Michigan DPCS Pilot Could Revolutionize Health Care Insurance and Save Billions

Published June 30, 2016

Michigan state lawmakers approved an omnibus spending bill after removing a requirement for the state Department of Health and Human Services (DHHS) to implement a money-saving pilot program enrolling Medicaid recipients in direct primary care agreements.

An initial 2,400 Medicaid recipients would be entered into direct primary care arrangements paid for by the state if DHHS implements the pilot, which the approved version of House Bill 5294 made optional.

After initially costing $800,000, the Direct Primary Care Services (DPCS) Medicaid Pilot would save the state $3.5 billion a year if fully implemented, state Sen. Patrick Colbeck (R-Canton) said in a press release following the bill’s passage on June 9.

The pilot also would provide enrollees with wraparound insurance: high-deductible coverage for non-primary care services excluded from the DPCS agreements.

In a typical direct primary care agreement, patients pay doctors a monthly membership fee of $50–$120 in exchange for preventive care services and a set number of office visits. Third-party payers, such as insurance companies, are not involved. When patients require specialized services not covered by the agreement, doctors may negotiate discounts for patients, who may pay specialists in cash or through insurance.

Reducing Costs, Federal Dependency

Colbeck says DHHS could reduce Michigan’s Medicaid costs, currently $17.5 billion per year, by 20–60 percent by implementing the DPCS Medicaid Pilot in the form initially proposed.

“There are regrettably few scholarly studies regarding the financial impacts of DPCS,” Colbeck told Health Care News. “The 20 percent figure is based on a Qliance study [and information from] The Heritage Foundation. My early investigations into the use of DPCS for Medicaid enrollees suggested that savings might be as high as 60 percent for comparable care levels.”

Dr. Chad Savage—a direct primary care physician in Brighton, Michigan—says the 20 percent savings estimate is low.

“It is an underestimate,” Savage said. “I do not feel it fully reflects the free-market pricing that this combination could unleash. As prices are largely set by the [Centers for Medicare and Medicaid Services], there is [currently] no motivation to innovate in a way that could drive down costs.”

The pilot could help establish direct primary care arrangements as a means of reducing Michigan’s dependence on federal funding to serve the state’s Medicaid population, Colbeck says.

“Sixty percent is a key threshold, because it would indicate that Michigan could serve the needs of its 2.4 million Medicaid recipients while cutting the cord to federal funding restrictions, since the federal government contributes 60 percent of the Medicaid funding,” Colbeck said.

Insurers Are Unsure

Insurance companies may prove an even greater obstacle than state law to spreading the benefits of the direct primary care model, Colbeck says.

“Insurance regulations will have no impact on DPCS due to my passage of Public Act 522 of 2014,” Colbeck said.

Colbeck says PA 522 protects direct primary care arrangements from being regulated as insurance, but many insurers may not yet have enough incentive to offer direct primary care patients wraparound insurance plans.

“Insurance industry market practices do offer the potential risk of blocking further expansion of DPCS practices,” Colbeck said. “While there is indeed a dearth of commercial high-deductible, wraparound insurance plans, there is a burgeoning market for companies offering employers self-insurance plans featuring DPCS, high-deductible health plans, and stop-loss insurance.”

Savage says the prominent third-party payer system incentivizes doctors to charge insurers, and insurers to pay, as much as possible for services.

In the prevailing system, “Physicians and all medical entities, insurance companies included, have the perverse incentive to ‘maximize the claim,'” Savage said. “This is a byproduct of using insurance as a financial instrument with which to pay for low-cost services.”

Diluted Program Lacks Promise

The decision on whether to seize the DPCS Medicaid Pilot’s potential health care benefits and financial savings for Michiganders lies with DHHS.

Colbeck says the diluted, optional version of the program lawmakers approved is unlikely to produce the financial savings or health care improvements a full, mandatory pilot would have enabled.

Lawmakers replaced Colbeck’s “prescriptive implementation guidelines in the Senate version” with “general guidelines that are insufficient to ensure Pilot success,” Colbeck’s June 9 press release stated.

“I have great concern that the version approved by the conference committee, which was included in the general omnibus bill, does not provide the framework necessary to effectively implement a DPCS Medicaid Pilot,” Colbeck said.

David Grandouiller ([email protected]) writes from Cedarville, Ohio.

Internet Info:

Matthew Glans, “Michigan Direct Primary Care Pilot Could Save Medicaid Millions,” Research & Commentary, The Heartland Institute, May 31, 2016: https://heartland.org/publications-resources/publications/research–commentary-michigan-direct-primary-care-pilot-could-save-medicaid-millionshttps://heartland.org/publications-resources/publications/research–commentary-michigan-direct-primary-care-pilot-could-save-medicaid-millions

Dustin Siggins, “Tennessee Lawmakers Offer Direct Primary Care as Alternative to Medicaid Expansion,” April 2, 2016: https://heartland.org/news-opinion/news/tennessee-lawmakers-offer-direct-primary-care-as-alternative-to-medicaid-expansionhttps://heartland.org/news-opinion/news/tennessee-lawmakers-offer-direct-primary-care-as-alternative-to-medicaid-expansion

Michael Hamilton, “Policy Diagnosis: Direct Primary Care Helps Patients, Doctors, and the Health Care System,” Health Care News, May 2016: https://heartland.org/news-opinion/news/policy-diagnosis-direct-primary-care-helps-patients-doctors-and-the-health-care-systemhttps://heartland.org/news-opinion/news/policy-diagnosis-direct-primary-care-helps-patients-doctors-and-the-health-care-system