Rob’s New Economics of Practice Management

It has always been my assumption that my new practice will be as “digital” as possible. No, I am not going into urology, I am talking about computers. [Waiting for the chuckles to subside]

For at least ten years, I’ve used a digital EKG and spirometer that integrated with our medical record system, taking the data and storing it as meaningful numbers, not just pictures of squiggly lines (which is how EKG’s and spirometry reports appear to most folks). Since this has been obvious from the early EMR days, the interfaces between medical devices and EMR systems has been a given. I never considered any other way of doing these studies, and never considered using them without a robust interface.

Imagine my surprise when I was informed that my EMR manufacturer would charge me $750 to allow it’s system to interface with a device from their list of “approved devices.” Now, they do “discount” the second interface to $500, and then take a measly $250 for each additional device I want to integrate, so I guess I shouldn’t complain. Yet I couldn’t walk away from this news without feeling like I had been gouged.

Gouging is the practice of charging extra for someone for something they have no choice but to get. I need a lab interface, and the EMR vendor (not just mine, all of the major EMR vendors do it) charges an interface fee to the lab company, despite the fact that the interface has been done thousands of times and undoubtedly has a very well-worn implementation path. This one doesn’t hurt me personally, as it is the lab company (that faceless corporate entity) that must dole out the cash to a third-party to do business with me.

Doing construction in my office, I constantly worry about being gouged. When the original estimate of the cost of construction is again superseded because of an unforeseen problem with the ductwork, I am at the mercy of the builder. Fortunately, I think I found a construction company with integrity. Perhaps I am too ignorant to know I am being overcharged, but I would rather assume better of my builders (who I’ve grown to like).

Yet thinking about gouging ultimately brings me back to the whole purpose of what I am doing with my new practice, and what drove me away from the health care system everyone is so fond of. If there is anywhere in life where people get gouged or are in constant fear of gouging, it is in health care. Here are some obvious examples:

  • Prescription drugs are priced at a level that none but the wealthiest can afford to pay. Seriously, if health insurance did not subsidize the price of brand-name drugs, who would ever buy them? The argument has always been that the research needed to develop new drugs is staggeringly high, but that rings hollow when granny hears about the record profits by the drug company who makes the $150/month cholesterol drug she takes. The truth is, the drug companies can gouge because the subsidies enable them to do so (see a previous post on this).
  • The argument of why prescription drugs cost so much rings even more hollow when one looks at generic drug costs. These companies don’t have to do the R&D to develop the drug (although now many of the brand manufacturers also make the generic). Why then does the cost not drop for many drugs when they go generic? The FDA, in limiting generic manufacturers and hence limiting competition, as well as the deals between pharma and the insurance industry, allows gouging to flourish after patent expiration.
  • Hospitals are famous for charging $10 for a Tylenol tablet. Why? Because the patient has no choice and the insurance company (inexplicably) pays for it.

Then I turn my eyes to my old practice, and what I used to do. There is plenty of gouging going on there as well:

  • To run the business successfully, we must charge the highest price possible for any given service we offer. We do this because different insurance plans pay different amounts for the same procedure (be it an office visit, a laceration repair, a strep test, or an immunization). The differences are often very large. If we overcharge a given procedure for an insurance plan, they simply pay what we agreed to accept from them and we write off the rest. But we still charge much more than we expect to get from 99 insurance plans if 1 will pay us the high amount. So what happens to people who don’t have insurance (or have high-deductible plans)? They get gouged at the rate we don’t expect out of the 99 insurance companies. If we discounted them, we’d be breaking contract with the insurance plans (and perhaps committing Medicare fraud).
  • Another way to run the business successfully is to charge for everything possible associated with a visit. When I saw a child for wellness and immunizations, for example, I billed for the following:
  • Code for the Well Visit itself
  • If there are any sick complaints (stuffy nose, etc) I can tack on a sickness charge for some insurance plans.
  • I can charge for each vaccine administered, as well as an “administration fee” for the nurse giving it.
  • I can also get paid by many plans for counseling regarding the immunizations and documenting the counseling given.
  • The end result is a long list of items the patient sees on the bill, most of which are there for the sole purpose of getting everything I can out of the insurance company. While many (including me) would argue that this is just me getting what I deserve from the insurance company, to the patient it looks an awful lot like I am gouging.

I could go on, and the list would be quite long and very damning, but I probably should get to my main point.

