Why more doctors are billing their patients like it’s the 1920s

Keith Smith, an anesthesiologist in Oklahoma City, and his colleague Steven Lantier finally decided enough was enough. The hospital where they worked was price gouging patients, and the two doctors knew it.

“We felt like we were accomplices,” Smith told Straight Arrow News. “We were anesthetizing patients that were going to be facing a real financial hardship after even a minor surgery.”

It was 1997, the year of Tamagotchis and “Titanic” and the first babies of Generation Z. For Smith and Lantier, the year marked a major turning point.

To them, exorbitant medical bills were a symptom of a larger problem: the U.S. health care system’s transformation over the past seven decades. Gone were the days when patients negotiated medical fees and paid doctors directly for services. Instead, the modern health insurance model — introduced in the 1920s and expanded after World War II — transformed a professional service into a complex industry.

Smith and Lantier wanted to do what they’d always done after diagnosing a disease: Fix it. But more and more, it felt like solving the problem meant leaving the traditional health care system. 

They would have to forge their own path, becoming early pioneers in a model that has picked up significant steam in recent years: Cash-based clinics. 

The rise of health insurance 

Health insurance was designed to spread financial risk, and overtime — particularly with the creation of Medicare and Medicaid — it expanded access to care for low-income and elderly Americans. But it also fundamentally changed how prices were set and who paid for health services, when. 

Under the insurance model, patients typically pay insurance companies a monthly premium. When seeking medical care, patients pay a preset portion of the bill, called a co-pay, until they reach a spending threshold, called the deductible. After that, insurance companies pay most of the remaining costs.

Over time, this system pushed patients further from the true price of care. Since insurance companies — rather than patients — paid most medical bills, consumer pressure on prices weakened. Providers, hospitals and insurers could raise prices with little immediate resistance, since patients rarely saw the full cost at the point of care.

Insurance also introduced complex billing, coding and reimbursement rules. Physicians had to document visits in detail and translate care into billing codes. The insurance companies then reimbursed hospitals based on a convoluted system of set rates and negotiated, clinic-specific discounts. To manage those tasks, practices hired growing numbers of non-clinical staff. Today, health care billing is so complicated that administrative staff outnumber physicians two to one.

Insurance payments — especially from Medicare and Medicaid — failed to keep pace with rising administrative costs. As the 2010s gave way to the 2020s, hospitals and medical practices were increasingly acquired by large corporate systems and private investors, introducing explicit profit targets. Clinics responded to these pressures by increasing patient volume and shortening visits.

The financial impact was dramatic. In 1930, health care spending accounted for about 4% of the nation’s gross domestic product. By the time Smith and Lantier reached their breaking point in 1997, that number was 13.5%. In 2023, it was 17.6%. That means that nearly $1 of every $5 spent in the entire country goes towards health care.

A health system crisis

The two anesthesiologists quit their jobs and opened a new surgical center that would charge patients a lower, transparent price for high quality care. 

“We opened the facility with the idea that we would financially treat patients in a fair way that felt like a mutually beneficial exchange, not a hit and run,” Smith said.

To do this, the doctors returned to the early-1900s model of health care, where patients pay physicians directly, bypassing insurance.

Smith first had to determine the cost of different surgical procedures. 

To do that, he tallied all the hard costs of surgery and asked surgeons how much they thought they should be paid for their time. In the early days, many met Smith and Lantier’s approach with doubt and disbelief. 

He heard it all: “Surgery is too complex.”

“You can’t put a price on a surgical service.”

“That’s impossible. It’s too much uncertainty.”

But he proved the naysayers wrong. 

“It is very doable,” Smith told SAN. “It’s just that there are a lot of people in the industry that benefit from making sure everybody thinks it can’t be done.”

In the first few years of his new practice, when patients called, he quoted prices over the phone. Then, he published a list of his prices for each procedure online.

Today, the cash-based clinic approach is rapidly gaining popularity in specialty care such as surgery, cardiology and oncology. The model is especially popular in family medicine. In the past four years, the portion of family doctors in cash-based practice grew from 3% to 11%, according to the American Academy of Family Physicians.

