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As concierge medicine consultants, one thing that we do for clients considering a transition to Concierge Medicine / Direct Practice is to perform a competitive analysis of the market from which the new Concierge Practice will draw members.
Comparative Product Analysis
This morning, I found a new business model for “direct practice”, one that may work in the short term but for which I predict will be non-sustainable and no longer viable within about three years. In this model, the three physicians and a PA offer unlimited primary care office visits (during regular office hours only) and certain diagnostic tests, namely:
- Fingerstick blood sugar
- Fingerstick blood count (hematocrit)
- Urinalysis (to look for infection, blood, etc)
- Urine pregnancy test
- Hemoccult (test for blood in stool)
- Strep test (for strep throat)
- Oxygen saturation test (pulse ox)
- Peak flow test (for breathing problems)
- EKG
They also include an annual comprehensive metabolic panel with the membership. This includes measurement of cholesterol, thyroid, CBC, electrolytes, kidney/liver function, and diabetes screening. They contracted with local labs to provide discounted pricing for cash services. To get the negotiated prices, patients cannot use their insurance, even if they have coverage.
They offer additional in-office lab draws, charging the patient a pass-through wholesale amount with no profit markup. (The lab may be unaware of this arrangement, because those prices are proprietary and often any disclosure of those wholesale prices is a violation of contractual terms on non-disclosure and confidentiality contract provisions. So at any moment, that arrangement is at risk of being withdrawn and the contract amended unilaterally by the doctors, even though it is material to the membership terms. the way it is worded on the website, one could assume that the arrangement has been factored into the membership price. The problem is that the member would have to argue that it relied upon what was advertised on the website. The member contract has an Entire Agreement provision in it that says rely on nothing other than the contract, which has no such promise. Therefore, if it goes away, there’s a risk of “bait and switch” without a corresponding reduction in the monthly $50 fee. The member would likely not prevail against the owner of the Direct Practice because of some of the crafty language in the contract form. Patient’s worst case scenario, they quit the practice and join someone else with a better (or different) offer. The way the contract is worded, the member would not find any benefit in initiating a legal battle, but it kinda blemishes the brand of concierge medicine business model concept overall, in my opinion. That doesn’t benefit anyone in the sector.
Additionally, they offer what they call a convenient “mini -pharmacy” which I describe toward the end of the document.
Marketing
They list that they have cutting edge technology, but when you read the description, what they mean is they use an EMR system, it allows the patient to review lab and test results for themselves, and that they have e-prescribing and email. What I found odd was that this practice is using a website host that offers a website package and templates that are designed like a digital paper brochure, which gives no “feel” of an up-to-date practice. The template is very early 2000-2005-ish and has the link to get a free website trial from the webhost, so it is “ad-supported”, which appears “cheap”, but they pay between $200 and $300 each year for this package. Their favicon is still tied to the webhost and not customized, so there is no real brand image associated with the practice. There’s also no header or logo present anywhere on the site. If you “like” their Facebook page, you are automatically entered to win 2 months of membership (value $100).
There’s no cutting edge diagnostic technology listed (e.g., CIMT, lab equipment, radiology, etc.) listed as a service of the practice or included in the membership. Should this be construed to mean “we think all customers are uninformed and ignorant of what constitutes cutting edge technology” in the medical practice setting? How is an EMR cutting edge? Pretty much everyone has it these days. Where is the competitive advantage of having and using an EMR? It’s the norm. It is no longer a unique selling point (USP).
Membership
During the initial 3 month period, the member cannot cancel – which I assume is to cover the cost of the free comprehensive physical and lab panel testing. The contract is laden with typographical errors (as is the website) which indicates poor attention to detail. If the membership agreement is cancelled by either party before the agreement termination date, the doctors will refund the member’s prorated share of that month’s payment remaining after deducting individual charges for services rendered to the member up to cancellation. There is no schedule of those individual charges anywhere in an attachment, so a patient could argue that there is no understanding between the parties of what the value of those services is set.
Medicare and Managed Care
The doctors and the PA are all non-participating with any insurer. This means that the non-Medicare patients must pay and accumulate these charges to their out-of-network deductible and coverage tier. None of the services they procure through this practice would count towards the in-network deductible with their health plan coverage. What it states is:
Patient acknowledges and understands that this Agreement is not an insurance plan, and is not a substitute for health insurance or other health plan coverage (such as membership in an HMO). It will not cover hospital services, or any services not personally provided by [name] or its providers. Patient acknowledges that [name] has advised that patient obtain and keep in full force such health insurance policy(ies) or plans that will cover Patient for general healthcare costs. Patient acknowledges that this Agreement is not a contract that provides health insurance, and this Agreement is not intended to replace any existing or future health insurance or health plan coverage that Patient may carry.
