Rx for health care? Low fees, cash only

by Carol M. Ostrom
Seattle Times staff reporter

RENTON - Dr. Vern Cherewatenko is nearly bursting with excitement.

As soon as a patient slides off the exam table, Cherewatenko starts scratching arrows and diagrams in purple ink on the still-warm paper cover, so eager is he to show how his idea will revolutionize the health-care system.

For all his arrows and flow charts, this is a simple idea: Patients pay cash, and doctors get rid of their administrative overhead and charge a reasonable fee.

Doctors stave off bankruptcy - a very real threat to many because of low insurance reimbursements and high administrative costs, says Cherewatenko - and patients, even ones without insurance, get access to health care.

He and his colleague, Dr. David MacDonald, a doctor of osteopathy, call their new system "SimpleCare."

He says his network already includes thousands of patients and 120 physicians and other providers. At this point, 30 to 40 percent of his practice is cash only, and he's hoping to sever his ties with the remaining insurers soon.

At this point, SimpleCare is aimed at those patients without insurance - 44 million plus nationally, according to recent estimates.

When Cherewatenko's not busy developing Web sites for SimpleCare and related companies, he's promoting his idea to anyone who will listen, an effort that has paid off with mentions by the American Medical News, NBC-TV, Newsweek and Forbes.

Understanding how his system works, Cherewatenko says, involves tracing two patients through his office for a simple office visit.

Patient No. 1 has insurance. Cherewatenko would normally charge $79 for a 10-minute visit. The patient's insurance company, under a managed-care contract, only pays him $43. But Cherewatenko has spent $20 in administrative expenses, $30 in overhead.

Oops! He just lost $7 on that patient.

Here's patient No. 2. Same 10-minute visit. The patient pays cash, on the spot. Cherewatenko can zap his administrative expenses because he doesn't need billing staff for this transaction, he doesn't need computers to print bills or postage to mail them, and he doesn't need to wait months for reimbursement from the insurance company. So he can charge patient No. 2 $35 - and clear a profit of $5.

"This whole administrative garbage is not only very expensive, but limits choice and care," Cherewatenko says.

Along with the media attention, SimpleCare also has collected critics. They note that doctors' fees are a small part of health-care costs and wonder who, if not insurers, will put limits on overly enthusiastic doctors. And they wonder what will happen to patients who get really sick.

For Cherewatenko, these issues are speed bumps, not roadblocks.

Alternative to bankruptcy

At a Sunday breakfast more than a year ago, he and two colleagues hatched the idea of SimpleCare. They all faced financial problems because managed-care reimbursement had been changed and because insurers were balking at paying for alternative treatments.

Cherewatenko's ambitious clinic-building project had left him teetering on the edge of bankruptcy. He owed money everywhere and was losing $80,000 a month.

"Three of us were sitting together, and we said: 'We're losing our butts!' " Cherewatenko recalls.

His partners were MacDonald and Nasser Ordoubadi, a physician now facing trial on 33 federal charges stemming from reimbursement disputes with insurers.

Ordoubadi, who is no longer with Cherewatenko's clinic, Primary Care Providers, has pleaded not guilty to the charges. His lawyer, Peter Camiel, says his client is guilty only of trying to "follow the rules and provide good health care for his patients."

The three conceived SimpleCare in the hope of turning around their financial nose dive. Along with instituting the cash system, Cherewatenko closed four clinics in the five-clinic network and cut staff drastically - dropping 35 of his 40 physicians and 110 of his 120 other employees. Within three months, he says, he was making $10,000 each month.

Cutting staff helped, of course. But Cherewatenko is convinced it's the cash system that really made the difference.

To participate in the program, individual patients pay a $20 annual membership fee; families, $35.

Providers agree to charge their "best price" to cash-paying customers. For a $35 fee, they are listed and linked to Cherewatenko's numerous Web sites, including HealthMax, which sells vitamins, minerals, herbal products, and other nutritional supplements and health products.

