~ Archive for Retail Healthcare ~

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. For example, new medical centers like Accesa Health are demonstrating the potential of building up a chain of branded franchised practices centered 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 such as vitamin B12 shots or Myers’ cocktail IV drips to provide a wellness-focused concierge healthcare experience. This approach can even be extended into services like medical weight loss assuming that the complexity of the encounter is well-defined and a payment model such as a membership can cover all of the relevant costs associated with it.

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.

Rise of Retail Healthcare


The US retail healthcare revolution seems to be starting. Undoubtedly, the system is in need of a major change and the regulatory efforts in recent years have not come close to delivering what they were supposed to.  For the average patient consumer, health insurance premiums and deductibles are going up and everyone seems frustrated by the lack of value and exorbitant prices for healthcare services. Driven by consumer and employer demand, it seems inevitable that price transparency is coming and, with it, large changes in the healthcare market.

A path to seeing how this change might unfold comes from humbly studying how other markets deliver value and pricing and seeing if we can apply those lessons to the healthcare market. As will likely be touched on in future posts, the regulatory environment and third-party payment system that dominates the US healthcare system are somewhat understated, yet massively influential, components of why price transparency is so hard to achieve on an ongoing basis.

There are many analogues for market pricing in non-medical environments. Fortunately, there are also areas that touch medicine and healthcare that also demonstrate how market forces can be applied in medical settings even if they are somewhat peripheral to the pricing of  healthcare services. Consumers and practitioners looking to purchase medical products like MCAT review books, clothing such as medical scrubs, and high-quality stethoscopes have a myriad of review to visit to make high-quality purchasing decisions. As such, these consumer markets and have long demonstrated principles that align more closely with free market forces and, as such, readily demonstrate price transparency.

What makes these types of goods priceable?  In teasing out the elements of price transparency in markets such as these, it is helpful to think about what elements of books and clothing make them easy to price. Books, for example, are well-differentiated goods. While each book is unique in its content, the overall attribute of the book can be largely described using widely understood attributes such as weight, number of pages, publisher and the like. Medical clothing can be priced using attributes such as size, color, materials and thread count. Any number of suppliers can readily buy a book or a set of scrubs and resell it at a price of their choosing and sources can easily differentiate between higher and lower quality items along the lines of their unique characteristics.

Some might argue that books and clothing are pure retail goods, even if they are used in a medical setting, and lessons from those markets should not be applied to traditional medical services markets. In that case, one can move further along the spectrum in an effort to study how pricing might be utilized for more traditional medical services. One market that has a number of similarities to the prescription drug market is the medicinal compound market (i.e. supplements). Supplements have demonstrated transparent pricing for some time and, no matter how one feels about the nature of the industry, supplements have long been subject to market forces between buyers and sellers. And, because of the lighter hand that government plays in regulating it (for better or for worse), changes in pricing in the supplement market demonstrate the effects of traditional forces such as marketing, branding and distribution in establishing a competitive position. Under the assumption that a manufacturer is actually selling what’s listed on the bottle, supplements can be identified along definable characteristics such as ingredients, dosages, serving size and form. And, like the product market, supplements such as prenatal vitamins or even less medical dietary compounds such as probiotic supplements can be reviewed based on their unique attributes. As far as the supplement market goes, as long as customers find value in the supplements they are taking (placebo effect or not), suppliers will continue to exist in the market to serve them and transparent pricing should play a part.

Looking forward, in considering traditional medical markets, it will be interesting to dig in to see what can be uncovered and why price transparency has been so hard to nail down. Unlocking the answers to these questions will likely give insight into newer models of care that, in this time of change and frustration, will form and thrive, driving value away from incumbent players and into new places.

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