Cash-based clinics are an imperfect solution to the nation’s complex health care crisis. Health care costs continue to skyrocket, outpacing insurance reimbursement rates and making insurance premiums and care increasingly unaffordable for many Americans. To stay afloat, many providers see more patients in less time, a pressure that has intensified as for-profit health systems and private equity firms acquire practices and emphasize productivity and cost control. These forces have contributed to the declining quality of care and growing physician burnout. As more doctors leave traditional practice faster than they can be replaced, the health care workforce has shrunk — leaving patients with longer wait times and reduced access to care.

The resurgence of cash-based clinics

After more than 20 years in traditional medical practice, Teresa Lovins, a family physician in Columbus, Indiana, about 800 miles northwest of Smith and Lantier’s surgical practice, had also become disillusioned by the health care industry.

Like most family physicians today, she was pushed to see 25 to 28 patients a day to ensure the practice could cover administrative costs and meet profit margin goals. Lovins spent less than 10 minutes with each patient, regardless of their needs.

“If the physician cannot complete the care for the patient during that time, often they have to make referrals to specialists to take care of those patients, because that allows them to get in to see the next patient in their day. That is all driven by the reimbursement rate of insurance, both from commercial insurance as well as Medicare and Medicaid,” Lovins said.

In 2020, Lovins opened her own cash-based clinic. In family medicine, these practices are often called direct primary care. Like Smith’s surgical center, Lovins does not accept insurance. Instead, her patients pay a monthly membership fee — ranging from $30 to $100, depending on age — that covers unlimited office visits and most primary care services. 

Each cash-based clinic sets its own pricing model. Smith charges a flat rate per procedure. Like most cash-based clinic owners, Smith and Lovins list their prices clearly on their websites — a level of transparency largely absent in insurance-based care.

By removing insurance from the equation, Lovins eliminated the need for billing staff and freed herself from productivity targets set by insurers or hospital systems. 

She also lowered drug costs by passing along wholesale prices, and charges the direct cost of lab tests rather than inflated insurance rates. Each offers its own level of savings. 

A common lab test, such as a complete blood count, typically costs $35 to $55 when billed to insurance, but about $3 when paid for directly, Lovins explained. Similarly, she recalled purchasing a three-month supply of her own prescriptions at a pharmacy through insurance for $400 before finding it through a wholesaler for $80. 

“I’ve been able to get back to the heart of family medicine by doing this direct care,” Lovins said.

Cost, autonomy and burnout

Small businesses that can no longer afford health insurance are turning to cash-based clinics. But big business is also taking note: Boeing, one of the largest companies in the U.S., offers its staff access to direct primary care.

“It’s been growing really unfettered over the past several years,” said Jane Zhu, a physician researcher at Oregon Health and Science University. 

Clinicians are increasingly burned out by corporate clinics that force them to see a huge volume of patients, limit their autonomy and bury them in insurance paperwork. 

Just before the COVID-19 pandemic, Wendy Molaska, a family physician in Wisconsin, began experiencing burnout. 

“I was doing more paperwork and things that weren’t related to patient care, and getting to spend less and less time with patients,” she said. 

In national surveys, about 60% of physicians reported symptoms of burnout, and more than 30% said they plan to leave practice within the next two years because of it.

Patients are fed up with long wait times, not being able to see the same doctor consistently and being forced to go to urgent care or the emergency room for primary care services, Zhu explained.

Molaska’s patients often complained they had to wait months for an appointment that only lasted 15 minutes.

“That wasn’t really why I went into family medicine.”

In May 2021, after recovering from breast cancer, Molaska opened her own cash-based practice. After switching, she realized how much the traditional health care system incentivizes physicians to keep patients sick, she said.

“The way I got paid was to see patients in the clinic. The more patients I see, the more I get paid. The more complicated the patients, the more I code, the more that they get billed, the more that I then get reimbursed,” Molaska explained. 

“It’s really based on this kind of sick care system, and what I realize now in direct primary care, it’s actually the opposite. It behooves me to keep my patients as healthy as possible, so they’re not coming into the clinic all the time. And because I don’t have to code and bill, I don’t have to force people to come in for visits that they don’t actually need to come into clinic for,” she said.

