Every week, we field calls from newly-transitioned and start up concierge physicians that had poor guidance and unrealistic expectations set by their chosen consultant. Alternatively, they received good guidance but chose not to follow it in favor of a different path. I can’t call it a “strategy” because what they did was not strategic. A strategy is a plan of action or policy designed to achieve a major or overall aim. What they did was reckless, inadequately planned, and poorly executed.

The tales of woe sound like this:

  • They were promised full capacity and “concierge membership waiting lists” within six months of opening the doors.
  • They set their goal at 400 patients and set their price at $2500 per single (the million dollar membership goal) with no really compelling product and significant local market competition.
  • They resigned their Medicare and managed care contracts because they were told they wouldn’t need them in the new business model.  They cannot return to Medicare for at least two years.
  • They jettisoned all the patients who did not transition to concierge medicine with an indifferent 30-day care termination letter and no arrangements for continuity of care with other local physicians. They also sold off all the old business accounts receivable for a lump sum payment that has long been exhausted. So now, all those bridges are burned. The value of the ongoing business goodwill of the pre-transition medical practice went from $150,000 to zero in the time it took to write one letter and send it.
  • They based their new income estimates and staffing levels based on these fantasy expectations and now cannot meet payroll without contributing personal cash as loans to the corporation.
  • The fifteen patients that transitioned (the ones who promised “convert and I will buy a membership”) paid a total of $37,500 in revenue. Not enough to operate the practice for one month.
  • The insurance premiums for health insurance is in five months in arrears. They spent the cash that was deducted from employee paychecks and there’s no cash to make the bi-weekly tax deposits and unemployment insurance premiums or workers compensation insurance payments. They have no line of credit established and it’s doubtful the bank will grant one with the present state of affairs.
  • Student loan payments are now five months in arrears.
  • Professional liability premiums are sixty-days in arrears.
  • They are seeing less than five patients per week. Since they set up a “direct” practice, these five patients don’t pay anything additional for their visits. There is no cash flow coming from patient visits and services.
  • They never re-branded the practice. They didn’t figure they would need to. They had all these patients that promised to follow so they just started selling memberships to people that promised they would buy one.  They just didn’t realize there were really only fifteen of them.
  • The staff member appointed to sell memberships has quit after lining up what she anticipates to be a more secure position with a competitor down the road.

They cannot afford to pay me to help them, but they heard I offered a complimentary 15-minute consultation. Unfortunately, at this point, the prognosis is poor for survival and a strong indication of bankruptcy is eminent. They need to prepare the staff for the fact that the business will soon cease to operate.

They will also have to sort out what to do about the remaining membership services that are due to those fifteen patients for the next ten months, because when they close the practice, there will be no service available to fulfill the membership contract and the money has already been spent, so there is no cash available to issue refunds.  To me, this signals impending fines from state regulators if a complaint arises.

Is it my responsibility to give them the news of what is ahead?  They just spent their fifteen complimentary minutes on the subjective. I have not performed the objective assessment of the balance sheet and staff interviews and site visit.

In this call, do they really expect us to follow that story with an assessment and plan to turn it around? We get paid for finding solutions, strategies and help to execute them, just like they do for listening to subjective complaints, ordering and interpreting tests, making diagnoses, and creating and helping to execute treatment plans.   Often, after listening without interruption, we ask: “How can we help you?”

The answers usually range from “Tell me what we can do” to “I was wondering if you will work for us on a performance basis and get paid if you’re successful in turning this around.” We call the latter a new definition of “Chutzpah,” To ask that we do that demonstrates ignorance of the laws against physician fee-splitting and operating an HMO without a Certificate of Authority.  Therefore, the answer is unequivocally, “no”.

Is there a turnaround for this practice?

Perhaps, but it is highly unlikely it would work given the late stage of decline of the business.  So what options exist?

Option One: Sell to the hospital….if they will buy it

One way to turn it around would be to sell the business to the local hospital as a brand extension of its employed physician workforce. The only things of value would be the used equipment, really.  With that, would come the debt of the remaining ten months of membership services to those fifteen patients. Assuming that the membership contract allows for cancellation and prorated refunds, as a hospital CFO, if I were faced with this situation, getting out from under that direct practice business model liability would be my first order of business.  And I would deduct that “advance” from the salary of the physician about to be hired.

