The concept of direct-pay has become popular in medical care, representing a small, but growing movement.  What is it, and why has it become popular?

The concept of direct-pay simply means paying for things directly, rather than having some third party pay for it.  This concept is not at all foreign; we pay for most things directly--groceries, gas, clothing, etc.  Of course, we don't typically say we are going to a direct-pay grocery store, for instance, because essentially all grocery stores operate on the same payment model.

However, medical care is a special beast.  It has become so messed up that the usual way of paying for care is a complicated third-party payment system.  Doctors and other medical facilities contract with insurers and the government to get paid for their services.  Patients buy health insurance or get government coverage; these insurers or government then pay the doctor or other medical facility.  In all this mess, there are negotiations, regulations, rationing of care, restrictions of networks, and on and on.

Since third-party payment is the usual in medical care, we have to make a distinction when talking about medical care that patients pay for directly--hence the term direct-pay.

There are some variations on the direct-pay model, but for simplicity, just understand that it means the patient pays the doctor or facility directly for whatever service is provided, usually paid at time of service.

This concept is revolutionary, but why?  Before about 1950, most medical care was paid directly, so this idea is nothing new.  And why should it matter how the medical care gets paid for?  We are all following the science and only providing the best medical care, right?  Right.

Human nature is corrupt; it must be held accountable or it veers towards its worse tendencies.  Money is a strong motivator and corruptor; the Bible tells us the love of money is the root of all evil.

In the current third-party payment system, it is no secret that insurers and doctors and medical facilities are trying to make money.  Nothing inherently evil about making money, but there is a problem.

Doctors and facilities are motivated to perform as many services and procedures in the most billably expensive way possible because that is how they get paid.  You might say that the accountability comes from the insurer; after all, are not they motivated to keep costs low and to not pay for excessive care?  Yes, it is partly true, but this pressure mostly comes to bear on small practices because they have no leverage against large national insurers, and even less against the federal government.  This pressure really just favors large medical organizations who have negotiating power and who control whole geographic regions.  These large entitites find ways to negotiate financially favorable terms.

And insurers are not really that interested in keeping costs low; they are more interested in making money.  As long as premiums and various other complex rules maintain profitability, they don't really care how much money they pay out.  

For example, current rules require insurers to cover most preventive care with no out-of-pocket expense.  "Hah!  We really stuck it to the insurance companies, and patients can get free care."  Not really.  Insurers may even favor this kind of arrangement. They get to raise premiums that will adequately cover all these things, and it helps reduce the differential between high-risk and low-risk patients (the government limits the difference in premium between these two groups).  And they know that a large percentage of patients won't even get the recommended preventive care.  That's a lot of money the insurer can keep because those people are still paying those high premiums.

The net result is that doctors and medical facilities tend to provide excessive medical care at a cost that is excessive.  Insurers use a lot of fancy footwork to make it look to the patient that they are keeping costs down, when in reality they happily making money at the patient's expense.

The person who would provide accountability in these transactions is the patient, but the patient has no say in them.  Why?  Because the patient is not paying directly.  In fact, the patient is also motivated towards corruption.  Patients often say they want to get their "money's worth" out of their insurance, so they even accept excessive medical care (even though it may be medically harmful).  They also have the attitude that "someone else" is paying for it, so they might as well do it, as long as it is covered.

Even worse, is that doctors and medical facilities are quite careless in their commitment to the patient and to customer service.  The real key to success in medicine is in negotiating insurance contracts.  Secure the insurance contract and the patients are almost guaranteed.  No need to go to the annoying effort of actually individually winning patient loyalty or of providing high-quality care.  Many people are not happy with their doctors but stick with them since the doctors are in-network.  In other words, the doctor got the insurance contract so the patient is more or less stuck.

Along comes direct-pay to save the day.  The direct-pay model puts the doctor and the patient in direct relationship with each other and establishes direct accountability.

Let's say the doctor tries to do excessive testing or treatment. The patient will tend to resist because they are paying for it.  There is a joke:  A doctor says to a patient, "Would you be able to afford this procedure if I thought it was necessary?"  The patient replies, "Would you think it was necessary if I could not afford it?"

Further, the doctor is motivated to focus on the individual needs of his patient because it is the patient who is the customer that needs to be served.

The doctor or facility is also motivated to keep prices affordable and simple; they will lose business if not.

The current third-party payment arrangement in medical care has become a complex and corrupt system that harms patients.  A direct-pay model offers a simple alternative that puts doctors and patients back in the right relationship with each other, thereby benefiting the patient.