As I near the opening date of my new office, I am faced with decisions about what services I am going to offer my patients for their monthly fee. Whatever I feel about the value of what I am offering, a patient’s commitment to pay even $30/month comes with the obvious question: what will I get for my money? My initial list included:

  • Office visits
  • Office labs
  • Management of problems over the phone or via online services
  • My health education site
  • Access to medical records
  • A personal health record

Yet these don’t convince many people who are basically healthy and want to avoid doctors’ offices. They see the reality: it’s cheaper to be healthy. Yet they also realize that they don’t control this, and so they look for more value. This has been a big part of my mission over the past month: to justify the monthly fee for patients. Here are some additional savings I have found:

  • I can draw labs in the office and send them to a local lab, which charges me much less to run them. For the 37 tests on the list, the sum total cost for 1 of each is $530, compared to the $3,100 it would cost if the patient went to the lab.
  • I am negotiating to do the same with radiology tests, having patients pay me directly to get a discounted rate from the radiology facility.
  • I can do the same with generic drugs, dispensing them at a wholesale price, saving a whole lot over what they would pay at most pharmacies.

Each of these entities pointed out that I could mark-up the price and make a tidy profit on each of these services. This is what most docs do when they bill labs, x-rays, or dispense drugs. But if my goal is to give value to my patients so they feel the monthly fee is justified, these profits would likely hurt me in the end.

And this is when I understood.

Charging the monthly fee puts me in a position where I am no longer motivated to gouge. I am already paid for the month, so now I have to prove value. I have no motivation to bring people to the office for visits they don’t need; I can handle them on the phone or online. I don’t have to charge for every little thing I do. Heck, I can lose money on things like drugs or labs and still come out ahead. The better value I give to my patients, the happier they are, and the more likely they will continue to pay the monthly fee.

And I don’t have to apologize any more for every additional charge. It’s a really nice change.

Imagine that: a doctor actually trying to save money for his patients.

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.

20 replies »

  1. It’s not surprise that there is a direct response to what you describe. It’s the reason Onsite Clinics are growing 100% year over year. I think Direct Primary Care will follow as it is similar but not employer-specific. You may have noticed Qliance (DPC pioneer) just opened an onsite clinic for Expedia employees that can also be used by their regular members.

    Your approach illustrates to me how the best long-term “greedy” strategy is to not be “greedy” in the short-term. I have no doubt your practice will be successful. From a business standpoint, the valuation equation is simple – it has 3 elements. A = # of patients subscribing B = monthly fee C = avg # of months a patient is with your practice. That’s a “real” business that others will pay to acquire when you retire. Contrast that with the typical insurance-centric primary care practice such as described in this NY Times piece http://www.nytimes.com/2011/04/23/health/23doctor.html?pagewanted=all&_r=0. He literally can’t give away his practice. It’s sad reality that if you have a practice that has no sustainable value, the “retirement plan” that was present in the Marcus Welby days won’t be there.

    Unfortunately, most primary care docs in a multi-specialty practice are the “milk at the back of the store” — i.e., the loss leader to get people in for the high margin “designer mustard”. Employers, Walmart and others are doing an end-run on that model and investing in primary care as it proves itself repeatedly to be the best bang-for-the-buck investment in healthcare.

  2. “Why then does the cost not drop for many drugs when they go generic?”

    I assume you are speaking about the American market, but in France, we say something like “taking generics helps both the patient, and our health system”.

    All depends on who is producing these generics…

  3. Dr. Rob, Your authenticity (embraced frustration?) shows. I relate with your philosophy, admire your vision, like your business model. What is the ideal/balanced patient load (total, per day); how do you get quality new patients without Med/Insu feed; what is the anticipated (historical?) lead time to achieve a viable practice with this model? Very best to you…

  4. MD, I’m talking about providers (private business) that attempt to use the uninsured as their private bank account and charge 2-3 times or more for services above Medicare or Insurance.

    Tell me why Quest Labs attempted to get $850 from me for blood work then when I protested went away and came back to say he could do it through the docs office for $83.

    Chargemaster is not Medicare rates either.

  5. Peter1,

    I must CHARGE everyone the same. I can ACCEPT less from anyone, including Uncle Sugar, who, of course, makes it a federal crime for me to charge anyone less than I charge MediCare.

    So people who get a bill need to then negotioate for what will be considered paid in full.

    Sounds totally stupid, but that is government. You sound like a fan of big governemnt. Maybe you can talk with someone and get this changed.

  6. “You do understand that a doctor giving you the discounted price simply because you are uninsured would be committing fraud?”

    What’s a discount Dr. Rob. The same price you would get from insurance? Is a price that’s 3-4 times what you’d get from insurance the amount necessary to prevent being charged with fraud?