As CFO, I would then call a consultant and my Chief Marketing Officer to come up with a strategy to push the reset button, because the entire concierge practice product, if we chose to continue the business model, would have to be redesigned from the ground up. Fifteen patients leaves me nothing in “raw modeling clay” to convert.  Those fifteen, upon receiving their refunds, are unlikely to re-buy the deal I might offer going forward. The “all-you-can-eat buffet” product they initially purchased was illegal and as a hospital, is no longer available. Chances are, they would go find another substitute direct practice in town that offers a similar product to what they had purchased.

Option Two:  Merge with or be acquired by an existing practice … if they will agree

Again, the used equipment would be the only value. The fifteen patients are a liability, not an asset.  The staff would likely be laid off, and the physician’s salary would be a liability. Unless the acquiring practice really needs another physician and has the volume to underwrite and sustain the new hire, the outlook is grim. One way would be to buy the tangible assets at fair market value and hire the physician as an independent contractor until the physician has enough cash to buy into the practice with a check or sweat equity.

Option Three: Attempt to sell corporate (B2B) memberships

The foundation of any B2B concierge medicine membership model is sales leads, the raw material from which you make prospects (potential customers). The key to finding sales leads is to first know exactly what is on offer and how that appeals to potential customers. If the target corporation is self-funded for its health benefits, the first objection will come from the Plan Administrator, who is fully aware that the “all-you-can-eat-buffet” business model of unlimited primary care for a flat price for the year is not permitted because it has regulatory compliance problems. Could the doctor offer unlimited vague and nonspecific “amenities” and charge for the medical services? Yes, but that’s probably not a “product”, per se, for which the market would be willing to pay money.

The first order of business would be to draft and refine a sales message.  The sales message would articulate the product, differentiate good and bad leads, and form the core of your elevator pitch, your cold calling script, your voice mails, and even your major sales presentation.

The next order of business would be to develop referrals. Getting friends, colleagues, all existing fifteen customers and business contacts to refer their peers to you. If the community is unaware of your brand this will be difficult. If former 3985 patients that they jettisoned are disappointed in how the doctor handled his or her transition to direct practice, they have a much bigger problem in the community, because the people they have forsaken all have friends and relatives who won’t support the pitch or the mention of that doctor’s name if asked for a reference.  They might also try networking at various business events and other occasions. With only five patients per week, they have the time to do this if they are not already moonlighting at some urgent clinic or ED or as a hospitalist in town.

Most business buyers of an executive or corporate concierge medicine product are savvy customers. Chances are, if the corporation is interested, they already know more about the product they want to buy and the competition in the market than the doctor who is trying to sell the product.  B2B buyers are paid high salaries and bonuses to understand what they are buying and how it will benefit them as a company. They can lose career points and get fired for making a bad decision.

Selling B2B concierge medicine memberships requires more product knowledge and to be able to present it coherently. Simply saying that for one price, the company will get “everything the practice can offer under its direct control” is too ambiguous to determine the value of what is on offer.  B2B selling requires diagnosing the customers’ challenges and coming up with a customized solution that may involve a long-term business partnership. The seller of a B2B corporate concierge medicine membership will also have to convince not just a husband and wife or a single person to buy. Instead, the buying decision may involve dozens of local and remote decision makers, influencers, stakeholders, and naysayers.

 As part of a risk mitigation strategy, when selling in the B2B market, the concierge medicine physician should have a fallback strategy in the event that the client faces economic disruption, merger or acquisition that does not support continuing the business relationship, or some other crisis that causes the firm to abandon the deal during the sales cycle after months of negotiation and effort.

B2B selling for concierge medicine membership subscriptions is not complicated if you know how the four-step process works. Lots of corporations have found a number of variations of this product beneficial to their busy executives and key employees.

How can you avoid these perils?

Before you choose a business model, make sure you are clear on all the risks of the model you’ve chosen and that you have a solid minimum viable product (MVP) strategy. Verify that your business idea and sales strategy is formulated around a legally compliant product. Be sure to plan out a risk mitigation strategy and a way to shut down the business or re-organize the product (cancellation and pro-rated refund provision) if you find that can’t deliver on what you sold, or you don’t sell a sustainable number of memberships to cover costs and profits.  Have several fallback exit strategies in case you need to implement one of them.

Don’t wait to call for help or take action until you have no way to repay the unused portion of the memberships and are in a cash crunch that ruins your credit, and can send you to collections, get you in trouble with the government for spending money deducted from paychecks for taxes and unemployment insurance premiums or your professional liability insurance, and are facing eviction from your office suite.

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