While the disclaimer is present and the patient acknowledges all these things, that is not the same as being compliant with the state’s regulations. The unlimited aspect of their membership, paid monthly is so much like an HMO that simply offering up a disclaimer doesn’t make what they are offering legally permissible. While they may fly under the radar for awhile, the first disgruntled patient to complain to the regulators (or the first competitor to report them) will cause them to be placed under scrutiny, could give rise to serious fines and criminal charges. The Executive Director of the Colorado Department of Public Health and Environment could come after them for a number of violations.
There is a downloadable Medicare acknowledgement and waiver link on the website for patients to sign. I clicked it and the page came up 404 – File not present.
What if a member wants to quit and dropout?
The contract for this Direct Practice appears to have a “double-edged sword” in it, in the event that the contract is held to be invalid for any reason and the practice is required to refund membership fees. It states:
Reimbursement for services rendered. If the Agreement is held to be invalid for any reason, and if [name] is therefore required to refund all or any portion of the monthly fees paid by patient, Patient agrees to pay [name] an amount equal to the reasonable value of the Services actually rendered to Patient during the period of time for which the refunded fees were paid.
I wonder if the courts found the deal to be illegal, and required restitution of all fees paid under an illegal arrangement, how these fees would be set, because nowhere in the four corners of the agreement is there an example of what “reasonable value” means or how it is calculated.
The amendment terms are also a work of legal contract drafting art. It states:
No amendment of the Agreement shall be binding on a party unless it is made in writing and signed by all the parties. Notwithstanding the foregoing, the providers may unilaterally amend this Agreement to the extent required by federal, state or local law or regulation (“applicable Law”) by sending You 30 days advance written notice of any such change. Any such changes are incorporated by reference into this Agreement without the need for signature by the parties and are effective as of the date established by [name], except that patient shall initial any such change at [name]’s request. Moreover, if Applicable Law requires this agreement to contain provisions that are not expressly set forth in this Agreement, then, to the extent necessary, such provisions shall be incorporated by reference into this Agreement and shall be deemed a part of this Agreement as though they had been expressly set forth in this Agreement.
My thinking here, which led to my opening comment of unsustainable, non-viable product in the long term comes from a critical analysis of this paragraph. What it is basically saying is, “Together we will agree to and initial amendments, but if the doctors need to change something because it is against the law, then the change will be made to the agreement as if it was there all along, and can be made without the customer’s express acknowledgement and consent.” Since the product being sold is unlimited monthly in office visits and some minor lab testing, and EKG diagnostics. Since that would be what the regulators would likely revoke, what’s left in the contract for the $50 monthly fee that is substantive? And if the contract is determined to be invalid, then the previous “reimbursement for services rendered” paragraph is applied and the patient now has to pay some ambiguous retail amount that is not set forth in the four corners of the document as a mutually agreed value between the two parties.
Contra proferetem
The contract also has another crafty provision in it, which prevents the doctors from sustaining a negative consequence under the Contra proferetem, also known as “interpretation against the draftsman” Contra proferetem is a doctrine of contractual interpretation providing that, where a promise, agreement or term is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording. The doctrine is often applied to situations involving standardized contracts or where the parties are of unequal bargaining power. It states in the contract that:
“This Agreement shall be construed without regard to any presumptions or rules regarding construction against the party causing the instrument to be drafted.”
This basically tells the court, “In case you happen to decide my contract was unfair, you can’t penalize me as the drafter.” The reasoning behind this is because Some courts when seeking a particular result will use contra proferentem to take a strict approach against insurers and other powerful contracting parties and go so far as to interpret terms of the contract in favor of the other party, even where the meaning of a term would appear clear and unambiguous on its face, although this application is disfavored. The Court usually places the cost of losses on the party who was in the best position to avoid the harm. In this case, the member could be told, “You had the power to say no and not do business with this practice- so deal with it.”
Testing the business model and offer
So how does the “unlimited medical service in the office for $50 a month and $10 copays” work?
Included in the monthly fee is an annual “wellness examination and evaluation,” to include the following, per providers’ recommendations
- Health Risk Assessment
- Vision and Hearing Screening
- EKG
- Lab Screenings
- Pap or PSA
- Custom Wellness Plan to include Exercise and Dietary Plan (some restrictions may apply)
It doesn’t mention that the lab screening are limited to the ones I listed above or any other limitation. and where it says “some restrictions apply” on the last bullet point, they are not clarified anywhere.
What about if the doctors are not available?
