Practice Models (Part II): Senior Editor Pamela Moore on How Cash-Only Can Work for You

It’s easy to grasp the emotional and political satisfaction of running a cash-based practice. No more managed care! More cash!

What’s more challenging is coming by hard numbers or concrete strategies: What are the possible models? How much should you charge? How many of your current, commercially insured patients will follow you to the new practice?

Here are the facts we’ve been able to gather. They’ll help you with research and planning if you are considering such a change.

Ways to structure

There are two main economic models lumped under the headings “concierge” and “cash-based” when they refer to medical practices:

The annual fee model. In this model, also called a retainer practice, physicians charge patients a substantial annual fee to pay for a list of special services not usually covered by managed-care plans. Such services may include 24-hour physician access, comprehensive preventive services and wellness planning, house calls, and accompanied visits to specialists. A 2005 study by the Government Accountability Office (GAO) revealed that the average annual fee charged by such practices ranges between $1,500 and $1,999 (see www.gao.gov/new.items/d05929.pdf). All care covered by insurance is billed as usual. The patient pays the annual fee upfront regardless of the services he actually uses.

GAO’s research revealed that three-fourths of concierge practices still bill insurance and Medicare for covered services. Of course, the government may have found what it was looking for. Payers, including the federal government, are somewhat concerned that payers and physicians may disagree over what constitutes a covered service and what is extra. For example, say a patient calls at 2 a.m. with a question or concern. Is the conversation part of the 99213 you billed that afternoon or is it a special service?

Medicare would hate to see you get paid twice - once through a concierge fee and once by Medicare - for covered Medicare services. You need to be careful with this model because of such legal gray areas, but you needn’t give up on the concept. The Centers for Medicare and Medicaid Services has officially stated that physicians may enter retainer agreements with Medicare patients as long as they don’t violate any Medicare requirements.

The all-cash model. In this case, a patient either pays the physician one big fee upfront - and the physician takes the risk that the fee will cover the patients’ needs, much like capitation - or the patient pays the physician directly for each service received. The practice does not bill or contract with insurance companies at all. It opts out of Medicare. However, if patients want to seek reimbursement from their commercial payer for cash they put out initially, they can.

Some practices combine these models in various ways, too.

What are cash-only practices like?

In January 2006, the Journal of General Internal Medicine published results of a survey of 144 retainer-based practices, providing an interesting snapshot. (To review the abstract and read the article online, visit JGIM online.)

Primarily, patient panel size in retainer practices is typically less than half that of traditional practices (a mean of 898, versus 2,303). The GAO study results indicated an average of 491 patients, including 326 concierge patients (physicians may decide to let some patients remain traditional to ensure continuity of care). You can’t handle more patients than that when you’re in concierge practice because the idea is to spend more time with each one. And you should be making more money per patient too, so you shouldn’t need a larger panel.

In fact, concierge physicians see only about 10 patients a day, according to the GAO.

Eighty-five percent of the practices surveyed switched from an established payer-dependent practice style, but only 12 percent of their patients typically stuck with the practice through the change, according to the Journal of General Internal Medicine. In other words, don’t hold out hope that you’ll be retaining all those longtime patients you know and love.

But since the concierge concept means you’ll spend a lot more time with each of the patients you do have, you actually need most of your existing patients to decline to keep seeing you. You wouldn’t be able to deliver the personalized service you’ll be charging for if all your existing patients stuck around.

In fact, if your new concierge practice is similar to the average, one of your first tasks will be to find new patients. If you currently have about 2,300 patients, and 12 percent stick with you after the switch, that leaves you with a panel size of 275 - well below the concierge mean of 900. Thus you’ll have to expand while also finding a way to make ends meet in the meantime.

Challenges

That’s why it’s important to remember that this new model of medicine is not without its risks. It’s not a get-rich-quick scheme. The primary hurdle is that not many patients see the advantage of investing extra cash into their medical care. Many are already paying more than they can afford for their employer-sponsored health plan. Others might not understand the advantage of being able to call you 24 hours a day when, really, they’ve been doing that all along without paying more for it. In short, it’s a challenge to build a patient base. Expect to spend heavily on marketing.

Also ponder what improved access and longer visits will really mean for your lifestyle and personality. If you are not the kind of doctor who takes an interest in each patient’s life story and analyzes every ache and pain, you might not want to spend more time with your patients. And do you really want to answer the phone yourself at 3 a.m.? For what it’s worth, most concierge physicians tell us that their patients don’t abuse their access privileges and are generally considerate of the physician’s time.

Switching to a cash-based care model seems more of a way to suit your own style and preferences as a physician rather than the ideal means of making a financial killing without doing any work. It also needs to be a carefully planned business move - not an assumed sure bet or a simple way to rebel against the status quo.

Pamela L. Moore, PhD, is senior editor, practice management, at Physicians Practice. She can be reached at pmoore@physicianspractice.com.

This article originally appeared in the February 2007 issue of Physicians Practice.