Patients get affordable access to health care and, if all goes as Cherewatenko plans, discounts on services and products offered by other parts of the health-care system. "It's like Costco," he says.

To market his system nationally, he has started the American Association of Patients and Providers, which he runs out of his Renton office.

Why would patients who have insurance - still the vast majority in this state - sign up for SimpleCare?

Cherewatenko says insurance often doesn't cover the sort of treatments he and some members of the network offer, such as services for obesity, diabetes education or prevention, mental health or acupuncture.

Critics see serious flaw

What about patients with serious problems - cancer or a brain tumor? He says only 3 to 5 percent of patients need to spend more than $2,000 on health care a year. But for those who do, say critics, there's a serious flaw in Cherewatenko's system.

Right now, it's very difficult to find a low-cost, high-deductible policy that insures only for "catastrophic" or "major medical" expenses. For example, Regence BlueShield, like other large insurers in the state, isn't writing any new individual policies for next year, and doesn't offer any catastrophic plans through employers, says spokesman Chris Bruzzo.

One enthusiastic SimpleCare patient, who recently left a large company and group health insurance behind, thanked Cherewatenko in an e-mail for "coming to my rescue."

But, she asked, almost as an afterthought: "What's the scenario should you need emergency care, operations, etc.?"

Critics of the "cash-only" system say the answer's obvious: You'll either pay cash, or you'll end up being paid for, indirectly, by people who have insurance.

"If one of (Cherewatenko's) patients who is paying cash has a condition they can't afford to pay for," says Regence's Bruzzo, "they'll end up in another part of the health-care system - in the emergency room or at the hospital."

By law, hospitals have to take emergency patients.

Insurers say they're not likely to offer more in the way of individual policies, catastrophic or otherwise, until changes in laws give them more protection from losses.

"To be honest with you, the environment is not favorable to doing business in Washington," says Mike Corne, vice president of Golden Rule Insurance, an Indiana-based company specializing in individual-market insurance.

Corne, who is coming here soon to talk with Cherewatenko, says he's intrigued by SimpleCare and thinks it would be a "good fit" with policies offered by his firm in other states. He also thinks the idea will prove attractive to patients and providers, who are frustrated and confused by the complexity of current managed-care requirements and paperwork.

"We'd be happy to participate in this type of arrangement," he says.

"If you go for a $50 doctor-office visit, why in the world do you want to spend $5 to $10 for the insurance company to handle the paper transaction?" Corne asks.

Role of insurers

Some people think insurers only make it difficult for doctors to give good care, for patients to get the care they need. In this view, insurers add a costly, unnecessary layer that has no real value to the patient or the provider.

But others argue that insurers provide the only real check on overly enthusiastic providers who might recommend therapy that isn't effective, proven or safe.

"Our role is to be stewards of the health-care resources we have," says Bruzzo, the Regence spokesman. "I'll tell you, in the last 20 years, employers have been very clear to health plans that health plans have to address the cost of health care for employees."

Insurers also ensure that providers included in a network have proper credentials and good standing, Bruzzo says.

Some health-care experts note that doctors' fees are a very small part of the total health-care cost. Discounts on doctors' fees, they say, won't do much for most people.

But the concept clearly resonates with some patients and providers.

"What a fabulous concept," wrote Alan Gibons, a Web-based multi-media designer from New Jersey. "I would really like to see your concept take the nation by storm!"

Dr. Bruce Stowe, who has a practice in Port Townsend, signed up with the network after hearing Cherewatenko speak. He runs a clinic with two staff members, including his wife, a family-practice nurse practitioner.

He says he's not against insurance companies. "But in our state, at this time, I think there's a lot of people they're letting down."

He says he agrees with Cherewatenko in many ways.

"He's right: Why is this percentage of the health-care dollar going into insurance companies?" Stowe says. "Philosophically, I like what he's doing, and as a practical matter, it works."

Carol M. Ostrom's phone message number is 206-464-2249. Her e-mail address is costrom@seattletimes.com