It’s been a month since I started my new practice. We are up to nearly 150 patients now, and aside from the cost to renovate my building, our revenue has already surpassed our spending. The reason this is possible is that a cash-pay practice in which 100% of income is paid up front has an incredibly low overhead. My admitted ineptitude at financial complexity has forced me to simplify our finances as much as possible. This means that the accounting is “so simple even a doctor can do it,” which means I don’t need any front-office support staff. I don’t send out bills because nobody owes me anything. It’s just me and my nurse, focusing our energy on jury-rigging a computerized record so we can give good care.

Our attention to care has not gone unnoticed. Yesterday I got a call from a local TV news reporter who wanted to do a story on what I am doing. Apparently she heard rumor “from someone who was in the hospital.” I was the talk of the newsroom, yet I’ve hardly done any marketing; in fact, I am trying to limit the rate of our growth so I can focus on building a system that won’t collapse under a higher patient volume. I explained this to the disappointed reporter why I was not interested in the interview by telling her that I left my old practice because I needed to get off of the hamster wheel of healthcare; the last thing I want to do now is to build my own hamster wheel.

I’ve also gotten interest from a place I didn’t expect: local specialists. I always thought what I am doing applies only to primary care, as it is hard to do a monthly fee for the procedure-oriented specialties. But as the enthusiasm for my new type of practice grows in the community, it may spur a boom in cash-paying patients. Why? One of the provisions in the Accountable Care Act (ACA) is that small businesses (with over 50 employees) who want to avoid the penalty for not having insurance can opt to contract with a direct-care physician like myself in conjunction with a high-deductible health care plan. Even though I have made no effort to attract such interest, I’ve already been approached by 2 businesses of 100 employees to make such an arrangement. Again, I turned the offer down for now, saying I am quite interested, but would only do so when my practice was ready. But the fact that this happened while I am doing my to best avoid attracting such attention suggests to me that the desire for this is very intense in the small business community. This makes sense, as they don’t want to pay the fines, but also don’t want to pay the exorbitant cost of standard insurance, and so would jump at any other option.

The end result is a potentially large influx of patients who are basically self-pay. The specialists, who see me lowering my overhead significantly by taking cash payment up-front, see the same opportunity for their practices. The hitch for them is that they are not allowed to give discounts to self-pay patients that they are not also giving to Medicare patients. Yes, it is illegal for a Medicare provider to give a discount to non-Medicare patients who cannot afford the cost. There are ways around this rule, and I hope to work out something for my specialist colleagues so they can give significant discounts in exchange for cash up front (which is, by the way, the same logic that the labs use to give the enormous discounts I am offering to my patients on lab services). I have had multiple specialists show very high interest in such an arrangement. I’ll fill you in as this develops.

This seems quite ironic to me – a sort of “trickle-up economics,” where I am spreading the benefit of offering discounted care in exchange for cash to the higher-paid specialists. It is a win-win-win arrangement, though, as the specialists benefit from reducing their overhead while getting guaranteed payment, I benefit by increasing the value of my type of practice even more to my patients, and the patient benefits by getting cheaper care. This, of course, raises the likelihood that more businesses will opt for this payment model, and the movement gains momentum. Who loses? The “increased overhead” comes in the form of the front-office staff doing billing, coding, and collections. This is the staff my simple-minded approach to finances has heretofore avoided, and hopes to continue avoiding.

I may be completely wrong in this, as it may not consider other factors (which wouldn’t surprise me), but I am not wrong about the intense interest I see in what I am doing. It is palpable. When I spoke at HIMSS over the weekend (ironically as keynote for a pre-conference targeted at large health systems building ACO’s), the reception was remarkably positive. My message of simplicity is falling, apparently, on very fertile soil. Did they realize the implication of “cost savings” being the need for less employees and the to downsize their business? I took great pains to emphasize the point, yet the reception was vigorously positive.

I suppose little should surprise me, in a world where the have-less’s could have their abundance trickle up to the have-mores. Who knows, maybe people will even pay attention to the economic wisdom of a doctor with an accounting impediment.

Nah. That’s ridiculous.

Rob Lamberts, MD, is a primary care physician practicing somewhere in the southeastern United States. He blogs regularly at More Musings (of a Distractible Kind),where this post first appeared. For some strange reason, he is often stopped by strangers on the street who mistake him for former Atlanta Braves star John Smoltz and ask “Hey, are you John Smoltz?” He is not John Smoltz. He is not a former major league baseball player. He is a primary care physician.

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8 Responses for “Trickle Up Economics”

  1. Barry Carol says:

    Rob –

    I would be interested in how many non-physician employees per doctor there are in a traditional primary care or small group practice as compared to your (so far) one to one ratio and how much more in revenue per year the traditional practice needs to generate to cover the cost of the wages, benefits and incremental office space and utilities as compared to your practice. Also, could you envision multiple doctors maybe even including specialists practicing like you do in the same building and as one corporate entity? At some point, though, it seems like there might be diseconomies of sale as such an entity grew because you might need a practice manager and other non-physician employees like an IT specialists to keep everything running smoothly.

    At any rate, it all sounds both exciting as well as risky to be an innovator and step outside of a proven arrangement that presumably provided a comfortable living.

    • Rob says:

      I don’t know the answer to your question. I think eventually I will have more ancillary staff than I did before, not less. The reason is that in a traditional practice the limiting factor to care is the doctor’s time to see patients. Ancillary staff in that setting tend to be financially neutral at best. I plan on hiring staff that will help me take care of people’s specific needs: a pharmacist, dietician, social worker, psychologist, etc. to give better care in specific areas and let me focus on the bigger picture. That’s the plan, at least. If we can grow the overall population of the practice it will make it available for more people (and I may even be able to reduce the cost to patients). This is, though, a work in progress. Its far better to be shaping it while I am doing it than it was to plan not knowing how it would be. I have been listening to the audiobook “The Lean Start-up” and applying those principles to the business: be willing to learn from what you are doing and change things that need changing.

  2. DirkD says:

    Trickle up economics? Doesn’t sound physically possible to me!!

    How about reverse decentralization!

  3. Dr. Rick Lippin says:

    Congratulations!

    All MD/MBA’s -very hot in the 80′s and 90′s- need to trade in their MBA’s for MPH’s

    Dr. Rick Lippin
    Southampton,Pa

  4. Matt McCord (@mattMD) says:

    You are onto something Dr. Lamberts and so is Walmart, Sears, Darden Restaurants, and Lowes. Many are ‘self-insuring’ and contracting directly with providers.

    You are on the front end of this. This does exist on the specialty/procedural side BTW:

    http://reason.com/reasontv/2012/11/15/the-obamacare-revolt-oklahoma-doctors-fi

  5. Whatsen Williams says:

    What do you chargej up front for such an exemplary programme?

  6. Teresaa says:

    Best wishes Doc. I see a real growth in the Concierge practice concept. Build a choice, they will come.

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