e3BFM’s Premium Client Content includes e3Business’ “Medical Practice Model Economics Overview,” which addresses the economics of growing traditional, concierge and hybrid practices.

Concierge practices charge patients a monthly, quarterly or annual fee and tend to be cash only practices. Historically, these fees were on par with retainer fees required by attorneys, i.e. the fee guaranteed that the provider would make themselves available to be the patient’s provider. As more providers have moved into the concierge practice model, retainer fees have been reduced or transformed into other types of fees, such as practice membership fees.

Cash pay concierge practices avoid the staffing, cost and frustration of dealing with the insurance-based reimbursement system. Payment for services is received at the time of service, which, in theory, frees the provider to focus on delivering high-quality care to the patient. Cash pay concierge practices are also free from insurance contract requirements regarding hospital coverage, after-hours care, limitations on services, etc.

Some concierge practices participate with insurance contracts, although this can be challenging because insurance companies have opposed retainer fees and have terminated provider agreements with concierge practices. (Medicare specifically prohibits participating providers from charging an additional fee for services already required by contracted providers. For more information, CLICK HERE).

The concierge practice model has its problems, though, including:

  1. Referrals, prescriptions and lab services for insurance-covered patients may require an order from an in-network provider.
  2. Services from an out-of-network provider may not apply to insurance deductibles.
  3. Concierge practices that convert from an insurance model can be devastated by practice atrophy, as the majority of patients still select a provider based on their insurance directory.
  4. Concierge practices have been more susceptible to economic downturns, though the rising cost of insurance-covered healthcare services minimizes this challenge.
  5. Concierge practices can be expensive and difficult to scale, e.g. add additional providers, which leaves the establishing provider without any professional support and provides little chance of the provider receiving value for their practice when they leave, (as other providers can just establish another solo concierge practice and service the displaced patients).

Some consultants or vendors are quick to dismiss these issues in touting the concierge practice model, but these risks typically affect the provider far greater than other parties. An established provider converting  their medical practice into a concierge practice risks all of their practice value and potential value on that decision. This conversion often requires dismissing the majority of patients, creating ill-will in the community from those patients. Even if the provider intends to keep insurance contracts, insurance companies may terminate those agreements, cutting into planned revenues and depriving the practice of patients necessary to build and sustain their concierge practice.

Concierge practices typically start well. The provider is committed, the patients are primed and the change is exciting. Over time, patients will leave the practice, the tasks required of a concierge provider may become tedious and the practice may struggle to attract new patients willing to pay their fees. Once a concierge practice encounters financial difficulties, it can enter a “death spiral.” Without new patients, revenue falls, costs have to be cut and the remaining patients may feel they are not receiving the same “bang for their buck.”

When concierge practices fail, the consultant can move on to the next practice, but the provider is left with the aftermath. The provider may not be able to contract with insurance companies again and if they do, they may find that patients aren’t anxious to return to the practice that previously dismissed them. Loans, expensive equipment and other liabilities from the concierge practice may still have to be paid off. These situations often result in the provider having to accept an employed position for steady income and absorbing significant financial losses that offset the initial positive returns of the concierge practice model.

e3Business believes that the concierge practice model is appropriate in certain situations. Established providers who want to scale down before retirement should consider moving to a concierge practice. If a provider, however, is looking for long-term security and is attached to their current market, they should explore the opportunity cost of the concierge practice model. Unfortunately, many providers who convert established practices into concierge practices never recoup the financial benefits that were available from other options.