The contract does not provide for covering physician services under the plan, so one could conceivably be charged by the covering provider outside the practice in the Direct Practice doctor’s absence because it says:
Your provider may not be available to provide the services referred to above in paragraph 1 due to vacations, sick days and other similar situations. During such times, Patient’s calls to the providers or provider’s office will be directed to other covering providers.
About Email communications
While it says that email addresses of the doctor will be provided, and telephone access 24/7/365, one has to call through an answering service after hours or on holidays. It states that emails won’t be opened, read or responded to after hours or on weekends. That’s not usually how the concierge product works, but if that’s what they are selling, and people want to buy it, there’s no reason to interfere in the deal. That’s the prerogative of the market to choose if the offer is acceptable. What is really interesting is that they charge for email communications. Here are the details:
*Every effort will be made to respond to emails on the same day they are sent. In the event that the Provider is not in the office on the day of email receipt, they will be read the next day of business. Emails will not be opened, read or responded to on evenings or weekends.
“Email consultations will be available for a fee, but Patient understands these will not be conducted for new medical symptoms or conditions. Patient understands, therefore, that a “hands-on” examination in office is necessary to accurately assess Patient’s medical condition. This will be to the discretion of the provider or triage nursing staff.”
Parol evidence rule and the Entire Agreement
There’s no disclosure as to the price of the email consultation within the four corners of the contract. That makes it subject to unilateral amendment by the doctor, because it is not subject to the Entire Agreement provision.
Additional concierge medicine amenities included
The other “amenities” included in the $50 per month, all inclusive fee are as follows:
- No Wait or Minimal Wait Appointments
- Same Day / Next Day Appointments
- Coordination of referrals to Specialists
Disclaimers and limitations
Under the disclaimers, the member is required to acknowledge that they
“…understand they are responsible for any charges incurred for health care services performed outside of [name] including but not limited to emergency room, hospital and specialty services, extra labs and medications and that [name] will not bill insurance carriers or Medicare for any medical services.”
The member also “acknowledges and understands that [name] may add or discontinue services or may increase fee schedules at any time (but no more than once per year), and that [name] will give written notice of such fee schedule changes at least sixty (60) days before their enactment.”
Since they aren’t offering much in the first place, if they drop any services or amenities, they are likely to have members abandon their program. But these are now “trained” members. They had a taste of direct practice / concierge medicine and now the concept is familiar. If and when the member identifies better value, it is likely they will jump ship to a competitor, and may not renew after a year. There’s not much in the way of creating member loyalty under this arrangement. It’s not “sticky”. In current vernacular, “Stickiness” refers to engagement and how long people tend to “stick around” a website, a business, or a situation. The higher the time spent, the more revenue potential.
As far as other amenities offered by the direct/concierge practice, they operate a mini-pharmacy /dispensary offering for sale a “host of common medications available for purchase onsite or online”, including antibiotics, non-narcotic pain relievers, and blood pressure medications, all under $10.”
The mini-pharmacy offer
While on its face, that seems benign and convenient offer or amenity, it opens the door to a whole host of other issues about operating a pharmacy, mini- or otherwise, because operation of any kind of a pharmacy operation is a regulated business under state (and federal) law. In reviewing the regulations for operating a pharmacy, even a small outlet is regulated and must be registered, supervised by a pharmacist, and meet certain standards of operation, safety, and reporting…even if they dispense in original packaging. The only way that they could do this is for non-prescription drugs because the regulation states:
(5) It is lawful for a person to sell and distribute nonprescription drugs. Any person engaged in the sale and distribution of nonprescription drugs is not improperly engaged in the practice of pharmacy, and the board shall not promulgate any rule pursuant to this article that permits the sale of nonprescription drugs only by a licensed pharmacist or only under the supervision of a licensed pharmacist or that would otherwise apply to or interfere with the sale and distribution of nonprescription drugs.
I guess I could agree that the sale of non-prescription medications as a convenience to the patient is an amenity. My criticism is that it doesn’t really have a value associated with it for which the market would likely agree to pay extra for what they can buy at the local drugstore or grocery pharmacy department.
Conclusion
I gave this practice a rating of a 2.5 on a 10-scale for its presentation, its business model, its offer, and its prognosis for viability and success. Creating a competing product for my client will make it really easy to steal market share from this practice without a lot of effort. The next step in the analysis is to mystery shop the practice and send one of our trained mystery shoppers to visit the practice and ask questions. We’ll probably set up a scenario of a mommy-lawyer who lives in the neighborhood, and has read their contract fully, and challenge a few of the observations I highlighted above – to see how they respond. I am betting they will decline to sell her a membership after the interview. Or they will look at it as the $150 “mark” that probably won’t last beyond the first 90 days of membership.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text]
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