    When hospitals negotiate a lessor fee off chargemaster because the uninsured can’t pay the gouge amount, is that fraud?

  7. True, and you could include power steering in the base price, but then you have the psychiatrists for example, who say that they are being gouged because they are forced to pay for something they will never use… So you are damned if you do and damned if you don’t…

    BTW, I like your practice model… a lot….

  8. Thank you, Rob. I am trying to think about EMRs as just software tools built and sold by corporate entities for profit, and as such they are a very accurate mirror of what customers are willing to pay for.

    I really don’t think EMRs can transform health care on their own, and honestly, I have no idea what “transform” really means. When there are people willing to pay for improved care, software tools will reflect that. I am not sure this is the direction the market is taking though, regardless of all the obligatory buzz.
    I guess we need more folks like you willing to put their money where their mouth is, so to speak 🙂

  9. OK, I see your point, but I am still skeptical. I don’t pay for the Quest interface, Quest does, but it still bugs me that something that should be a given (like power steering on a car) should not be an extra.

    Of course, this was just an illustration to get to the main point of the post, which is my new practice no longer needing to gouge.

  10. Let’s talk about the Quest/LabCorp interface (the EKG is different). Yes it has been written a long time ago, but believe it or not, there is still a setup that needs to happen and mapping may also be necessary, not to mention upgrades when the lab makes changes to its side, or when the vendor makes changes to its side. And as it goes live, there will be support needed when this or that test or result did not cross over. It can easily take 15 hours and depending on the lab, it can take more than that. The labs are usually fine with paying for this because an electronic interface has value to them as it is saving labor. I have never seen a practice that was forced to pay for a Quest or LabCorp interface by an honest vendor (and yours is not bad at all – I do believe it includes outside labs in the monthly fee).

    The EKG or Spirometry or vitals machine is different because it is local and it has to run in your shop (I don’t know if the EMR vendor is hosting for you or if you have the server in your office). Not sure why you’d have to have one for each computer though (it depends on how your EMR is deployed and how the EKG vendor set this up). BTW, list of approved devices is just a list of existing interfaces. I’m sure they can build a custom one for you if you need it and if the device manufacturer is willing and able, but that would cost you a lot more, obviously.

    People in the industry that are embarrassed by this are usually those that choose to believe that software runs itself somehow and those who are trying to endear themselves to customers for one reason or another, or those who think that software companies should be non-profit. These are usually the same people that offer you “free” interfaces without mentioning the “contribution” from the labs and/or the fact that interface costs are factored into their much higher monthly subscription/support costs.

    So let me be the one person that defends this practice because there is labor involved and there are costs and risks involved and I believe people (including doctors) should be paid a fair fee for their services. There is a fine line between fair pricing and pricing that cannot sustain a healthy business for your vendor, so they can invest in R&D and can be there for you for the long haul.

  11. You do understand that a doctor giving you the discounted price simply because you are uninsured would be committing fraud? If I accept Medicare I am not allowed to give discounts to anyone that I don’t also give to Medicare patients. This is why most docs stopped offering “professional courtesy,” as doing so could get them marked for medicare fraud. So if you are uninsured and go to my old clinic, I am required to charge you the normal charge (which is far above what I expect to get paid by most plans).

    Peter, you are preaching to the choir here. I left the system so I could take care of patients without gouging them. I saw my uninsured patients (and those with high deductible plans, which is ever growing) avoid care, causing them significant harm. Like I said, the insurance companies pay unreasonably high prices for things (like drugs, ER visits, Tylenol in the hospital) and pass those costs to the consumer. This hurts them a little, but it hurts the uninsured folks far more, since they can’t avoid the unreasonable charges put there because of this practice.

    I am not sure why you see me as defending this practice. I lamented being gouged, but quickly looked to how I was gouging and how glad I was to be not gouging.

  12. Since the uninsured don’t see much of insurers the gougers end up being providers. Quest labs trying to get $850 from me for a blood test, which turned into an $83 charge when put through the doc clinic – I was already at.

    Hospital owned imaging clinic wanting $250 per shot when I got same for $40 from independent.

    $35,000 for hip surgery when the hospital would never get that from insurance. Cataract surgery for $15,000 per eye from Duke or $7500 per eye from UNC hospitals. I got both eyes done in Canada for $3200 CAD.

    And I’m supposed to feel sorry for you when you can at least get quotes?

    Try being in an ER with an emergency where there’s no chance to shop around. Provider says – GOTCHA!

