Opening a Multi-physician Direct-pay Practice

September 9, 2014

How a five-physician internal medicine practice nixed its payer contracts and began charging patients directly for services.

Making a big change is always scary, but it's a little less daunting if you don't have to make it alone. In April 2013, all four of family physician Jacob Liston's partners joined him in making the shift from a traditional, fee-for-service reimbursement model to a direct-pay practice.

"When it came time for the transition, we were all kind of gung ho about it," says Liston, noting that one of his partners had recently written a book about the "broken" insurance system and had become a big proponent of direct pay, a model in which patients pay directly for services and practices no longer contract with insurers. "If we had any dissenters, I don't know if we all could have made the change."

While scary, Liston says he and his partners felt that they had no choice but to opt-out of fee-for-service reimbursement. His practice, Southdale Internal Medicine, was one of the last remaining independent internal medicine groups in the Edina, Minn.-area, and the partners didn't think it could stay that way much longer. "We could see the writing on the wall about remaining independent under our insurance reimbursement model, and we just didn't think that we would survive," says Liston, noting that the practice had no "negotiating clout" with payers. "... We figured that this would be the best way to maintain our independence."

Liston and his partners are not the only physicians who see direct pay as a way to escape reimbursement declines, complicated payer requirements, and the associated time constraints placed on patient visits. According to findings from Physicians Practice's 2014 Great American Physician Survey, Sponsored by Kareo, nearly 45 percent of the more than 1,300 physician respondents are considering direct-pay practice, and 8 percent are already practicing in one (click here for more results from our Great American Physician survey).

But while more physicians may be considering direct pay, opening such a practice is not easy. Here's more on how Liston and his colleagues did it, and Liston's advice for other physicians about to embark on the same journey.

Confronting the fears

While many physicians that transition to direct pay hire a consulting firm, Liston and his partners decided to go it alone. One of the biggest reasons was that many of the consulting options would have required the practice to become part of a larger direct-pay franchise, says practice administrator Cami Swanson. "We wanted our own brand, and we just couldn’t find [a firm] that would help us develop our own brand versus, 'Here's how those that buy into our franchise do it,'" she says.

Swanson, who took a leading role in planning for the shift, says one of her first tasks was informing the 11 staff members that the practice's payment model was changing. She and the physicians broke the news at a staff meeting. "It was very, very nerve wracking for the staff," says Swanson, adding that a top concern was job security. "Even for me, I could sit at the office sometimes and think, 'Yep, I've got a solid plan and this is going to be OK,' and then I would go home at night and think it through from the insurance side, the way we're all taught to think, and I would think, 'Oh my word, this is never going to work.' I think that's what gets a lot of the staff."

To help ease her staff's fears, Swanson had an open-door policy so that they could express their concerns at any time. She and the physicians also emphasized that they believed transitioning was their only option. "We did not want to sell out, and if we did sell out, or were absorbed by a larger group, everything would be out of our control and we couldn't guarantee jobs, etc.," says Swanson. "This was the best effort we had."

Setting the terms

A major aspect of opening a direct-pay practice, of course, is determining how much to charge. At Southdale, this process included evaluating everything from the number and type of visits each physician provided per day, to the cost of lab work, to the prices retail-based clinics were charging.

The practice posts all of its prices on its website so that patients can easily access them, and there are no "surprises" at check out, says Swanson.

Though Southdale no longer accepts most insurance plans, the majority of its patients do have insurance, often with high deductibles, says Swanson. If these patients wish to be reimbursed by payers, the practice prints out an itemized bill that patients can send to their insurers directly. The practice also accepts payment by Health Savings Account payment cards.

There is one exception to the practice's no-insurance policy: Medicare. Swanson and the physicians recognized that it would be much more complicated for Medicare patients to submit claims independently, than it would be for their commercially insured patients to do so. They also feared that if they did not continue to accept Medicare, it would mean ending their relationship with many of their Medicare (or soon-to-be Medicare) patients. "For our commercially insured patients, they can just mail in the claim, no forms needed," says Swanson. "[Medicare patients] would have had to submit the claim to Medicare, wait for processing, and then submit the balance to the purchased plan. It is much more difficult and time consuming for the patient."

Spreading the word

Swanson and Liston agree that the most challenging aspect of the transition to direct pay was explaining it to patients. A few months prior to making the change, the practice sent an informational letter to patients, it posted signs and explanations throughout the practice, and staff and physicians began having one-on-one conversations with patients. Still, there was a lot of confusion. "They just didn't get it," says Liston, adding that patients have a hard time understanding the insurance system to begin with. "We thought that we did a good job, or we thought that we tried to explain things well. I think it became apparent that we were good doctors, but we weren't great at public relations and marketing."

In hindsight, Swanson says the practice should have held wide-scale informational meetings for patients prior to the change. Instead, it held these meetings - three of them - post transition, and between 100 patients to 200 patients attended each.

While explaining the change was challenging, the practice must have done something right. Swanson and the physicians anticipated that about 25 percent of their patients would remain with the practice. They were pleasantly surprised to find that they retained about 75 percent.

The practice also averages about 25 new patients per month, says Swanson. She attributes much of that growth to local media attention and the practice's Web presence, which includes a website, Facebook page, LinkedIn account, and a YouTube channel.

Changing perspectives

The new payment model has positively impacted the physician-patient relationship, says Liston. Since patients pay for services directly, they expect more from the practice, and they engage more in their care. "The patients are coming in to [see] the doctor much the same way they would be coming in to see any other professional ... they're paying for it so they're looking for value," he says. "As a provider, you're treating not just a patient but a customer, and so that interaction, I think, is really enhanced. It helps us become more patient focused; it helps us meet the patients where they are; it brings the price of procedures, past medications, into the conversation, which makes the conversation more rational."

Pay in and pay off

The benefits of direct pay, however, don't come without setbacks, including a decline in practice revenue. During the first few months post-transition, the practice still enjoyed the "run-out" from insurance payments, but finances became strained after that, says Swanson. Still, she says, the physicians had planned for a revenue decline, and they were willing to take a pay cut to help offset the hit.

Staffing and operational changes also helped combat the financial challenges, says Swanson. Since the practice sees fewer patients and no longer contracts with multiple insurers, staff members' responsibilities have eased. They no longer incur overtime, and many offer to go home without pay when things are slow. Overall, she says, staff salaries remain the same, and only one part-time front-desk staffer has been laid off.

"We're at [the end of] year one now and physician pay has gone up," Swanson says, adding that she is forecasting positive changes in the year ahead, particularly as high-deductible insurance plans become more prevalent. "With our model those dollars can really be stretched a lot further. The more exposure and the more we can continue to educate I think we'll see incredible growth."

Direct-pay prices

What does a direct-pay practice charge? Here are some examples of the prices at Southdale Internal Medicine, which transitioned to the cash-only payment model in April 2013.

• Focused visit (a 15-minute visit to address common health issues such as a sinus infection or strep throat): $80

• Complex visit (a 30-minute visit including treatment for a variety of issues, or symptoms that may take more time to evaluate, such as dizziness or anxiety): $120

• A standard physical exam (school or sports): $125

• A comprehensive physical exam (including a health assessment, complete physical exam, and standard lab tests): $200 to $250

Aubrey Westgate is senior editor for Physicians Practice. She can be reached at aubrey.westgate@ubm.com.

This article originally appeared in the September 2014 issue of Physicians Practice.