USA Today

12/22/99- Updated 01:19 AM ET

Prescription: Cash paying patients get discount

By Julie Appleby, USA TODAY

A group of Seattle-area doctors were losing money fast when they hit on a solution: Cut costs by going back to the good old days when patients paid cash.

The doctors would save, and patients might, too.

"If you have a sore throat today and walk into a doctor's office, you might be charged $79. I'm showing how you can be charged $35," says Dr. Vern Cherewatenko.

At a time when health insurance premiums are rising rapidly once again - and 44 million Americans are uninsured - Cherewatenko says he has a simple, if controversial, answer: Cut the middleman.

See the doctor. Get a discount for paying cash. Forget about having regular health insurance that pays for every visit or test.

"Car insurance doesn't cover new brakes or tires or oil, but it covers if you slam the car into a wall," says Cherewatenko, who contends the same should hold true for health insurance.

Why pay hundreds each month for traditional health insurance or an HMO? he asks. Instead, he promotes buying less expensive policies that cover major medical care only after patients pay hefty deductibles of $1,000 or more.

The doctor is not alone in his views.

His non-profit association, through which doctors pledge to offer their "best price" to cash-paying patients, counts 200 other like-minded medical professionals in 35 states.

7% of major employers surveyed by Hewitt Associates last year offered high-deductible policies to workers, up from 2% in 1990.

Some experts predict the market will grow to favor high-deductible policies, a reversal of the recent trend toward HMOs with no annual deductibles and low office visit co-payments.

"We've got to create a normal market and get people to shop around, have some price sensitivity," says Dr. David Levy, chief executive of the New Jersey consulting firm Franklin Health.

But skeptics abound. Sales of high-deductible policies have remained flat, they point out.

Even among employers that offer such plans, few workers choose them, opting for plans with no deductible and small payments for seeing a doctor.

"Employees like having a $10 co-pay for an office visit," says Kent Lonsdale, senior vice president of March USA, an insurance brokerage.

"To ask them to go back to the old system where they pay 20% and an annual deductible would be difficult."

Cost concerns

And then there's the matter of cost.

Many people who buy their own insurance - or are uninsured - could not afford cash-based care, even with a discount from doctors, critics say.

Patients would be tempted to put off medical care, especially such things as cancer screenings or lab tests, which managed care insurers generally cover for a small co-payment, but could run into the hundreds of dollars for those without such coverage.

"(Cherewatenko's plan) may be a great idea for the 20- to 30-year-olds who are unmarried and relatively healthy, but anyone over 50 who has any kind of chronic illness or needs drugs has got to have a real insurance program," says Wendy Everett of the Institute for the Future, a California-based health care think tank.

"It does nothing for the 44 million uninsured, nor does it help most of the rest of the country," Everett says.

How it works

Cherewatenko is not dissuaded. He says his idea, called SimpleCare, could work for 95% of the population. The uninsured end up paying higher prices to see a doctor because of managed care, he contends.

As insurers negotiated discounts with doctors and hospitals, medical providers tried to make up for lost revenue by charging more to self-paying patients.

"People with no insurance end up paying the retail fee," says Cherewatenko.

To break that cycle, the doctor says medical offices need to cut their overhead, then pass the savings to patients. The best way to do that, he says, is to do away with billing hassles, opting instead for a cash-based business.

Under traditional insurance, his practice loses $7 a patient for a routine visit, he says. Out of the $79 he charges for the visit, the insurer pays $43. After deducting overhead and the $20 he estimates it cost to bill the insurer, he says he loses $7. That same visit could result in a $5 profit if he simply charged the patient $35 in cash, skipping the insurance billing expense, Cherewatenko says.

So he's set his cash fees like this: A 10-minute visit costs $35, a 20-minute visit, $65 and a half-hour, $95.

Other doctors, who pay a $35 membership fee to join the SimpleCare program, set their own fees, promising only the "best price" to cash-paying customers. Patients join SimpleCare for $20 a year.

The program has run afoul of California regulators, who say SimpleCare sounds like an insurance plan -- and needs to be licensed in the state.

"This is absurd," says Cherewatenko. "We're not a health plan. We're a nonprofit association of patients and doctors wanting to help create solutions for health care." But the doctor says he will stop offering SimpleCare in California.

Before SimpleCare, his Renton, Wash.-based practice of 55 doctors was losing $80,000 a month. The group downsized to four, and Cherewatenko lost his house and office building.

But now, he says the group, which gets about 30% of its business in cash, is paying down its $1 million debt by about $25,000 a month.

One of his supporters is Dr. Shelley Giebel, a gynecologist in Temple, Texas, who joined the SimpleCare program about four months ago.

"I saw an uninsured lady yesterday who said it was a lot cheaper to come to me for a $150 annual exam and pap smear than pay $200 to $300 monthly for a managed care plan," says Giebel. She practices what she preaches: Her family of four has a major medical plan with a $4,500 annual deductible. Her monthly premium is $115, well below what an HMO would cost.

Although she doesn't deliver babies, Giebel says even that could be covered with cash payments.

"How many children do you have in a lifetime? Let's say the average is two, at about $10,000 a delivery," she says. "That's $20,000 in a lifetime. "People spend more than that every few years on a new car. Don't you think we have our priorities screwed up?"

By adopting a cash-based practice - she doesn't accept any type of insurance - Giebel says she keeps her overhead low, employing a receptionist and one medical assistant. She has made arrangements with specialists and testing labs to offer discounts to her patients.

Still, there are times when a patient can't afford everything.

"If I see a patient needs a thyroid test and a cholesterol test and the bill is running up, I have the receptionist itemize the fees, then the patient can decide," the doctor says.

"Maybe she doesn't want to do her cholesterol right now. We'll send her a reminder in a couple of months."

Less care?

But that's exactly the problem with the idea, some doctors say.

"The cash idea sounds great, but it may impede people from getting the care they need," says Dr. Bruce VanVranke, a family practitioner in the Los Angeles area.

While the idea is intriguing, a cash-based business might fail in the long run, some say.

"As you develop continuity with patients, you see them more often. The idea of paying cash now and then is one thing, but if you're doing it on a regular basis - kids get sick every two or three weeks - it gets costly," says Dr. Larry Snyder, another Southern California family practitioner.

And if many people pulled out of traditional managed care plans, opting for high-deductible policies or no insurance at all, it could raise premiums for everyone else, critics say.

"Insurance spreads the cost among those who are sick and those who are not," says Ron Pollack of the Washington advocacy group Families USA.

"If all of us who are healthy and wealthy opt out of regular insurance, it would leave the poor and the sick, meaning their premiums would escalate enormously."