BUSINESS MODELS: A Simple Look at the Best Corporate Structure for Your DPC Practice
By Michael Tetreault, Editor-In-Chief
Last Updated, NOVEMBER 1, 2019 – When launching a direct primary care (DPC) medical practice, many “Doc-Preneurs” grapple with how to structure their practice and which business model to choose.
Despite some who may believe DPC is the beginning and end of primary care, we take a much different approach. We believe providing our readers with an appropriate amount of objective perspective, education and different opinions is how you should approach learning more and potentially entering or starting a DPC practice.
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Why do we take this educational vs. all-in approach?
We understand this is a risk and a reward activity. You should approach learning about this space as you would studying. Successful business owners, ones you may have heard of have said things like …
“Risk comes from not knowing what you are doing. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” ~Warren Buffet
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“Everyone can probably do at least one thing better than ten thousand other people.”― Marcus Buckingham, First, Break All the Rules: What the World’s Greatest Managers Do Differently
So, with that approach to our writing in mind … here are the pros and cons of each practice model commonly used by DPC doctors and retainer-based medical physicians.
“Direct Primary Care (DPC) is not insurance,” says Dr. David Z. Tusek of Nextera Healthcare based in Colorado. “It does not strive to replace health insurance, nor is it adversarial to it. On the contrary, many DPC practices are eager to work with insurance carriers to co-create blended plans which integrate DPC with high-deductible insurance and ultimately correct the perverse incentives which are rife in the traditional fee-for-service system.”
Summary of Models In Direct Primary Care
- #1. DPC Lifestyle Model — “In my experience, there are two types of DPC models,” said a former/now retired consultant to DPC Doctors we interviewed for this article. “Lifestyle models where physicians reduce the size of the practice and maintain minimal staffing, and offer a variety of services for a membership fee. We strongly urge all physicians not to have a fee less than $100 per month.”
- #2. DPC Growth Model — “Then there is the Growth Models for physicians who don’t mind the longer hours but want to solidify income through growth,” noted the former/now retired consultant. “These models can include one or more mid-levels or additional physicians to provide services when the practice grows. But there is NO insurance billing. Instead of trying to manage two types of practices under one roof, and trying to accommodate Medicare rules regarding the structure of such entities, the DPC model is a partnership where all providers offer the service as a team. You are either a government doctor or a private doctor. Trying to have it both ways is a great way for a company to take advantage of selling things to your practice, but as has been shown frequently, a disservice to both doctor and members in our opinion.”
In a recent White Paper published by the American Academy of Family Physicians (AAFP), they ask what’s the difference between DPC practice models?
The answer they (AAFP) wrote was: The variance between DPC practices is often found in the breadth of primary care services covered by their retainer contract fee structure. Some DPC practices have retainer fees that cover the entirety of primary care services, including care management and care coordination, as well as services involving external organizations such as off-site diagnostic facilities. This means that patients do not have to pay out of pocket for any services delivered to them through their DPC practice beyond the monthly retainer fee. Other DPC practices cover a far more limited scope of services and collect service fees from patients at the time of care to cover costs occurred in the visits. This is because these DPC practices continue to participate in traditional FFS contracts with third-party insurance carriers but utilize the retainer fees to supplement their contracts. Typically, these retainer fee structures only cover services that would otherwise go un-reimbursed under those insurance network contracts.
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The Fee For Care (FFC) Model
Usually a monthly, quarterly or annual fee model, where a patient pays a monthly fee, quarterly or annual retainer fee to the physician. There is typically no long-term contract or obligation between the physician-patient in this model. The fee covers most services provided by the physician in his/her office. Often, vaccinations, lab work, x-rays and other services are excluded and charged for separately.
Benefits and services typically included in the contract between the physician and patient may include: same day access to your doctor; immediate cell phone and text messaging to your doctor; unlimited office visits with no co-pay; little or no waiting time in the office; focus on preventive care; unhurried atmosphere; free cell phone, text message and online consultations, prescription refills; convenient appointment scheduling and more.
Many FFC or Retainer plans may be purchased with pre-tax dollars utilizing HSA and/or FSA accounts attached to patients’ insurance plans. Please note, these programs are not an insurance company or product. Each patient should check with their physician to find out what services are included in their individual membership. These are only examples of some of the typical services provided.
