Modify Direct Primary Care Arrangement Definition, Bankers Say

August 10, 2020

Internal Revenue Service
Department of the Treasury

RE: Proposed Rule: Certain Medical Care Arrangements (RIN 1545-BP31)
Department of the Treasury, Internal Revenue Service 26 CFR Part 1 [REG-109755-19]

To Whom It May Concern,

Thank you for the opportunity to comment on the proposed rule, “Certain Medical Care Arrangements” (RIN 1545-BP31) published in the Federal Register on June 10, 2020. The American Bankers Association's HSA Council represents about ninety-four percent of all the Health Savings Accounts (HSAs) in the United States and the millions of Americans who finance their healthcare with these plans.

The proposed rule would treat expenses related to direct primary care (DPC) arrangements and health care sharing ministry (HCSM) memberships as eligible medical expenses under section 213(d) of the Internal Revenue Code, pursuant to Executive Order 13877. The Council's comments will focus on DPC arrangements only.

Under the definitions proposed in the rule, most if not all DPC arrangements would be treated as “insurance” or “other coverage” that would make individuals participating in such arrangements ineligible to contribute to a health savings account (HSA). The Council believes there is a regulatory pathway to change this, and such a pathway lies in finding the appropriate definition of a DPC arrangement.

For example, there are at least 30 state laws and regulations defining DPC arrangements as contracts for medical services instead of insurance or group health plans. In so far as the states, not the federal government, are the functional regulators of the business of insurance¹, state declarations that exempt DPC arrangements from this definition should be respected.

The common definition for DPC arrangements used by most state laws is:

Likewise, the regulations promulgated under Sec. 1301(a)(3) of the Affordable Care Act (P.L. 111-148) by the U.S. Department of Health and Human Services (HHS) states that DPC practices are “providers, not insurance companies.” Further, treatment of Direct Primary Care Medical Homes (77 Fed. Reg. 18423, Mar. 27, 2012) states that a DPC arrangement is “an arrangement where a fee is paid by an individual, or on behalf of an individual, directly to a medical home for primary care services, consistent with the program established in Washington.” (WA 48.150 RCW).

DPC arrangements are limited in scope to services provided by licensed practitioners whose primary specialty designation is family medicine, internal medicine, geriatric medicine, or pediatric medicine, including diagnostic testing in an ambulatory care setting (i.e., the practitioner's office). Many of the primary care services provided are already considered “preventive care services” under existing IRS guidance, such as annual examinations, well-person care, immunizations, and screening services. To the extent that primary care practitioners also treat “sick” patients, it is usually at the onset of an illness, disease, or a condition where the care is intended to prevent further progression or complications, similar to how specific additional services for individuals with chronic conditions are now recognized under IRS Notice 2019-45.

Another way that DPC arrangements differ from insurance is the lack of third-party billing and claims processing. Third-party risk transfer arrangements are the hallmark of insurance operations. There are also no copays, deductibles or coinsurance, which are other common features of insurance. Essentially, DPC arrangements are pre-payments for a limited set of services that include preventive care services and early interventions at the earliest stages of illnesses, diseases, or conditions.

As the payer world increasingly looks to bundle related services into groupings associated with a fixed payment to realign incentives to provide the best value — an innovation called Value Based Care — it would be unfortunate if tax policy only recognized “fee-for-service” payments as “medical care.”

DPC providers are part of the solution in this new value-based delivery model that can improve care, save lives and replenish the primary care workforce in an economically sound model. A recent Milliman Study for the Society of Actuaries shows that enrollment in a DPC arrangement is associated with a reduction in overall demand for health care services outside primary care. DPC patients generate as much as 19.90% lower claim costs for employers; and up to 40% fewer ER visits than those in traditional plans. Ninety nine percent of DPC practices surveyed were doing virtual consults via text/phone as a part of the membership fee two years prior to COVID-19, and 88% said they provided “telemedicine” benefits with expanded video or additional digital communications assets.

Primary care is at a crossroads in the U.S. According to one source:²

“Four months into the COVID-19 pandemic, fewer than 10% of U.S. primary care practices have been able to stabilize operations. Nearly 9 in 10 primary care practices continue to face significant difficulties with COVID-19, including obtaining medical supplies, meeting the increasing health needs of their patients, and finding sufficient resources to remain operational, according to a recent survey of close to 600 primary care clinicians in 46 states. Only 13% of primary care clinicians say they are adapting to a “new normal” in the protracted pandemic, the survey found.”

Many medical offices have been unable to see patients in person during the coronavirus pandemic for a variety of reasons, including because the offices are not equipped to provide appropriate safety precautions, medical support staff are unwilling or unable to assist with primary care due to concerns for their own health and safety, and patients have been unable or reluctant to seek care due to concerns about coronavirus infection by others. Most of these offices are losing money and many may have to close because they were not prepared to offer alternatives such as telemedicine or virtual care visits to their patients.

According to a study published in Health Affairs in late June,³ primary care practices in the U.S. could lose more than $15 billion this year, as visits plummeted in March amid widespread stay-at-home orders. Even though volume is ticking back up, many experts believe patients will continue to avoid non-essential in-office visits as COVID-19 cases rise in the U.S.

Although DPC practices have lost some patients, the economic impact on them has been much less severe due to a regular source of revenue from patients.

In California, the Pacific Business Group on Health has partnered with the California Medical Association to push the legislature to require health plans to use unspent premiums already collected from employers and consumers to pay primary care providers emergency prospective payments for 2020 and 2021.⁴ Although these prospective payments would serve as a lifeline to primary care providers who have suffered a serious loss of revenue during the COVID-19 pandemic, and may be forced to close their practices or be acquired by large health systems, presumably any HSA-qualified plan that did so could jeopardize its status as an HSA-qualified plan.

During the coronavirus pandemic, it is more critical than ever to take into consideration the great public need for improved access to primary care and prioritizing personal health as an essential element in rebuilding the economy of our nation. The Council urges the IRS to embrace the spirit of flexibility recently demonstrated through Notice 2020-15. We applaud the efforts to extend this flexibility well in advance of Congressional action on the CARES Act (P.L. 116-136). We hope that the IRS will act in a timely fashion so that individuals enrolled in HSA-qualified health plans can take full benefit of the opportunity to have a personal relationship with a physician in this unique time of the pandemic.

We appreciate the IRS and Treasury Department's consideration of these comments and stand ready to engage in further discussion to help improve this important proposal.

Thank you for the opportunity to comment on this proposed rule.

Respectfully,

J. Kevin A. McKechnie
Executive Director
American Bankers Association
Washington, DC