BUSINESS MODEL STRATEGY
MEMBERSHIP PACKAGE STRUCTURE
MARKETING AND PROFESSIONAL BRANDING
DIRECT PAY PRACTICE
A Brief History of Concierge Medicine
The concept of concierge medicine launched in 1996 through the efforts of Dr. Howard Maron and Dr. Scott Hall in Seattle, Washington. Dr. Maron, former physician of the Seattle Supersonics (now Oklahoma City Thunder), a professional basketball team, created a practice in which his patients were able to receive the same level of treatment as the professional athletes he treated. The two created the first concierge practice named MD2. They charged an annual retainer fee between $13,200 and $20,000 per family at their Seattle, WA location. MD2 differentiated itself by charging the highest fees for membership, and offering the most extensive services. MD2 limited the ratio of patients:physician to 50.
Trends and Outlook
A study by physician recruiting firm Merritt Hawkins revealed that 10% of physicians in private practice intend to switch to the concierge medicine business model within the coming three years.
Now that the model has evolved, the typical concierge practice will limit the amount of patients to between 200-600. As the number of patients decrease, the level of attention and exclusivity of services increases. The price rises to align with the service level. At the high end level (memberships >$2500 per person), the model is feasible when there are sufficient numbers of buyers in the local community likely to want this level of service. Another option would be to sell executive memberships through a corporate entity that pays the fee on behalf of the executive.
Cash, insurance, or hybrid model?
Some physicians elect to cancel all managed care and PPO contracts, and in some cases go so far as to cancel their participation with Medicare. They may choose to launch a business model (called Direct Primary Care ("DPC"))which is 100% cash at the time of service with or without a membership plan for amenities. In this model, the annual fee covers all in-house physician and certain in-house supplied services. The cash payment is augmented with a high-deductible catastrophic plan to cover expenses outside the primary care practice or lab testing and other services rendered outside the physician's immediate in-house purview. This places the physician "at risk" financially for the services utilization that each patient may require - as the fee is not increased commensurate with service intensity. It is like an all-you-can-eat buffet for medical service.
To succeed in the DPC model and set fees, just like a restaurant, one must know their costs to operate and deliver services, their forecasted costs to grow and expand and add new services, staff and technology. They must also know the health status and requirements of their DPC patient population. The analysis is critical and is the one thing that consultants are hired to supply in most DPC startup projects. A reinsurance policy for excess loss may be available to offset errors in forecasting similar to the policies purchased by HMOs for the same risk exposure.
Others opt to build a hybrid model and accept insurance reimbursements for services rendered that are deemed "covered" by the patients' health plans. Many physicians who decide to launch the hybrid concierge membership model structure their business model incorrectly. They do so out of ignorance of existing ambiguous contract provisions lurking in their managed care provider participation agreements. In short order, the contracted health plans accuse the physician of using the concierge membership fee as a disguise for a de facto breach of contract. This argument is sustained because the plan sees its directory listing efforts as "marketing" in exchange for the access, the discount and the covenant not to bill for the balance beyond the allowable fee. The matter often escalates to contract termination for cause. There are ways to work around the issue at the strategic level. Post launch, any rectification becomes far more challenging and often involves a significant amount of additional unanticipated legal defense costs. A termination for cause can expose the physician to financial liability for any damages (financial, reputation, disruption, etc.) caused by the breach.
Do you need help to plan and launch your concierge or direct pay practice?
Mercury Advisory Group experts share insights, analysis and perspectives for physicians who want something different from the traditional managed care "drive thru" practice or employment by a hospital or healthcare organization. In reading these articles and listening to podcasts from our experts, you'll discover a wondrous path to a new world of personalized medicine membership practices or direct pay (cash / no insurance) business models.
Mercury Advisory Group's CEO, Maria Todd, has helped hundreds of physicians make the transition from traditional medical practice (solo, group or healthcare organization employment) centered on managed care contracted and government reimbursement to a model less dependent on health plans, ACOs and CMS involvement.
