The House Ways and Means Committee met today (07/11/18) to discuss several health savings account reforms, and the Primary Care Enhancement Act (PCEA) was among them. You can hear a recording of their discussion from 1:30 to 1:45 using this link. Fortunately the PCEA passed (on a bipartisan basis) by a vote of 26 to 12. As written the PCEA solves the HSA debate for the majority of DPC practices charging less than $150 per member per month. I expect that the vote in the full House of Representatives will be favorable also. This is the good news. While this bill is not perfect, and while I would like to see additional modifications, if forced to make an up or down vote on the current language without edits I would vote in favor of the PCEA. Without the PCEA any use of HSAs for DPC is clearly unlawful in the eyes of the IRS. With it we have a clunky exception that will be a solution for 99% of DPC practices for years to come.
Now for the frustrating news: The PCEA has been renumbered - changed from HR 365 to HR 6317, and many undesired changes were made during the house committee markup. Imagine you bought an airline ticket from Orlando to San Diego. You knew it would be a long flight, but when you show up at the airport you found out that rather than a direct flight, you will now go from Orlando to New York to Detroit to Houston to Denver and then to San Diego. You're still going to make it, but things are more painful than they need to be - and this is the situation we find ourselves in at the moment. Let's consider each new issue:
We are an excluded "Service Arrangement" rather than a qualified "Medical Expense"
Section 1(b) of HR 6317 should have referenced IRC 213(d) rather than IRC 223(d). This is a drafting misstep, and this is my largest concern with the new language. While the IRS has no jurisdiction to declare what is or is not insurance (this is a state issue), the tax language of this bill could generate confusion.
In plain English - rather than stating that DPC is a medical expense (213(d)), they are saying that we are a kind of "service arrangement" under IRC Section 223(d)(2)(b) but that there is an exception to purchase this new plan category under IRC 223(d)(2)(C). Literally we are still not considered a "medical expense" under 213(d).
A circular argument (albeit a very weak one) remains an option for the IRS. They could argue that because we are not a medical expense under 213(d) issue has not been addressed, then the 223(c) issue is not solved either. Consider this language from HR 6317: "The term ‘direct primary care service arrangement’ means, with respect to any individual, an arrangement under which such individual is provided medical care (as defined in section 213(d))..." Does anyone else recognize the problem here? According to the IRS we are already NOT providing "medical care" as defined in 213(d). Since we are not providing "medical care" then we cannot be in a "DPC service arrangement" either. The explanation from JCT that accompanied the bill included a clear phrase “Fees paid for any direct primary care service arrangement will be treated as medical expenses (and not the payment of insurance)” and this statement is wonderful evidence of intent in the event of any litigation.
Failing to make this correction in 213(d) means that while we have corrected the HSA issue, we fail to definitively solve the HRA and FSA usability questions (which would have been corrected with a 213(d) modification). This new language could confuse state insurance commissioners in the remaining states that are contemplating new DPC defining "not insurance" legislation. DPC is not health insurance at the state level (and the ACA), but now the tax code literally labels us as a vague "service arrangement" rather than a clear "medical expense."
$150 Monthly Fee Cap
There is now a $150 monthly fee cap applied to the definition of DPC within the Internal Revenue Code. If your monthly fee is $150 or below then the entire monthly fee can be paid for using the patient's HSA. If your monthly fee is $151 or higher then none of your monthly fee may be paid for using the patient's HSA. I am not surprised that the editors wanted to put a cap in place to get a lower score, but I'm surprised that the cap was tied to the definition of DPC (in IRC 223(c)) rather than being applied as a cap to eligible medical expenses in IRC 213(d).
I would not be surprised if the IRS pushes back here due to the logistical difficulties associated with enforcing this kind of cap. DPC physicians could simply itemize more procedures and include less in the monthly fee if we thought the $150 mark was too low to sustain the practice. In fact, the IRC will now encourage more itemization (at least in three large categories - discussed below, but this is not problematic and is in fact already a recommended practice design when operating a DPC office).
Scope of Practice Restrictions
A DPC Service Arrangement consists "solely of primary care services (as defined in section 1833(x)(2)(B) of the Social Security Act) provided by primary care practitioners (as defined in section 1833(x)(2)(A) of the Social Security Act, determined without regard to clause (ii) thereof), if the sole compensation for such care is a fixed periodic fee."
First, I should clarify that the term "sole compensation" is not problematic, though it could have been worded better to achieve the intended effect of a double dipping prohibition. This means that the only way the DPC physician is paid for the primary care services specifically stated in the service agreement is via the monthly fee. Things that were carved out of the agreement originally can remain carved out of the agreement, and those could vary based on the practice. Remember that cash pay fee for service items were never controversial with the IRS anyway and were already considered eligible medical expenses under section 213(d).
"Primary Care Practitioner" now "is a physician (as described in section 1861(r)(1)) who has a primary specialty designation of family medicine, internal medicine, geriatric medicine, or pediatric medicine; or is a nurse practitioner, clinical nurse specialist, or physician assistant (as those terms are defined in section 1861(aa)(5))."
"Primary Care Services" were defined (retroactively) based on this set of HCPCS codes "(i) 99201 through 99215, (ii) 99304 through 99340, (iii) 99341 through 99350." While this is certainly arbitrary, it does not create any retroactive or prospective coding obligation.
I wish the editors had considered my law review manuscript in the Journal of Legal Medicine (also freely available here) or the detailed tax discussion here. They took on scope of practice and risk issues that are better addressed at the state level in an effort to get the bill to score as low as possible (The Joint Committee on Tax predicts it would cost $1.8 Billion over ten years). In fact, part of their reasoning behind the $150 monthly fee cap was to narrow the amount of services offered. If they capped the fee at this low amount then they expected this to narrow the scope of practice as well, since a physician would be less likely to offer too many services for such a low fee.
Labs and medication expenses should not be bundled into the monthly fee (and neither should surgery requiring anesthesia). You can go ahead and dispense discount medications and have discount labs just like always without any changes (since almost everyone is already itemizing these things). As a DPC physician you could go ahead and open up a surgery center too, but for extensive surgeries requiring general anesthesia they don't want those bundled into the monthly fee (you start to look too much like a little Kaiser HMO). While bundling low cost meds or labs into the monthly fee might seem minor - this subjects you to risk that the price of meds or labs would drastically increase. Opposition to this kind of bundling is a position that is already taken by many state insurance commissioners anyway. Most practices already itemize these costs, and this itemization is wise for a litany of marketing reasons beyond the legal ones stated above.
Summary: Hopefully the Senate will pass the PCEA, and in the process will do the following:
1) Make a 213(d) correction - let's make it clear that we are a "medical expense"
2) Address the $150 limit - this should be removed, or in the alternative turned into an expense cap rather than a defining feature of a DPC practice
3) Broaden the definition of primary care