Cash Pay Practices

As mentioned previously, rising health insurance premiums and higher deductibles will drive a consumer’s need and desire to “shop” for healthcare services, particularly on the low end of medical complexity. As long as one believes in the thesis that high-deductible forms of health insurance will continue to grow in the US (driven by an aging population), one must consider that a private /self / cash pay healthcare market is growing and will likely form the basis for a new infrastructure that will distribute healthcare services for many years to come.

Expanding on the concept of patients paying providers directly, a loose phrase used to categorize this patient-provider payment model is direct primary care. Depending on who you talk to, direct primary care, or DPC, has taken on a variety of different meanings and is really a grab bag of different underlying business models. Said another way, it might seem like a small thing to lump a concierge practice (i.e. patient pays a provider a concierge membership fee and the provider bills the patient’s health insurance) with a cash practice but they are vastly different operationally. Given that we are in the early innings of this cash pay healthcare ballgame, however, it will have to do to use DPC as a categorization until the new business models are more prominent and fleshed out. The distinction that gives it great utility is that it largely highlights stepping away from having a third party foot the bill and challenges the concept of a bureaucracy determining medical necessity.

One concept that has proven to be an interesting subcategorization under the concept of DPC is the colocation of medical offices near pharmacies inside of retail stores – so-called retail healthcare. The idea was reborn in the early 2000s with the rise of in-store medical clinics and has since seen rapid growth. Today, major pharmacy players such as CVS and Walgreens are active in the space and often run the clinics in conjunction with local providers. Somewhat dismissively referred to as “doc-in-a-box” operations, these clinics were initially set up to handle minor conditions at a fixed, cash price but have evolved from there to accepting insurance and as extensions of the larger regional healthcare systems.

From a business standpoint, the in-store clinic pioneers hypothesized that the foot traffic coming to a pharmacy would benefit from being able to get their prescription right next to the pharmacy. Unfortunately, the initial players in the space have been largely absorbed by the major pharmacy chains and it seems as if getting the business model to work proved difficult for standalone companies. Pharmacies, on the other hand, continue to invest in the model, likely from the holistic view that they can recoup any losses through fulfilling prescriptions and other items purchased in the stores.

The next generation of innovation in this space should lead to more standalone players gaining traction, particularly should the adoption of high-deductible health insurance plans continue. Independent retail medical offices are showing up and are providing traditional medical care defined in scope by what can be priced accurately.  I served as one of the first doctors at this medical center, for example, and believe that places like it have potential to end up as a chain of branded franchised practices built around the concept of delivering specific types of medical care at transparent prices.

Defining the scope of service around medical needs that can be priced mandates that only specific types of care are delivered through this type of model. By examining the menu of services, one can see the emphasis on minor services such as vaccinations, minor urgent care and other wellness offerings (e.g. vitamin B12 shots). In contrast, complex cases involving symptoms such as abdominal pain are rightfully referred to facilities that have the capability of appropriately managing such patients. Also, patients benefit when cash practices like this one define the scope of service and prices accurately on the website as a patient can easily move on to an alternative venue for treatment rather than wasting time walking into an office and being told that they need to seek a higher level of care.

From the perspective of a doctor or a medical provider like a nurse practitioner or physician assistant, a cash-only model like this one has appeal. Rather than spending good chunks of your day filling out medical charts a certain way so that a billing company can attempt to optimize your reimbursement from a patient’s health insurance company, you have more time to focus on medical care and charting in a way that’s aligned around patient care. Additionally, for those who own medical practices, a cash-only model improves financial visibility as the risk of not getting paid by an insurance company 60 days after a patient visit is removed.

A cash-only model is not all roses, however. For one thing, finding patients who are interested in using your practice can be expensive.  While traditional practices acquire patient volume resulting from being in-network with an insurance company’s network, cash practices have to figure out how to bring patients in the door on their own. This not only requires knowing where and how to advertise, but it also means delivering a quality experience during all parts of the patient’s visit. An unhappy patient at a cash practice will seek care elsewhere whereas that same patient may be forced to return to an unsatisfactory practice again and again when using health insurance for payment as it may be the only option in the area. Given the many moving parts, lots of experimentation and refinements are required which can challenge even the most dedicated entrepreneur.

Additionally, a cash-only practice often has the added challenge of convincing a patient that the service is worth it given the historical context of patient payments during office visits. In the past, a patient could walk into a medical office and pay a copay of say $0 or $5, get treated, and leave without receiving a bill. The medical office would bill the insurance company and everyone would be happy. If this is the patient’s context for how much a healthcare visit should cost, a cash-only provider has the added difficulty of convincing the new patient that their reasonable office visit fee of $100 (given that they provider is not billing anyone else) is worth it. While the days of the $5 copay seem to be disappearing for most, it still is a lingering context and perception in the minds of some.

While it may not be obvious, patients actually benefit in several ways from utilizing a cash-only practice. Excluding the behavior of less reputable medical practices, one will not receive bills from the practice because the health insurance company or government payor did not pay for a delivered service. Additionally, because the practice depends on positive customer experiences, there is a healthy tension created in which the provider has more of a desire to deliver customer service on top of quality care. At its extreme, one could argue that this could lead to suspect behavior (e.g. overprescribing controlled medications to make a patient happy) but this does not seem to be the case in most patient encounters.

Looking forward, a substantial opportunity exists in medical operations that wish to serve healthcare patients on a cash basis. Not only do we have a rapidly growing segment of the population that is seeking value in their healthcare purchases as a result of being on a high-deductible health plan, but we can see the difficulty with getting access to appointments or services driving even well-insured people to pay cash for convenience.

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