The Fee For Non-Covered Services Model
Many doctors have chosen to partner with large franchise concierge medicine businesses to help with the startup and transition needs necessary to open their concierge medicine practice. However, more than half of all concierge physicians have opted to use accountants, attorney’s, practice managers and business consultants to navigate their way into the new practice model. As more and more doctors begin to analyze and potentially move into concierge medical practices, independent physicians choosing not to be a part of a large franchise operation instead are transitioning with a smaller consultant should examine their fee structure and price them competitively.
“The first thing to decide is whether you want to continue billing insurance,” says a former/now retired consultant. “If so, then there are specific legal issues to address with regards to the structure. If you are opting out of insurance there are a number of options. The biggest mistake in my opinion is charging too low. Conversions [into this private-pay marketplace] will eventually be unnecessary as the public becomes more aware of the benefits of these types of memberships. The big challenge is continuing growth after the initial conversion. Customer service, as described by some physicians, is the number one way to grow [this type of] practice. Linking the service to local self-insured employers is a good way to grow but certainly requires expertise with regards to structuring the appropriate benefit, usually a high-deductible plan with an HSA plus a membership.”
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Most doctors currently practicing concierge medicine as a career choice fall into one of two intelligence-gathering categories when they first opened. First, they used a franchise concierge company to help them with the details or they opted to do it themselves and surround themselves with a local team that would provide counsel in starting this practice model.
“I perform a thorough analysis of the practice and determine areas where expenses will be reduced,” said former/now retired consulant. “After a survey of the physicians patients, we conduct a 12-16 week conversion. Our fees are collected during the transition only. Once a successful conversion has been completed, we help train the physician staff to provide membership services. If customer service is maintained, we know the practice will continue growing without a need for further services.”
The premise of most franchise concierge medicine business models, termed “Fee For Non-Covered Services Model,” reduces the size of a medical practice to a more manageable patient load and these patients agree to pay a fee for more time with their physician, an annual physical, and more personalized access and service. Emphasis is on a healthier lifestyle, both for the members and the physician.
The “Fee For Non-Covered Services Model” allows for Medicare and private insurance to be billed by the physician for routine visits and procedures. To date, this model comprises the largest segment of the market, approximately 46 states, although Direct Primary Care (Fee For Care Model), is rapidly catching up in select markets, according to The Collective.
Distinct advantages for selecting the “FNCS” model are:
- Physicians who are looking to slow down without affecting their current income levels will find this model attractive. These types of models offer an enhanced physical (or some enhanced procedure or procedures not covered by Medicare), on an annual basis, which is the basis for the entire fee. Fees for these models usually range from $1,200 – $2,000. It is critical that physician converting to this business model are able to reduce expenses to accommodate this type of practice.
- There is typically a maximum number of patients allowed to join the practice, usually around 600. Industry sources tell CMT that they have not seen too many of these concierge medicine practices reach the 600 patient-member level, but that most are satisfied at the 400 patient-member level.
- Contrary to what people think, this model is not just for the rich as the vast majority of patients make less than $100K, according to industry surveys. The concierge medicine industry has been touted by the media and television for years as an expensive way to see the doctor you’ve known for years. At the inception of the movement in the early to mid-’90’s, this was factually true. What’s not truthful is that nearly two decades later, the majority of concierge medicine and direct primary care clinics cost their patients between $50 – $135 per month.
- Family Practice Physicians typically offer a family plan where dependent children up to a certain age are covered free. Internal Medicine Physicians may offer a similar program but typically for dependent children between the ages of 16 and 25. Therefore there are many single moms joining these practices.
- There are many development teams and implementation companies that are helping physicians to convert to these more price transparent business models. They have every base covered with regards to ensuring a successful launch. There is nobody in this industry that does it better. There is a very high failure rate for physicians trying to transition to this type of model on their own. The conversion process is intense and every transition has its own unique challenges.
Distinct disadvantages for selecting the “FNCS” model are:
- The FNCS business model works very well when implemented appropriately. Although a medical practice is considerably smaller and much easier to manage, there are still existing issues with regards to billing Medicare and insurance companies, collecting co-pays, checking patients in and out, etc. This not only increases operational costs, but most of the problems surround billing insurance. Alternatively, in other concierge and direct primary business models, operational costs are much lower because the physicians/practice do not participate in Medicare or insurance plans. We will write more about the pros and cons of this in Part 2 of our follow-up article:
- FNCS Business Models require that the services paid for by members are not Medicare covered services. Accordingly, it is critical to have legal input with regard to structuring this model. Because Medicare regulations are likely to change frequently, especially with the ACA, ongoing legal monitoring is necessary in this type of model.
