Trickle Up Economics

It\’s been a month since I started my new practice.  We are up to nearly 150 patients now, and aside from the cost to renovate my building, our revenue has already surpassed our spending.  The reason this is possible is that a cash-pay practice in which 100% of income is paid up front has an incredibly low overhead.  My admitted ineptitude at financial complexity has forced me to simplify our finances as much as possible.  This means that the accounting is \”so simple even a doctor can do it,\” which means I don\’t need any front-office support staff.  I don\’t send out bills because nobody owes me anything.  It\’s just me and my nurse, focusing our energy on jury-rigging a computerized record so we can give good care.
Our attention to care has not gone unnoticed.  Yesterday I got a call from a local TV news reporter who wanted to do a story on what I am doing.  Apparently she heard rumor \”from someone who was in the hospital.\”  I was the talk of the newsroom, yet I\’ve hardly done any marketing; in fact, I am trying to limit the rate of our growth so I can focus on building a system that won\’t collapse under a higher patient volume.  I explained this to the disappointed reporter why I was not interested in the interview by telling her that I left my old practice because I needed to get off of the hamster wheel of healthcare; the last thing I want to do now is to build my own hamster wheel.

\"hamster-wheel\"

I\’ve also gotten interest from a place I didn\’t expect: local specialists.  I always thought what I am doing applies only to primary care, as it is hard to do a monthly fee for the procedure-oriented specialties.  But as the enthusiasm for my new type of practice grows in the community, it may spur a boom in cash-paying patients.  Why?  One of the provisions in the Accountable Care Act (ACA) is that small businesses (with over 50 employees) who want to avoid the penalty for not having insurance can opt to contract with a direct-care physician like myself in conjunction with a high-deductible health care plan.  Even though I have made no effort to attract such interest, I\’ve already been approached by 2 businesses of 100 employees to make such an arrangement.  Again, I turned the offer down for now, saying I am quite interested, but would only do so when my practice was ready.  But the fact that this happened while I am doing my to best avoid attracting such attention suggests to me that the desire for this is very intense in the small business community.  This makes sense, as they don\’t want to pay the fines, but also don\’t want to pay the exorbitant cost of standard insurance, and so would jump at any other option.

The end result is a potentially large influx of patients who are basically self-pay.  The specialists, who see me lowering my overhead significantly by taking cash payment up-front, see the same opportunity for their practices.  The hitch for them is that they are not allowed to give discounts to self-pay patients that they are not also giving to Medicare patients.  Yes, it is illegal for a Medicare provider to give a discount to non-Medicare patients who cannot afford the cost.  There are ways around this rule, and I hope to work out something for my specialist colleagues so they can give significant discounts in exchange for cash up front (which is, by the way, the same logic that the labs use to give the enormous discounts I am offering to my patients on lab services).  I have had multiple specialists show very high interest in such an arrangement.  I\’ll fill you in as this develops.

This seems quite ironic to me – a sort of \”trickle-up economics,\” where I am spreading the benefit of offering discounted care in exchange for cash to the higher-paid specialists.  It is a win-win-win arrangement, though, as the specialists benefit from reducing their overhead while getting guaranteed payment, I benefit by increasing the value of my type of practice even more to my patients, and the patient benefits by getting cheaper care.  This, of course, raises the likelihood that more businesses will opt for this payment model, and the movement gains momentum. Who loses?  The \”increased overhead\” comes in the form of the front-office staff doing billing, coding, and collections.  This is the staff my simple-minded approach to finances has heretofore avoided, and hopes to continue avoiding.

\"trickle-up\"

I may be completely wrong in this, as it may not consider other factors (which wouldn\’t surprise me), but I am not wrong about the intense interest I see in what I am doing.  It is palpable.  When I spoke at HIMSS over the weekend (ironically as keynote for a pre-conference targeted at large health systems building ACO\’s), the reception was remarkably positive.  My message of simplicity is falling, apparently, on very fertile soil.  Did they realize the implication of \”cost savings\” being the need for less employees and the to downsize their business?  I took great pains to emphasize the point, yet the reception was vigorously positive.

I suppose little should surprise me, in a world where the have-less\’s could have their abundance trickle up to the have-mores.  Who knows, maybe people will even pay attention to the economic wisdom of a doctor with an accounting impediment.