An imperfect solution 

Critics of cash-based clinics argue that they are only a solution for the healthy and the wealthy. That feels off to Lovins: She treats several patients who use Medicare and Medicaid even though she doesn’t accept their insurance.

“They like that they can have access to their doctor on a better timeframe. They like that the doctor gets to spend more time with them, so they are willing to find that money in their limited income to pay those fees,” she said.

Molaska told SAN that 41% of her patients are uninsured. Many earn too much to qualify for Medicaid but cannot afford insurance premiums and deductibles on the Affordable Care Act marketplaces, she said. 

The average American family spends just under $27,000 each year on employer-sponsored health insurance premiums alone, and the premium isn’t the only health cost a patient covers. Most insured patients also must meet a deductible; on average, another $1,800.

That high price tag keeps people from seeking care.

“People are putting off primary care and following up on preventative things and small problems. They wait until they become big problems because they’re worried about the copays and the deductibles and the coinsurance and so forth,” Molaska said.

The direct primary care model helps to fix this problem.

Still, Molaska, Lovins and Smith acknowledged that the cash-based model does not solve every problem in the U.S. health care system. Instead, these clinics are a response to an insurance-driven system that made health care more expensive, rushed and opaque.

Although the impact of more cash-based practices has not yet been well studied, Zhu pointed out that they may put more pressure on the health system. Physicians who leave traditional practice for a cash-based clinic go from seeing upwards of 3,000 patients a year to 200 to 300, she said. That grants more facetime for those few hundred patients, but exacerbates physician shortages and further increases patient wait times in the rest of the health care sector.

Rethinking health insurance

Americans still need health insurance to cover unpredictable or major health care costs that could arise at any time, but Molaska envisions a future in which health insurance functions more like car insurance.

Americans don’t use car insurance to pay for gas, oil changes or a new battery. Routine maintenance is affordable and accessible. In Molaska’s analogy, that’s like primary care, and patients could cover those costs themselves in cash-based clinics. Health insurance would instead be reserved for major, unpredictable events like when consumers tap into car insurance after a big accident.

This type of insurance in the health industry is called a catastrophic health care plan, and Lovins and Smith both said expanding access to it would pair well with the emerging cash-based clinic model.

The catastrophic health plan was designed to protect patients from very high medical costs in the event of serious illness or injury through low monthly premiums and high deductibles. The Affordable Care Act, passed in 2010, restricted these plans to people younger than 30 or those who could prove they could not afford any other insurance. The Trump administration expanded access to these plans last year.

Smith has found that people will pay out-of-pocket even for high-ticket medical expenses. He can offer patients surgery for less than their deductible, he said.

He asks: What if that $27,000 average premium payment went directly to paying for medical services instead of just “the opportunity to meet a deductible that people can’t afford”? That $27,000 would easily cover the membership fees at Lovins’ clinic — on average, about $900 per year — and nearly all the surgeries at Smith’s center.

Some of Smith’s patients do not have insurance; others have self-funded health plans. Increasingly, patients go to Smith’s surgical center because his procedures are cheaper than their deductible, he said. The most rapidly growing segment of Smith’s patients are people whose care is being denied or delayed by their insurance companies.

Smith pointed to a recent example of a patient with a locked knee from a meniscus tear. According to Smith, the patient’s insurance company said it would review whether surgery was appropriate and have an answer for them in about three weeks. 

“That meant the person was not going to be able to walk at all for three weeks,” he told SAN. “They came to our facility and paid $4,410 all-inclusive and they were walking later that day.”

Federal policies are starting to catch on to the cash-based clinic approach. The Trump administration’s One Big Beautiful Bill allows patients to use pre-tax funds from health savings accounts to pay for direct primary care memberships starting this month.

Cash-based clinics alongside catastrophic health plans are an increasingly attractive option as health insurance premiums continue to skyrocket. Last month, enhanced Affordable Care Act subsidies expired, more than doubling annual premium payments for some 20 million Americans.

The post Why more doctors are billing their patients like it’s the 1920s appeared first on Straight Arrow News.

Ella Rae Greene, Editor In Chief