Once you’ve developed your vision and mapped the patient experience, private medicine expert Tom Blue urges that the next thing a physician should consider is the financial relationship with the patient. “Not the price, but the structure.” Mr. Blue has extensive experience and knowledge of concierge medicine, Direct Care, and employer health. He has coached and advised numerous individual practices to success, and lead the American Academy of Private Physicians as its Executive Director for four years.

First, physicians should consider whether or not you want a fee-for-service business, akin to a lawyer or a plumber’s approach to charging by the hour. The other option would be to charge a membership fee, like a health club would. Or, you could go for something in between: you could charge a base membership fee plus special charges.

The next aspect to consider is whether or not you want to participate with Medicare for your over 65 patients and commercial insurance for patients under 65. Often times, it makes sense to deal with Medicare but not commercial insurance, or vice versa. 

“In real life, when we’re on the meter for things, people want to unplug as soon as possible,” Blue explains. They don’t want to be charged for things they’re not using, or they want to stop being charged as soon as possible. No one wants to be on the clock with the lawyer. “This approach to charging tends to conflict with how the doctor wants the relationship to work: long term, integrative, and friendly.” So a fee-for-business model “tends to interfere with stability and consistency.” 

The other problem with the fee for services model is that doctors don’t know how many patients they have. Patients have no obligation to see their doctors again, so doctors have no idea if they will return. “When you have a retainer or a membership, you know when they’ve left,” Blue explains.  “You get a sense of when your schedule is full.” From a business plan perspective, it’s much easier to be able to predict how many patients you can comfortably schedule and treat. You don’t have to rely on seasonal flus or hope for people to get sick, etc. “I believe the subscription model is better for most of the visions of doctors in the direct care sector. You want to get money to the backdrop of the relationship,” and the membership approach allows this. 

But there are some drawbacks. The design of this economic relationship doesn’t account for things like lab tests, special cases, etc. Some customers may walk if they can’t afford the membership fees, or feel they’re paying for a service they don’t need.

Insurance And Medicare

So at this point in your business plan, you haven’t decided how much to charge, but you’ve decided on how you’re going to charge. Great. The next step is to make a decision regarding insurance. 

Insurance is a major headache for doctors and patients alike. In fact, many come to Direct Primary Care world saying they don’t want to deal with insurance at all. But you do have options.

“If you’re wanting to specialize in over 65, not accepting Medicare is a hindrance to your business,” Blue believes. It’s very confusing to seniors that a doctor won’t take Medicare. So opting out will increase your cost of acquiring these customers.

Now, if you’re targeting younger people, you’ll have a different set of challenges. Often, these patients with insurance have deductibles they are not going to hit. If you’ve got a 5k deductible, for example, you’re unlikely to actually hit that. The practice will take the patient’s insurance, on top of a membership fee and every time they come in, they’ll be charged towards their deductible which again, they’ll never hit. So if you opt to accept insurance, Blue emphasizes that “you must know what things cost. Be transparent and don’t hit people with costs they’re not expecting.” 

The alternative is to use insurance and instead opt for a fee-for-service model. “My advice is to always have a retainer,” Blue adds. 

If your patients are working age people, it makes sense to opt out of Medicare and insurance in favor of a subscription service for primary care including covered service. 

Forecasting Your Business

So let’s say you’ve already decided on the structure of your financial relationship. The next step is to decide what you’re going to charge. Pricing begins with a clear understanding of cost. Financially, you need to simulate the entire business plan. He recommends building it in Microsoft Excel. You should load your cost assumptions into your forecast including rent and payroll. “When I map my patient experience," Blue considers such factors as the cost of lab tests and how much time he can budget for each patient. These factors create a limit on how many patients you can have.

You need to consider several factors: time, variable costs, and overhead (including the cost of growing the practice). But doctors aren’t used to having to market and if you’ve opted out of insurance and Medicare, that’s a cost you’re going to have to endure. People have to make the financial decision to become your patient. “You need to market and self-serve and that comes at a price,” Blue says. “You need to have a marketing budget.” To his mind, this includes hiring someone on staff to grow community. 

Once those costs are factored, you can decide on a membership fee for your practice. “You want three variables: price of service, scope of service, and number of patients,” Blue explains. These variables need to have overlap at the same point. What does that mean? In practical terms, doctors often panic and discount the price of service, thinking they’ll make it up with the number of patients but this often leads to being full-up on your schedule and not hitting your numbers.

But let’s say you know your capacity and you know your marketing budget. So now you need to budget for your growth period. What’s your runway? “Costs will go down as you expand,” Blue clarifies. “And patients go up but what is that going to look like in one month, four months, one year?” It’s not enough to consider how many customers you need to turn a profit, or how much you plan on charging them, it’s about seeing how these numbers may or may not change as your business grows. 

That’s why it’s also important to consider where your business is starting. Do you start from scratch or do you try to convert customers from an existing practice? If you try to transition existing patients into retainers, you have a jumpstart on profitability.

Quick Takeaways

As you develop your business plan, you have several decisions to make: whether or not you'll opt for a fee-for-service system or membership plan, what kind of insurance you’ll accept (including whether or not you’ll opt into Medicare), what kind of patients you want to serve, and then finally come up with a pricing plan, factoring in costs like overhead, time, and growth. While it may seem daunting, knowing your options is the first step to success.