Nah.  That\’s ridiculous.

15 thoughts on “Trickle Up Economics”

  1. glasshospital

    Your transparency is so refreshing. You’re in the midst of it (the beginnings, really); but you will have great material for a memoir; a how-to book; and a business book. Just to name a few. A smart publisher will get you under contract pronto.

  2. Stay your own doctor ; when business’s come into the frame , they will then tell you what to do .

  3. Somehow there does need to be a way as you seem to be implying for less well off pts to be able to access this model of care to…I do wonder how expensive would specialists charge, I am guessing some would run themselves out of business before they even began as “their value” would be to much.
    Interestin to read these updates (as a patient w incredibly complex ultra-rare genetic issues,
    Erica
    http://www.rarelydefined.blogspot.com

  4. This definitely applies to uninsured patients and would not discriminate in the least between them and those with a company policy. The only difference would be the catastrophic coverage, which is typically very high. The advantage to the specialists of offering lower fees is twofold: first that they are more likely to collect a reasonable fee ($150 for a consultation, for example) than what many of them end up charging ($250-400 for a consultation). They are aware that getting $150 guaranteed is far better than the higher fee not getting paid. The other advantage would be access to this population by the specialist. Those who are willing to accept lower fees would be more likely to get the business, and so this creates a competition. This is not bad business to have, as it would have a higher rate of collection and less overhead attached to it. It’s not a slam-dunk, but it is certainly not unattractive to these docs.

    I will mention that while there are some specialists who are arrogant SOB’s who don’t care about overcharging patients, many of them do actually care about people and would give a discount if they could. I do think if you give someone the opportunity to do the right thing, and don’t ask them to give up too much, a good percentage of them will do so. Even if we got only 1/3 of the docs participating, it would be good for all of us.

  5. Great article! This makes a lot of sense. I have been working on issues in health care for several years now. In fact we developed a business plan around this. The key one of the brightest physicians I work with is simple. Restore the relationship between the doctor and the patient. Doctors have been so distracted with crap that doesn’t make the patient better. Additionally, I like the change in revenue model. I have never understood why I pay a doctor cash they can’t offer a discount. The reality is the fee charged has no relation what a provider gets paid. Unless of course you don’t have insurance in which case you better bite hard on the stick. This mostly due to doctors lack of understanding of economics and foolish laws making CMS the bottom payer. This makes no sense. In plain economics money is more valuable to you today then 90 days later. This change in revenue does just that and the growth in employer provided clinics also supports this. My simplistic formula for fixing healthcare is this. Pricing transparency, quality transparency, and consumer engagement. This model works on all three. Kudos to you doc!

  6. Nice going, Rob. I’ve been hyposurfing lately, so I hadn’t known about your wise and forward-looking move. Read about it, yes, on Andrew Sullivan. Now THAT’S big-time ink!!

  7. Just saw your story on The Dish too! My 80 year old Dad in Omaha, NE is still a practicing primary care doctor, entirely solo. Never had a partner. But he has become very disillusioned with “the system”. He will love your model! When I read about it, I thought to myself “All my dad’s professionalism, skills and love for his patients has just passed to the next generation with a new model”. Heck when he started practicing in the early 60’s, self pay was very common. Can’t wait to tell him. Please do keep us posted on your journey.

  8. Thank you. It’s really been a refreshing change for me. Patients are a little confused by it, but once they figure out that they get me answering the phone and can get help when they need it they are thrilled. It’s great to see their gratitude.

  9. An interesting read. Got lured in by the llamas at first, but got drawn into this post somehow…

    I don’t know much about US health care system, but it seems surprising how much competition is hindered by regulation, which ends up hurting both practitioners and patients financially.

    I’m not entirely sure about the system here in Germany either, but it seems more accommodating for small practices and independent specialists.

  10. Congratulations Dr. Rob! You’ve come a long way from the days of smelly feet : )

  11. Actually, the cost savings comes from “Pay the doctor something reasonable for capitation.” Because you really are using a “self-directed capitation plan” where you have a reasonable capitation rate, instead of $6.73/month which Aetna will try to pay you. But in NY, what you are doing would be illegal since it involves “risk” so they would declare you to be providing health insurance w/o license to do so.

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