  13. By the way, I thought your piece in KevinMD (on meaningless health IT without good data) was really good. I’m sure (like my posts) it was in other places. It should be. Everyone seems to want to cut corners and find a way around good care. A tool is only as good as the person using it and the task for which it is being used. I do think that, unfortunately, EHR’s have transformed our system far less than they have been transformed by it. They are mainly devices to enable getting paid, not to give good care. It’s a shame, as they really could have been transformative.

  14. That’s kind of silly. To suggest that it’s safer to practice medicine without EHR (especially to do so on the internet) is ludicrous. Of course there are risks in using an EHR system that may not be there with paper (although docs have been using templates forever), but the problem stems from the incredibly stupid requirements for documentation required by our billing system and a malignant tort system. EHR systems are designed (as stated in previous posts) to create gibberish to satisfy the E/M gods, which makes for template driven errors. On top of that, the fact that it’s harder to find documentation of care in an illegible handwritten note is not justification of the practice. Should I really compromise care quality for the sake of avoiding malpractice?

    I am fine with suggestions that EHR’s are flawed (have your read my posts? I am an evangelist turned critic!), and that their application to our lousy system makes them even more flawed. But I get tired of docs (or others) who constantly imply that computers don’t improve care. I would never go to a bank that kept its books by hand. I would never use an accountant who didn’t use computers. It just makes docs sound stupid and backward (especially on a post that is critical of the EMR industry).

    By the way, the best way to prevent malpractice is to have a good relationship with your patients. Doctors who listen and who are willing to admit when they don’t know something are far less likely to be sued than docs who don’t take time with their patients. That is what I am doing, and why I left the system.

  15. Hope that you have good malpractice insurance to cover the expanding liabilities of EMR devices.

    Good reading from Medscape:


    Medscape Business of Medicine
    Malpractice ‘Discovery’ Dangers in Your EHR
    Leslie Kane, MA
    DisclosuresJul 16, 2012
    Picture this: You’ve been sued, and now the plaintiff attorney has the right to send in an expert to sit at your computer and examine information in your electronic health record (EHR). Besides any mistakes you might have made, system-wide bugs or design flaws that lead to data inconsistencies could be found and held against you in the discovery phase of a malpractice lawsuit.

  16. What does an interface between a major EMR vendor and Quest labs take? Mapping and permissions. HL-7 does the heavy lifting. It’s the same for any interface, which takes a babble fish to translate from one to the other. If the translation is already there, what more work does it take than to cut and paste code? The EKG is the biggest brand name on the market, and the EMR vendor had it on the list of “approved” devices, so clearly there is already an interface. There is absolutely no chance that someone paid $50/hour will take 15 hours per interface!

    I was using EMR in the days where interfaces were viewed suspiciously by all parties (“stealing data from my system” said one HCA exec back in the 90’s), and when there were basically no interfaces. I understand the time it took to write the initial interface and double-check it to be sure it would work. But many folks in the EMR industry are embarrassed by this practice, yet it persists. I’ve never heard anyone defend it as justified (and I’ve had plenty of chances to hear it from plenty of folks).

    My assumption was that this was already bundled in the monthly subscription fee. I was actually told (but haven’t verified yet) that this fee is per computer, not per site. In other words, if I want a second computer to do (and maybe even view) the EKG’s and Spirometry, I will have to pay $250 more per interface.

    In all honesty, this has me looking once again to other EMR vendors, with my frustration with this system mounting as my opening date approaches.

    But that’s not the point of this post, of course.

  17. Just curious: why do you think that EHR vendors charging for interface set up and support is in the realm of gouging? True that they have done this many times already and the implementation path is simple, but there is still work to be done…
    I’m sure you have treated thousands of URIs, does that mean that you are not charging for those any longer? or that you charge less for the them as they become easier for you to deal with?

    Would it be helpful if EHR vendors bundled everything in a monthly subscription fee, like you do at your practice, which includes a certain number of interfaces and maybe a portal and mobile version (some already do that), instead of itemizing charging? Would the lack of itemized transparency look less like gouging?
    I am asking because there are opinions on both sides, but I am not sure anybody came up with the right answer at this time, and I would very much like to understand the customer point of view…

  18. That’s kind of my point (although insurance companies have been the great gouging enablers, making the insured not realize how badly they are being gouged…until the premiums go up again).

  19. “Gouging is the practice of charging extra for someone for something they have no choice but to get.”

    “I constantly worry about being gouged.”

    Welcome to the world of the uninsured Dr. Rob.