Practice Models

As you read the rest of this section, consider each of the following practice models, how it would work in your target market and how it would work for you. I encourage physicians not to commit to any one practice model until it is necessary. Practices may dismiss insurance-based practices or concierge practices based on past experiences, when these practice models may be the best for them now.

I typically use three criteria for evaluating practice models: viability, (the ability to reach a point where revenue pays the essential bills); sustainability, (the ability to be profitable over time; and scalability, (the ability to reproduce results for additional providers). 

These practice models are not exclusive; they can work together in hybrid models based on the needs of the market and the skills of the physician. This triad—model, market and physician—is the first step to success.

Cash Pay Practice Model

  • Defining Feature: Cash Pay
  • Does not participate with insurance
  • Does not provide insurance administrative services
  • Does not submit claims
  • Reimbursed by patient
  • Collects cash payments

Cash pay practices are the original practice model. Patients pay cash. Or they barter for services. Or they pay with chickens.[1] There are no additional fees like concierge medicine or direct primary care practice models, discussed below. Cash pay practices do not participate with insurance, provide insurance administrative services or submit claims. Cash pay practices are paid cash by cash-paying patients at the time of service. Other practice models may have the occasional patient who pays cash, such as when a patient without insurance goes to a traditional insurance practice, but everyone at a cash pay practice pays cash.

Cash pay practices typically take advantage of competitive glitches in the market. The only physician in a small town could utilize a cash pay model. A celebrity physician could utilize a cash pay model. Practices offering easy access to opioids could utilize a cash pay model.[2] The sustainability of the cash pay practice is dependent on maintaining the practice’s competitive edge. If another physician comes to town, the celebrity physician loses notoriety or everyone goes to jail, the cash pay practice may not be viable.

Traditional Insurance Practice Model

  • Defining Feature: Third-party Contracts
  • Participates with insurance
  • Provides insurance administrative services
  • Submits claims
  • Reimbursed by patient and insurance based on contracted rates
  • Does not typically collect cash payments except copays

Traditional insurance practices are the practice models that developed in response to wide-spread employer-based insurance. The defining feature of the traditional insurance model is third-party contracting with the insurance companies. Both the practice and the patient have contracts with insurance that defines the relationship. Practices are required to provide services, collect copays, submit claims and accept reimbursement for services per their insurance agreements. Reimbursement might be fee-for-service, (where the practice gets paid for each visit), or capitated, (where the practice gets a per-member, per-month fee to see a panel of patients).

Insurance contracts require traditional insurance practices to provide “insurance administrative services” as well as direct patient care. These insurance administrative services include referral processing, pharmacy management and care management. As population management has increased, so too has the insurance administrative services required of traditional insurance practices—more referrals have to be approved, more medications require prior authorization and more care has to be coordinated, (home health, durable medical equipment, etc.) Insurance companies do not compensate practices for completing all of these insurance administrative services.

The expense of performing insurance administrative services, the cost of billing functions to submit claims to receive reimbursement and decreasing reimbursement challenge the viability of the traditional insurance model. The only two ways to increase revenue is to increase patient visits or grow a larger capitated panel. Physicians in independent traditional insurance practices may see 40, 50 or even 60 patients a day.

Prior to becoming a hybrid practice, Sparks Family Medicine was a traditional insurance practice. Consider its demise the case-study in why traditional insurance practices fail, (or get acquired by large corporate practices). With the national consolidation of markets and insurance companies, I don’t know that any market can support a new traditional insurance practice. Even if such a practice were viable, I don’t know that it would be sustainable, as insurance companies have a history of reducing or eliminating reimbursement that is favorable to practices. I would not recommend that any physician currently pursue developing a new practice based on the traditional insurance model.

Concierge Medicine Practice Model

  • Defining Feature: Concierge Fee
  • May not participate with insurance
  • May not provide insurance administrative services
  • May not submit claims
  • Reimbursed by patient
  • Collects cash payments, including retainers

One of the first alternatives to the traditional insurance practice model was concierge medicine. The defining feature of concierge medicine is a fee charged to the patient, separate from any insurance contract. The initial idea was that the concierge fee would function like retainers popular with attorneys. Patients paid practices an annual, quarterly or monthly sum to have access to the practice. Patients were typically compelled to pay this fee to maintain their relationship with their physician or because they felt concierge providers delivered a higher standard of care.

Historically, many concierge practices were traditional insurance practices that charged the concierge fee while still participating with insurance. Insurance companies have objected to practices charging additional fees for care that is included in insurance agreements, however, so some concierge practices have moved “out-of-network” or cash pay. Other concierge practices attached their concierge fees to extra care or services, such as home visits, after hour consults, and insurance administrative services. 

