When the third word of an article with a quantitative angle is hyperlinked to an article by the same author, an MD who also holds an MBA, and the linked article reveals that the author can not actually calculate “markup” correctly, look hard at both pieces. Behold Why direct primary care is the future by Todd Rice, MD, MBA.
That piece ends up with a spreadsheet purporting to compare the OOP costs Rice would incur before satisfying his $3000 deductible for his annual needs under an FFS practice in his insurer’s network versus the OOP cost (including the DPC fee) for the same goods and services at his chosen direct primary care clinic. The totals were FFS — $3095 and DPC — $2685, a savings of $410 on the year.
View Dr. Rice’s spreadsheet analysis here.
The savings amount to 13%, appreciable but hardly revolutionary. Yet, even that 13% savings seems questionable or, perhaps,
complete and utter bullshit applicable only in the rather unique circumstances in which Dr. Rice finds himself. Here are some reasons why.
Most of the savings can be accounted for by the difference (about $310) between the retail price of two long-acting insulins Rice favors and wholesale prices researched by his DPC provider. Rice can only be satisfactorily treated with Lantus and/or Tresiba. Although both these basal insulins are in the formulary of insurers covering 80% to 90% of commerically insured patients, Rice’s insurer covers neither of them.
Despite Rice’s apparent inability to select a different insurer or a different basal insulin, the odds are excellent that another patient with Rice’s unique basal insulin requirements will be able to avoid Rice’s insurer; the odds are also quite good that patients stuck with Rice’s insurer can find a satisfactory basal insulin in that insurer’s formulary.
Alternatively, anyone with a critical need for specific out-of-formulary drug may often avail themselves of a formulary exception process, sometimes including an independent external review. Granted, an insurer is never required to grant an exception but, if a review process finds that a person is likely to have serious medical problems without the requested medication, an insurer’s self-interest lies in granting the exception to avoid potentially large claims for treatment needs arising from medical complications.
Rice goes on to state, however, that even if these insulins had been covered by his particular insurer, he would still have had to pay full retail prices for these drugs until he had met his $3000 deductible. Rice’s is a very strange insurer indeed, because that choice will accelerate the rate at which the insured meets the deductible, and that will cost the insurer money.
Example math: Patient needs a drug which costs $300 a month retail but only $249 at the insurer’s negotiated price from the pharmacy. If the insurer requires patient to pay $300 a month, patient satisfies the deductible in ten months and the insurer pays its (typically 80%) share of the cost for two months. But if the patient pays only the negotiated price, the patient would spend $2988 for a full year of the drug and not meet the deductible; the insurer would pay nothing. Sadly, because Rice’s insurer apparently has not figured this out, Rice’s insurance premium is probably more than it would be with a more typical company.
In any case, Rice’s case is at best a very odd outlier in terms of his having to pay full retail pricing for his two particular insulins and doing so without his payments being credited toward his deductible. A typical patient getting exactly the medications and services Rice has charted, even if incurring the full $3095 in charges Rice listed, will satisfy a $3000 deductible and begin receiving after-deductible benefits. On the other hand, had that same patient elected to “save” $410 by aping Rice’s choices, that patient would still be $3000 away from meeting that deductible.
View Dr. Rice’s spreadsheet analysis here.
Ross’s comparison includes laboratory fees for nine laboratory tests annually performed either by the DPC clinic versus or by a commercial laboratory at full retail prices. The result is astounding: DPC at $200 versus $807.
Apparently, Rice’s unusual insurer requires for labs, as it does for drugs, that patients in the deductible phase pay full retail price. Again, that policy will accelerate the patient’s advance toward meeting the deductible and, thereby, cost the insurer more money. But what would a patient like Rice pay if he had a less obtuse insurance company?
A major Rand study just found that ordinary private insurers pay hospitals about 240% of what Medicare pays for similar services. It seems likely that private insurer reimbursement of laboratory services would follow a somewhat similar pattern. So, it seems fair to assume that an ordinary insurer pays no more than 350% of Medicare rates.
Medicare pricing for the same testing regime as Rice received would be $105. At 350% of Medicare priving or less, an ordinary insurer would very likely have a negotiated price of less than $367 for those services; a patient who had not satisfied his deductible would pay $367 OOP rather than the $807 Rice included in his comparison. That $440 difference would transform the cost analysis developed in Rice’s computation from a $410 win for direct primary care into a $30 win for applying FFS insurance (even on the assumption that FFS patients pay full retail for prescriptions).
View Dr. Rice’s spreadsheet analysis here.
For the basic package of services in Rice’s chart, Rice is paying $2,685. A similar Lantus/Tresiba-dependent diabetic with a normal insurance company would likely be paying $30 less (even if they did have to pay full retail for prescription medications). Unlucky Rice is $3000 away from meeting his deductible; a Rice-like patient with a typical insurance plan is thousands of dollars closer.
For patients with normal insurance, Dr Rice has not demonstrated that direct primary care is the future. Dr. Rice has, however, discovered a growth market for direct primary care: patients whose unusual prescription drug needs run up against a mismatched formulary from an insurance company that also happens to harm its own profitability by allowing patients to accelerate meeting their deductibles by overpaying for labs and pharmaceuticals; it’s probably a niche market.
Making progress toward meeting a deductible matters. Interestingly, it is quite likely that a Lantus-Tresiba dependent diabetic requiring precisely Rice’s regime and insured by a typical company will meet a $3000 deductible each and every year.
In addition to labs and drugs, Rice’s analysis had a third cost category, physician office visit fees. For PPS, he indicates $433 for an initial visit and three followups; Rice based that pricing on insurer-negotiated fees. Assume that a normal insurer’s drug pricing reflects the same modest discount (17%) on Lantus and Tresiba as the DPC clinic obtains; that’s an $1855 drug cost. Then, add in $367 for labs at 350% of Medicare prices. Combine visits, labs, and drugs and the patient pay amount is $2655.
But some things are still missing. Most people on a basal insulin also take a rapid acting insulin during the day on an as needed basis. In fact, according to his earlier article, Dr. Rice’s regime includes one or two doses of Novolog each day. Because Novolog, like other rapid acting insulins, has a short half-life, a user is instructed to discard his pen (or vial) every 28 days. This means any regular Novolog user, even one using a small amount, will require at least 13 Novolog pens per year. The most heavily discounted price of Novolog works out to more than $26 per pen, $345 per year.
Bingo! $345 + $2655 = $3000. Someone just like Rice, but sadly not Rice himself, will meet his deductible every year.
And that will be helpful, because there still more items that need paying for.
Insulin pens require pen needles. For one daily dose of Tresiba and one or two daily doses of Novolog that’s about 900 needles a year. They come 90 or 100 to a box. That’s a hundred dollars a year, rock-bottom. Patients who have met their deductible, are probably getting at least $75 dollars worth of help. Then, there’s the cost of testing supplies. Even at rock-bottom Medicare prices, that’s $200 a year. Patients who have met their deductible are probably getting help of at least $150 year.
For patients lucky enough to have normal insurers, their annual diabetes costs alone are likely to come to at least $3250 with $3075 OOP and an insurer contribution of $175.
And, of course, they will have only co-pays and/or co-insurance should any other expenses arise. They might cough up $600 when a $3000 bill arrives, while Dr. Rice eats the whole meal after having already paid $3250 through the DPC.
Don’t you hate it when anesthesiologists are bad at math?