineering, and Medicine. The report went on to say we need better primary care—where doctors with different skills share information and work in teams.

Here is what the report didn’t say: The reforms it called for happen naturally when markets are free to meet consumer needs.

Consider a Restaurant Analogy

Every restaurant engages in bundled pricing. Descriptions of food items appear on a menu with prices next to them. The food bundles change over time, depending on consumer preferences and competition from rivals. Every restaurant also makes some items available for free—such as salt and pepper, bread and butter, cloth napkins, a slice of lemon and sugar for your iced tea, sugar and cream for your coffee, etc.

Now suppose the government imposes emergency price controls on restaurants. An edict says the restaurant cannot charge customers for anything that isn’t already priced on the menu and it can’t raise those prices even though inflation is pushing up the cost of everything the restaurant offers.

What would the restaurant owners do?

To have any hope of staying in business, the first step would be to get rid of all the freebies. So, if you want salt and pepper with your entrée, or lemon and sugar for tea, you would have to bring all those items with you.

Then, the restaurant would try to reduce food costs—say, by serving smaller portions or providing lower quality fare. Then, it would try to cut staff. That might mean longer waits for your food and maybe a glass of wine that arrives when you are halfway through your meal.

Absent price controls, upscale restaurants offer coordinated service. Order a drink at the bar and the item will automatically appear on the check the waitress brings to your table at the end of your meal. Flag down any of the support staff and whatever you request will also appear on your bill, delivered by someone else. Coordinated service means that whatever you communicate to one server is automatically shared with all the other servers.

With price controls, however, coordinated service involves a cost without any corresponding revenue. Coordination tends to get dropped when the restaurant is forced to minimize the cost of service.

All this means that restaurant visits under price controls would become a very different dining experience for customers. In fact, it wouldn’t be all that different from a trip to a doctor’s office.

Consider the Doctor’s Office

The other day I was at the Subaru dealership in Dallas, having my car repaired. I was struck by how spacious and comfortable the waiting area was. In addition to simple creature comforts, the facility offered free coffee, free soft drinks and free snack items including peanuts, candy, cookies and nutrient bars.

By contrast, a typical doctor’s office is quite spartan. The seating is usually austere, the flooring is low-budget (if there is carpeting, it is probably worn), and there are no free drinks or free food. If there is a restroom, it is probably located somewhere else in the building.

Like the price-controlled restaurant, doctors cannot afford to offer uncompensated services. Nor can they raise their fees. The only way they can pay the rent and other costs is by seeing more patients and spending less time with each of them.

Doctor fees are essentially set by Medicare and by insurance company bureaucracies that tend to pay the same way, usually at some multiple of what Medicare pays. All told, Medicare has 10,000 specific tasks it pays doctors to do. If doctors do something that is not on Medicare’s list, they receive nothing—regardless of how beneficial the task is for patients.

While the list of tasks seems voluminous, there are many important services that aren’t on it. For example, until the Covid pandemic forced a change, doctors didn’t get paid for consulting with their patients by phone, email or Zoom. Even today, they don’t get paid for helping patients find a low-cost outlet to buy drugs or obtain an MRI scan.

The bundles of services offered at the doctor’s office are determined by government edict, not by supply and demand.

If a patient has five chronic conditions, the doctor isn’t paid full price unless she schedules five separate visits. And the doctor gets nothing for consulting with other doctors who are specialists in their patients’ medical conditions. There is no financial reward for coordinated care.

Unlike a free-market restaurant, doctors are not free to reprice and rebundle what they offer—when technology changes or medical science progresses. That basically means doctors are not free to serve their patients the way lawyers, accountants, investment advisors and other professionals serve their clients.

Put differently, they are not free to practice medicine the way they would like to and the way they were trained to when they were in medical school.

Direct Primary Care Is Different

Virtually every patient-pleasing deviation from what I just described has emerged outside the third-party payer system, with its Medicare-imposed pricing. What we used to call “concierge” medicine is now called direct primary care (DPC), and the price has come way down. Instead of fee-for-service payment, patients pay a monthly fee (say, $50 a month for a mother and $10 for her child) for all primary care. Patients are usually able to reach their doctor by phone at nights and on weekends as an alternative to visiting the emergency room.

The DPC market is booming, and employers are enrolling their employees. The whole process would be easier if the employer could put funds in a Health Savings Account and let the employee pay the monthly fee to the DPC of his or her choice. This is one of several public policy changes I recommend to help the market work better.

Medici Is Also Different

Medici is an Austin-based company that operates on the premise that employers can lower their health care costs with high-quality primary care. Among their offerings:

• More time with the patient: whereas a typical primary care practitioner sees from 3 to 5 patients an hour, Medici says its doctors see 1 to 2.
• Easier access to care: Medici encourages patients to see their doctors virtually from the comfort of their home or place of work.
• Faster access to care: Whereas it normally takes patients 3 weeks or more to see a doctor, Medici boasts that its patients can access their “concierge portal” in less than 2 minutes, receive an urgent care consultation in 10 minutes, and receive a PCP or specialist consultation the same or next day.
• Coordinated care: A woman with poorly controlled type 2 diabetes, obesity and moderate hypertension could be supported by a collaborative team that includes a primary care provider, a lifestyle medicine physician, a diabetic educator/health coach, an endocrinologist and a cardiologist.

Interestingly, Medici only employs doctors it judges to be empathetic. It cites the book Compassionomics for the claim that there is a 51% decrease in specialist referrals and a 41% decrease in diagnostic referrals (labs, imaging, etc.) when patients feel they are receiving compassion from their doctors.

Lessons

We need more Medicis. We need more direct primary care. And we need more experimentation with ways to produce low-cost, high-quality primary care by operating outside the traditional third-party-payer system.