Treating U.S. medical care's sick patient

Presentation to the Minnesota Physician-Patient Alliance - May 16, 2019 - About Reference-Based Pricing health plans

For Physicians

A better way to pay – Restoring the physician-patient relationship


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By Dave Racer, MLitt and Greg Dattilo, CEBS[i]

Physicians are looking for a newer, better way to be compensated for their professional services that will give them more time with patients – and let them be doctors. Such a plan is becoming more popular across the country.

This new plan allows doctors to practice ethics-based medicine while spending more time with patients and less time checking off boxes. It simplifies administration and reduces overhead expenses. It frees physicians from top-down, micro-managing third-parties, puts physicians in control of their own work schedules and provides a viable choice of going independent or working in a facility or practice partnership. This new plan eliminates provider networks and multiple reimbursement schedules.

Fixing a piece of what Medicare broke

When Congress passed Medicare, it required providers to bill at the same rate to everyone – people on government health plans, with private insurance, or those who pay cash. Medicare created its own allowable reimbursement schedule – the amount it forces doctors, hospitals, and other medical providers to accept as full payment, regardless of their billed rates. Then, Medicare banned balanced billing. All this started the slow strangle of a free market for the delivery of health care.

HMOs and insurance companies copied the Medicare pricing model, discounting the physician’s billed rates, but in reality, based contracted payments on a percentage rate above Medicare. The physicians signed network provider contracts that prohibited balanced billing. To protect their competitive advantage, insurance companies placed a gag order on network providers so that they could not disclose their contracted rates to patients. 

Price transparency disappeared. Secret pricing became the norm. 

As price secrecy spread and complexity increased, health care prices soared. Who is getting the blame? Physicians. This is evidenced by the organizational mindset that, “Physicians can’t be trusted and need others to manage their medical decisions.”

On the payer side in Minnesota, and typical of elsewhere, four insurance companies dominate. They offer 86 different networks, each paying slightly different amounts for the same services to the same providers. Think about it: Using only 10,000 of all the available billing codes produces nearly 900,000 different prices. This complex, expensive payment system is leading to the collapse of the private health care market, throwing open the door to a government-run system, such as Medicare for All. Medicare for All would have one price per code, but it would pay far less than what physicians currently need to continue in practice.

A cure is needed

To cure U.S. health care requires a payment system different from today. The new pricing system must be simpler and fully transparent. It should operate like other products and services patients purchase. 

Physicians can lead this change by driving the new transparency movement in which they, 1) determine their prices, and 2) let everyone know. The common denominator in this new pricing system is the rate of payment above Medicare the physician will accept for all their services – then publicly disclosing that rate. 

Patients will choose physicians who make pricing easy to understand and more affordable. This will be driven by the newly-minted health plans which pay physicians based on price transparency. 

Commonly known as Reference-Based Pricing

Insurance companies have begun to compete with third party administrators for a new type of insurance policy, one that relies on price transparency. Physicians looking for freedom and a restored joy in their practices will embrace this idea.

Specifically, these reference-based pricing plans pay physicians based on a rate above Medicare. For example, a patient has an insurance policy that pays a physician up to 150 percent of what Medicare allows. The patient will contact all the clinics in his or her area asking, “What percentage above Medicare do you accept as full payment?” The patient will then know which clinics will accept their 150 percent plan as full payment. If their most preferred physician charges more than 150 percent, then the patient can choose to pay more or go to a different physician. 

These new Reference-Based Pricing plans offer their enrollees choices over the rate above Medicare it will pay for services – for example, 120%, 140%, 160% or maybe 200%. As the policy pays a higher rate, the premiums also go up. 

Instead of a “Medicare for All” payment system, where government decides how much to pay physicians, the Reference-Based Pricing plan puts physicians in control of their pricing structures. As physicians demonstrate that their quality of care is superior to other physicians, it allows price variance in the marketplace as patients are convinced of the physician’s value.

How much does a physician need to charge? What is the most competitive rate that will adequately compensate the physician and cover overhead expenses? These questions will be answered in each marketplace as patients and physicians adjust to the new health insurance payment formula.

Open competition with complete price transparency that this plan allows can create a marketplace for health care. It is built on price and quality competition where providers justify their charges by providing excellent care and the services their patients desire, and for which they are willing to pay. This plan gives physicians what they so strongly desire – more time with patients, less time with paperwork and an income that compliments their professionalism. 


[i] Dave Racer and Greg Dattilo are co-authors of four books on U.S. Health Care. They have been collaborating on health care research, writing, and educating since 1992. Dave is the Executive Director of Minnesota Employers & Employees Demanding Affordable Healthcare (MEEDAH). Greg is MEDAH’s Policy Director. More information about the two is available at

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No more secrecy - The Rx for an enjoyable medical practice


Download a PDF of the article below.


By Dave Racer, MLitt and Greg Dattilo, CEBS[i]

Why is it that the physicians with whom we entrust our lives are the most regulated profession in the country? Is it because the medical-industrial complex thrives on mistrust of physicians and mistrust of all the affiliated support systems on which patients rely? Physicians didn’t create this mistrust and are not responsible for it, but their patients and they suffer from it.

There are volumes of federal and state regulations with which medical providers must comply. Atop these are the layers of contractual requirements of insurance companies, HMOs, and other managed care schemes. 

Government and third-party managers’ presence in the exam room comes between physicians and their patients. Physicians don’t like this and neither do patients.

The root of this mistrust is seen in the secrecy of medical pricing and reimbursements, and a false billing system. Medicare rules led to the creation of the false billing system and it plagues medical practices. When Medicare banned balanced billing it only made this worse.