Concierge practices charging concierge fees for extra care or services have to be very careful that the services covered by concierge fees are not already covered under the practice’s insurance agreements. In 2004, the Office of Inspector General (OIG) issued an alert that practices could not charge fees for services covered under the practice’s agreement with Medicare.[3] In two cases, concierge practices were charging a concierge fee for services including “coordination of care with other providers” and “coordination of referrals.” As insurance contracts require practices to complete these insurance administrative services, the OIG found these practices to be in violation of the law for receiving additional payments for Medicare-covered services.

As the penalties for receiving additional payments for Medicare-covered services are significant, concierge practices may opt-out of Medicare or eliminate all insurance contracts. Eliminating insurance contracts eliminates the costs associated with insurance administrative services, billing and, at times, additional compliance. Like other practice models discussed below, eliminating insurance contracts may leave a practice unable to perform insurance administrative services, even when the practice wants to perform those services. Out-of-network practices, for example, may be unable to process referrals for patients covered under insurance plans.

Direct Primary Care (DPC) Practice Model

  • Defining Feature: DPC Fee
  • Does not participate with insurance
  • Does not provide insurance administrative services
  • Does not submit claims
  • Reimbursed by patient
  • Collects cash payments, including DPC fee

A popular trend in the last decade or so has been the Direct Primary Care (DPC) practice model. The defining feature of the DPC practice is an agreement between the practice and patient that includes a DPC fee for receiving care at the practice. The DPC fee can be paid monthly, quarterly or annually and is paid whether or not the patient is seen during that period.

DPC practices do not contract with insurance companies. They do not provide insurance administrative services and do not submit claims. Because they do not participate with insurance contracts, DPC have the freedom to build “plans” for their patients. DPC practices can create a family DPC plan. DPC practices can create different DPC fees for different levels of service. DPC practices may include some ancillary services in one DPC plan and charge a separate fee for those same ancillary services in another DPC plan.

DPC practices receive all of their revenue from their patients. Patients may pay cash at the time of service if the DPC fee doesn’t fully cover office visits. The DPC fee serves as a residual revenue stream and can serve to align the practice’s objectives with the patient’s objectives. Because the practice is receiving the DPC fee from a patient, the practice’s revenue isn’t reliant on bringing the patient for a visit every time the patient has an issue. The practice may instead address some patient issues through phone/video consults or through secure practice portal communication.

Like concierge medicine practices, DPC practices may encounter issues with not being able to provide insurance administrative services like processing referrals. In certain networks, DPC patients with insurance may be forced to see a traditional insurance provider to initiate care coordination, (like referrals, prior authorizations and home health services). This duplication of services and costs may make DPC practices less viable in some markets. An additional problem is that the in-network traditional insurance provider may not recommend the same care coordination as the DPC practice.

Employer-based Practice Model

  • Defining Feature: Employer client contract
  • Participates with insurance as required by employer client
  • Provides insurance administrative services as required by employer client
  • Submits claims as required by employer client
  • Reimbursed by patient and/or insurance based on contracted rates
  • Collects cash payments as allowed by employer client

While DPC practices contract for services on a patient-by-patient basis, employer-based practice models contract with employer clients to provide services to the employer’s workforce. Employer-based practices may have one large employer client or it may have several smaller employer clients that support the practice. Like DPC practices, employer-based practices have the freedom to be creative in structuring their compensation with their employer clients. The practice may receive a per-employee per-month payment for being accessible to all of the employees. The employees may be responsible for partial payment of services at the time of service. Compensation may be tied to reaching certain performance targets for the employer group.

Employers typically operate with an insurance company or third-party administrator (TPA) to coordinate care outside of the employer-based practice model. The structure of the employer’s TPA agreement addresses whether the practice, the TPA or some combination of both perform insurance administrative services including care coordination. Employer-based practices may submit claims as part of their employer client agreement so that their performance can be monitored.

Employer-based practices offer employers the opportunity to provide their employees quality healthcare. Because one or more employer group represents the majority of the practice’s revenue, employers can better control quality and, in theory, costs. Market conditions for employer-based practices are similar to cash pay practices; the market must have one or more employers willing to partner with a practice. The practice may not be viable if one or more of those employers leave the practice.

[1] Another True Nevada Story. https://www.theguardian.com/world/richard-adams-blog/2010/apr/21/sue-lowden-lowdencare-chickens-nevada

[2] https://www.nbcmiami.com/news/local/Floridas-Pill-Mills-Were-a-Gateway-to-the-Opioid-Crisis-512989121.html

[3] https://www.jdsupra.com/legalnews/concierge-medicine-medicare-compliance-16029/