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According to a 2013 Physicians Practice Survey (2013 Staff Salary Survey) respondents in practices of six-to-10 physicians reported practicing in a concierge/membership practice. Here are some more specific findings from the survey:
- Solo practices: 2 percent are in concierge/membership practices.
- Two- to five-physician practices: 2 percent are in concierge/membership practices.
- Six- to 10-physician practices: 5 percent are in concierge/membership practices.
- 11- to 20-physician practices: No respondents are concierge/membership practices.
- 20-plus physician practices: 1 percent of respondents are concierge/membership practices.
It’s likely that more physicians, especially physicians in smaller practices, will begin transitioning to concierge, membership, and even direct care practices in the coming years. Physicians who favor independent practice will likely view these alternative reimbursement models as a way to retain their independence, spend more time with patients, and combat declining reimbursement.
In Part 2 of “Concierge/DPC Practice Models: What Model Is Best For Me?” we will look at the pros and cons of converting to a Hybrid or Segmented Business Model and in Part 3, look at the pros and cons of operating a Direct Primary Care practice.
Pros and Cons of Hybrid/Segmented Medical Practice Business Model
The business and day-to-day operation of any medical practice is challenging. Concierge and Direct Practice physicians will tell you the same challenges exist in their business model as well. In Part 2 of our series entitled “Concierge/DPC Practice Models: What Model Is Best For Me?” we are going to look at how some physicians are operating their medical practices in what is called a “Hybrid” or “Segmented” business model. “Hybrid” concierge medicine practice is where physicians charge a monthly, quarterly or annual retainer or membership fee for services that Medicare and insurers don’t pay for. Under this model, practices and physicians will bill Medicare and insurance companies for patient visits and services covered by the plans. They also offer a traditional model of healthcare which is generally staffed by a Nurse Practitioner (NP) or a Physicians’ Assistant (PA). These two-levels of service are offered under the same roof but have very different payment models.
What Does This Look Like Practically?
Simply stated, the medical practice has two businesses under one roof, Business ‘A’ and Business ‘B.’ Under Business ‘A’ those patients wishing to be treated by the physician will likely pay a monthly, quarterly or annual fee to the practice and receive services such as: quick appointments; email access; phone consultations; newsletters; an annual physical, prolonged visits and comprehensive wellness and evaluations plans. Business ‘A’ will bill Medicare and the patients’ insurance company for visits and services covered by the plans and services not listed in the Membership Service Agreement (MSA). Business ‘B’ however, is where the patients schedule an appointment to see a Nurse Practitioner or a PA and that care is overseen by the Physician in the practice. Business ‘B’ will bill Medicare and the patients insurance company for visits and services covered by the plan, accept co-pays, deductibles, etc. If patients on Side ‘B’ must see the overseeing doctor, it’s very likely they will see him.
So Why Join Business ‘A’ of the Physician’s Practice?
Services inside a “Hybrid” concierge medicine practice on Business ‘A’ may include: quick appointments; email access; phone consultations; newsletters; annual physical, prolonged visits and comprehensive wellness and evaluations plans. Each patient should check with their Physician to find out what services are included in their Membership Service Agreement (MSA). These are only examples of some of the typical services provided. Services vary by state, physician and specialty. These services, along with ensuring they will maintain an ongoing relationship with their Physician, on the outset, can be very attractive to patients.
Advantages To Physicians Operating Under The “Hybrid” Concierge Medicine Practice Model
- Physicians who operate in a “hybrid” concierge medicine business model typically see 6-15 patients per day.
- Proven track-record. According to our sister publication, Concierge Medicine Today (CMT), over 80% of concierge medicine practices in the U.S. accept insurance and Medicare patients.
- Spend more than 30-minutes per visit with each of their patients, allowing doctors to get to know their patients better.
- Increased annual reimbursement compared to traditional, managed care and insurance-driven primary care practices.
- More time to research valuable, cost saving treatment options and drugs for your patients.
- Provides a safety net for you in the transition process as this dual model approach initially has less disenfranchised patients and less stress and anxiety throughout the transition process as patients continue to participate in the insured, non-concierge side of your practice.
- More time to spend with your family.
The “Hybrid” Challenge
Such as life, nothing good ever comes easy. The transition to a “Hybrid” concierge medicine model or “Fee-for-Non-Covered-Service Model” has its challenges. When a physician chooses the “Hybrid” business model, he/she must first carefully interview either a Physician Assistant (PA), a Nurse Practitioner (NP) or Physician partner that will replace you and your time under Business ‘B’ of the practice while you migrate and start Business ‘A.’ Most physicians will likely hire a PA or NP for cost reasons. Once this is accomplished, a physician needs to spend some time explaining reasons why he is opening up Business ‘A’ of his practice and taking on a more formal ‘observational’ role of Business ‘B’ of the practice.