Since the inception of HMOs, managed care, and “provider” networks, health pricing has gone underground. In these networks, physicians are required to sign contracts that prevent them from disclosing their prices to patients. Payers insisted these gag clauses are necessary to protect their proprietary pricing arrangements from competitors. Patients are the losers from this secrecy.

Health insurers have profited from the widely-accepted view by their members that “someone else should pay my medical bills.” This is a huge contributor to runaway cost. Pricing secrecy, however, is a chief cause of the high cost of health care. Thus, the current drive toward transparency.

Doctors repeatedly state that what they desire most is more time with patients, and the ability to practice medicine as they believe best. The Merritt Hawkins 2018 physician survey showed that nearly 79% of physicians find the patient-physician relationship to be the most satisfying aspect of medical practice.[ii] Two drivers of dissatisfaction for 76.6% of physicians are regulatory and insurance requirements and the loss of clinical autonomy. 

So why is time with patients being reduced, while time doing paperwork takes up 25 percent of the physician’s workday? It’s no wonder physician burnout is increasing. Physicians did not go to school for 8-14 years or more to be told by someone else how to care for patients or become good data entry clerks. 

How physicians are being required to practice is counterintuitive, contributing to burnout. Burnout contributes to other, more dangerous outcomes. Physician suicide rate from depression and a sense of hopelessness ranks first among professions. 

Finding a point in time at which the medical profession began to suffer this mental malaise disproportionally is difficult. It is significant, however, that since Congress passed the HMO Act in 1973, the private independent practice of medicine has continued to shrink. Less than 32% of physicians now say they have an independent practice. Forced conformity, increasing overhead expenses, digitizing of practice records, and more have contributed to the march toward ever-larger practice models.  

HMOs, PPOs, MCOs, and now, ACOs, have made it impossible to have a private marketplace for medical care – except the resilient independent practitioners doing Direct Primary Care. The Merritt Hawkins’ survey indicates, however, that only seven percent of primary care physicians plan to practice in a direct primary care model. 

Doctors have been forced to choose between working for hospitals and systems, where the regulatory burden is offloaded to someone else, or staying independent and dealing with the regulatory challenges on their own, in the hopes of enjoying better patient relationships – actually practicing medicine. But employed physicians face yet greater managed-care limitations so that they are among the most unhappy practitioners.


The physicians’ survey revealed that “…even many physicians who are employed by hospitals do not believe that hospital employment of physicians is a positive trend [34.6%].” When age is factored in, the results are more startling in that “Only 19.8% of physicians 45 or younger agree that hospital employment of physicians is a positive trend as do only 10.5% of physicians 46 or older…”[iii] Will these younger physicians want out? Will they abandon medical practice for other, more satisfying professions?

Here’s a way forward

There are ways forward to advance the professional practice of medicine. The way we propose means transforming the payment system to what experience shows us has worked in the past. It is a model that emphasizes the physician-patient relationship.

In this new transformed payment system, physicians will have two billing amounts. One for Medicare enrollees, and the other for non-Medicare enrollees. (Those who take Medicaid patients will have three.) In this new system, the physician will share his or her prices for service through one disclosure – the rate they charge over Medicare. There are no multiple prices or contracts. There are no networks, no gag rules, no complicated billings – just disclosure of this rate.

This is called Reference-Based Pricing. The physician sets his or her professional fees at a percentage above Medicare. The patient owns a health insurance policy that sets a maximum payment at a percentage above Medicare. The physician can bill the insurance company and be paid, or the patient can do so with the physician’s billing in hand. If the physician wishes to charge more than the rate allowed on the patient’s insurance plan, they are free to do so – but the patient will be paying directly and, as a result, will be more sensitive to the price when compared to traditional prepaid health insurance plans.

The Reference-Based Pricing Plan allows doctors to practice ethics-based medicine while spending more time with patients and less time checking off boxes. It simplifies administration and reduces overhead expenses. It frees physicians from top-down, micro-managing third-parties, puts physicians in control of their own work schedules and provides a viable choice of going independent or working in a facility or a practice partnership.


In the new system, the patient will make a purchasing decision based on the physician justifying their rate above Medicare – and being able to differentiate their services from others. This will work as a true medical marketplace. Most importantly, it is a valuable, viable alternative to government-run, single payer or “Medicare for All” utopian health plans that would kill the private practice of medicine. More information about Reference-Based Pricing is available at

    Download a PDF copy of the article below

[i] Dave Racer and Greg Dattilo are co-authors of four books on U.S. Health Care. They have been collaborating on health care research, writing, and educating since 1992. Dave is the Executive Director of Minnesota Employers & Employees Demanding Affordable Healthcare (MEEDAH). Greg is MEDAH’s Policy Director. More information about the two is available at

[ii] Norbeck, Tim. “2018 Survery of America’s Physicians.” Merritt Hawkins - The Physicians’ Foundation, September 2018.

[iii] Ibid. Page 25.

Why physicians should love Reference-Based Pricing


  By Dave Racer, MLitt, and Greg Dattilo, CEBS

  • No networks
  • No multiple reimbursement schedules
  • Escaping Managed Care 
  • Setting your own prices – you determine your Medicare-Plus rate
  • Freedom to practice patient-centered, ethical care
  • More time with patients
  • Less time checking off boxes
  • Time for multimorbidity cases
  • Reduced overhead expenses
  • Control of your own work schedule
  • Competing with other doctors to provide health care – differentiating themselves from other doctors
  • Reduced stress and less burn-out
  • Bill the individual or bill the insurance company – your patient and you decide

Yes, you would still have to code. The health insurance company will pay the patient/ physician based up to the rate the patient purchased. 


Reference-Based Pricing: Minnesota Physician - Aug. 2019 (pdf)


Better Way To Pay (pdf)


No More Secrecy (pdf)


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