She keeps consulting costs low by delivering an alternative to traditional startup consulting from that which most concierge medical practice consultants offer. Her approach costs less than her competitors but requires the physician to be more engaged in the process. Her book, titled The Handbook of Concierge Medical Practice Design, is a part of this approach. Designed as a help yourself workbook, physicians meet initially with Maria by phone or Skype consult for about two hours to discuss their vision for their new practice, their budget, and the market research they've already completed. If the physician has existing participating provider agreements with managed care plans, Maria reviews the options for continuation or termination and how to structure the new business model.
Maria also addresses the physician's vision for service delivery, membership package inclusions, pricing, market demographics, marketing and public relations, and telehealth services that the physician may include in the service mix. She also addresses changes in staffing requirements, practice space design, membership sales, and helps physicians to think through their need for assistance with website design and functionality, social media marketing, electronic health records, practice management software, rebranding the business, membership contract forms, policies and procedures, regulatory compliance with regard to Medicare beneficiaries and more.
If the physician wishes to maintain relationships with former traditional patients who don't feel they can afford to make the transition to a membership model, she offers several options to retain those patients through a different business model that doesn't cast those patients out of the practice. If the physician is coming from a practice or other employment setting where restrictive covenants limit their ability to set up in accordance with non-compete provisions of a contract that survive the termination of their employment, she helps the physician navigate the good faith promises made so that the startup is above reproach.
From there, the physician obtains a copy of the Handbook, formatted like a workbook to structure their ideation and discovery about the new business model. The workbook contains chapter upon chapter of exercises designed to bring up many of the questions a consultant will usually charge an hourly fee to review with the physicians. This prepares the physician to discuss intentions and aspirations for their new concierge or direct pay practice.
The book helps the physician think through many choices to be decided prior to drafting a business plan. There are many books in bookstores on how to develop a business plan and financial pro forma, so the book does not include a template for this. Any professional accountant can offer assistance with the business plan financial pro forma, and the best
Concierge Medicine & Direct Pay Practice Startups
The graph below describes the growth in concierge membership practices and direct pay practices we've helped launch, build and current clients we assist with marketing, public relations and social media presence and reputation management.
template for drafting a business plan is actually available for free from the Small Business Administration. There are also many online services that will offer a business plan for about $400 but the information that the online services require to draft the plan come from the workbook exercises.
The workbook also covers the missing pieces that must be sorted out before pro forma and business plan drafting, and then follows on with the specialized process design, workflows and other business startup decisions that are necessary beyond the business plan drafting. To date, there has been no other book published on the market that offers this much in the way of step-by-step guidance on the specialized design of the concierge membership or direct pay business model for physicians.
Throughout the process, Maria remains available by phone for one-the-spot guidance as required. Once the physician is ready to circle back with Maria for additional coaching, she spends a few more hours on direct coaching and consultation on any decision-making insights that may be required, or to help with market research data analysis, pricing models, membership agreements, and to work collaboratively with the physician's chosen accountant, attorney and whoever will manage the day-to-day business operations and membership sales for the practice. The entire process can be completed in as few as 3 months and the cost for her services is a simple hourly formula defined by the physician's preference for how much assistance they require. Our clients comment that her approach is tens of thousands of dollars less than her competitors, more convenient, and a faster track to business launch and full swing operations.
Inquire about how Maria can help you start or improve your concierge membership or DPC practice today.
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More Articles & Media
Concierge Medicine Blog
- Coffee Break with Maria Todd 4/9/2014
- Turnaround Options for a Poorly Executed “Direct” Practice Concierge Medicine Launch
- Financial and Revenue Matters for Concierge Medicine Start Up
- Culture, Language and Pain in Medical Tourism
- Building Expertise in your Chosen Market Niche as a Concierge Physician
- Is Concierge Medicine a Viable Model for Physicians?
- Coffee Break with Maria Todd 4/7/2014
Concierge Medicine Podcasts on BlogTalkRadio
We'll be adding new audio files on BlogTalkRadio for you so check back with us in the near future.