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Sometimes, transition consultants who assist doctors in establishing a “Hybrid” concierge medical practice will train a temporary transition manager whose job it is to mirror the physician’s schedule. That Transition Manager will also be available to meet with patients as they come through the office on their regular visits, explain the benefits of joining Business ‘A’ of the practice and what the cost, features and benefits might be. All the while, informing patients that they can still see visit this location and see an NP or PA for their regular care, if they choose to do so and not join Business ‘A’.
“One of the most difficult occurrences is when patients who does not understand the program or who philosophically disagrees with the membership fees (i.e. thinks this is for rich people) accuse the physician of abandoning them,” says one former Transition Manager in Arizona. “Sometimes patients can be very vocal about their opinion of this and at times, be quite rude. This is very disheartening to most doctors, at least in the early stages of the transition process. ‘Saying goodbye’ to some long-term patients is one of the reasons many Physicians are reluctant to convert [to a Hybrid model].”
- a “Hybrid” medical practice consultant;
- a Transition Manager;
- an attorney;
- a supportive spouse;
- and an accountant … to name a few.
“Patients are educated, possibly more than ever, as a result of the changes to our healthcare system,” adds Richard Doughty, CEO of Cypress Concierge Medicine based in Louisiana. “Patients are looking for answers and options and taking more initiative in their overall health. Following their doctor into concierge medicine for many patients is exactly the vehicle that meets their needs. In addition, knowing others who have benefited from that relationship with their concierge doctor confirms the value as their doctor makes this change.”
Some of the other challenges to overcome include:
- The average membership is typically much lower than other models because a lot of patients are given to option to stay with the practice, as they always have, and continue to see a PA or NP under their insurance. Patients understand that the NP or the PA has to be overseen by the Physician and if they need their doctor, it’s likely they will request to and be able to see him/her.
- There are great NPs and PAs. But not a lot of them will jump on the doctors hamster wheel and see 30 to 40 patients per day while they see their overseeing physician treat 6-10 patients per day. There is likely to be high turnover of NPs and PAs as well as burnout among staff and other support members. Frequently the Physician will decide to work both sides of the practice in order to help the Nurse Practitioner (or Physician Assistant, PA). Once this occurs, members have been known to leave the practice as they see no differentiation, or at least not enough to pay a fee.
- The staff that is helping the NP or PA is as busy trying to manage the chaos as they have been in the past. Support staff is crucial to highlighting the doctors Business ‘A’ of the practice. Customer service is key. There is likely to be high turnover among these team members. If you share staff, this can create its own set of dilemmas. If part of the time some staff are frantically moving patients through Business ‘B’ of the practice to see the PA or NP and then are relied upon to switch hats and be a strong advocate and customer service representative, some things are going to be forgotten and this message will ultimately be communicated to patients on both sides of the practice. If there is a lack of customer service the patients have been found to leave the practice entirely.
- The most important challenge to the model is trying to keep it profitable. Typically, in addition to a lower number of members, there is also a significant number of patients that will leave the practice altogether, choosing not to participate in either Business ‘A’ or Business ‘B.’ Frequently, the Physician is made to believe that his/her membership fees produce additional revenues added to the revenues of his/her original practice, and that he or she is likely to earn $300k – $500k more with this type of medical business model. Additionally, because there are no decreases in the size of the overall practice, and Business ‘B’ of the practice requires billing support, it is very difficult to reduce expenses in these types of “hybrid” concierge medical business models.
“With the right planning, a hybrid can be converted to a Direct Primary Care model,” says a former/now retired consultant to DPC Doctors. “I predict there will be many hybrids converting to a Direct [Primary] Care model in the future.”
MDVIP, the country’s largest concierge medical group, has contracts with around 640 practices and operates in nearly every state across the contiguous U.S. They have been operating and helping physicians enter into concierge medicine business models for over a decade.
ON THE SIDE: “When I first heard about hybrid type models I was excited about a model that would allow some of the patients to become members of the concierge side of the practice while the rest were seen by a mid-level (Nurse Practitioner or Physician’s Assistant),” notes a consultant. “After all, this would eliminate having to part with those long-term patients. They could just remain in the practice and see the mid-level, and their insurance would be billed as always. It turned out not to be so attractive for both the patients and the Physician.”
All in all, “Hybrid” concierge medicine programs can be successful if the transition is done appropriately.