Datica Blog

January 30, 2018

2018 Healthcare Trends Part 2: Cash-Pay Practices will Grow

Datica Team

Editorial Staff

Where is healthcare going in 2018? In the first article in this series, I outlined six trends for 2018 I predict we’ll see as the government, individuals, and private sector demand change this year. The first of those trends is an increase in cash-pay practices. Whether you call it cash pay, subscription medicine, direct primary care, or concierge medicine, the underlying commonality is cutting out the payors.

What do you do when you get so frustrated with inefficiency and intermediaries in a transaction? If you’re like most consumers today, you’ll find a way to go directly to the supplier — meaning anybody producing a product or service that is of value to customers. There are huge technology leaps being made that have eliminated logistical challenges and enabled suppliers to have new or improved direct access to customers; as you can see below, it’s also created many opportunities for new, very large businesses.

Here’s a short list of direct-to-supplier examples:

  • Alibaba allows you to order directly from factories in China. It eliminates retailers. This is typically used for commercial merchandise and equipment. Try it. It’s incredible what you can customize for an order of 1 and have directly shipped to you.
  • Etsy connects small, niche makers to sell directly to customers. It eliminates retailers and opens up huge geographies for makers. Etsy has gotten a lot of bad press lately but that doesn’t change the underlying premise.
  • Patreon enables creators to be sponsored by fans, or patrons, through subscriptions. It provides artists more freedom to pursue their craft with direct support from fans.
  • Stratechery is a subscription technology analysis publication. It eliminates publishers. It’s one person, Ben Thompson, that has built a personal brand outside of traditional publishing channels. There are many such publications but Stratechery is a personal favorite.
  • The Athletic is a subscription local sports publication. It eliminates traditional paper press. It enables local sports writers to provide deeper insight into players and teams through long-form publishing that doesn’t fit well with where traditional newspapers have evolved.
  • Netflix sells on-demand video content directly to consumers. It reduces the demand for cable bundles and, in the process, traditional advertisers. Now, with public market funding, Netflix is building the largest content catalog in the world and selling access to it directly to consumers.

Healthcare transactions are frustrating for consumers and providers

If you were to poll people on the most frustrating experiences they’ve had with transactions, I’d wager that healthcare ranks number one. The commercial payor process in healthcare is broken to the core, mostly by design, to create friction that intentionally minimizes payment to providers and reduces the liability of payors. The process sucks for both sides.

Consumers typically have insurance through employers, reducing or eliminating choice. Payors then have networks of approved providers, thereby dictating which providers those consumers are allowed to see, again reducing choice. Then, when consumers go to their provider to get care it’s nearly impossible to have an accurate idea of their responsibility before a service is provided; they only find out much later how much the service cost, how much the payors haggled the price down, what the payor covered, and what amount is left for the individual to pay.

Believe it or not, the provider side is worse. Payors are heavy handed — to put it mildly — with providers in negotiating payment rates. For example, commercial payors pay providers vastly different rates based on the supply and demand for different specialties in different geographic areas. Payors also drag their feet and take anywhere from 60 days to 6 months after applications are submitted to approve new fully-licensed physicians and add them to their networks. Then, providers submit claims and those claims are either rejected (based on real or not even real mistakes in claim submission and documentation) or paid within some period of time (usually 30 to 90 days). Providers can then dispute rejected claims. This is a lot of work and providers spend lots of money to increase collections and speed the time to collections; simplistically this is “revenue cycle management” and is a multibillion-dollar industry in its own right in healthcare.

When something goes wrong, consumers often blame providers; read provider reviews online and you’ll see many of them are complaints about payment. It’s a lot easier to blame the provider, with a face in front of you, vs the payor with it’s oftentimes outsourced call center service options.

The commercial insurance model of care insulates both providers and patients

One of the major hurdles in applying free market principles to healthcare in the United States is that, as I laid out above, the parties involved in the healthcare services transaction — the provider and the patient — are insulated from the financial transaction. I’m talking about the commercial insurance model of care that dominates our health system today. In this model, while there is typically some financial exchange with patients paying a deductible and, at times, some amount of patient responsibility at or before care is provided, oftentimes the bulk of payment for healthcare services is done separately, insulating providers and patients. This insulation is true even of providers in small private practices and is especially true for employed physicians who typically track what are called relative value units (RVUs), not collections, that determine their salaries; RVUs are a topic unto themselves and beyond the scope of this post.

Are cash-pay medical practices the solution?

What’s the reaction to this? Cut out the payors. This is what cash-pay medical practices are all about. Whether you call it cash pay, subscription medicine, direct primary care, or concierge medicine, the underlying commonality is cutting out the payors. This is providers and consumer reacting to the frustration and overhead of working with payors. The desirable outcomes are similar for both providers and patients — longer appointments, more timely access to providers (off hours is usually included), and real accountability.

Cash-pay medicine has seen a tremendous growth in popularity and will continue to grow as the traditional commercial insurance model of healthcare continues to get worse. Survey data consistently shows that a high number of providers are interested in switching to concierge medicine. Sadly, the poster children for building networks and scaling cash-pay medicine have not fared well — QLiance and Turntable Health have struggled and had to shut down. One Medical has grown more slowly than expected and has had to raise almost $250M in the process. Some, like MedLion, are trying to sell subscription medicine, mainly virtual care, through employers.

The lessons from these companies is not that cash-pay medicine doesn’t work (here’s data showing saving from cash pay), it’s that scaling a network of cash-pay medical practices is very hard in today’s healthcare environment. Cash-pay practices that hold old on and remain outside the system will be smaller, more independent practices. That’s the biggest obstacle to cash-pay medicine — converting small practices is hard and perceived as very risky. But, those smaller, independent cash-pay practices are starting to share their stories and insights through online forums. These online forums, like Facebook groups, are reducing the barriers for providers to convert practices to cash pay. I personally know multiple physicians who are planning to convert to cash-pay practices in 2018 and their main source of information is Facebook.

At the same time, consumers/patients are more open to cash-pay practices. As healthcare delivery and traditional, claims-based payment have become more convoluted, consumers have become more willing to pay directly for higher-level access to their providers. I don’t think a large portion of the public is ready to spend $150-$200/mo. for concierge medicine but I do think a decent proportion is willing to pay $40-70/mo.

As more providers leave traditional payor based healthcare to open cash-based practices, more consumers are willing to sign up. And, as that happens, we are seeing more digital health technologies built to help cash-based practices — Hint Health manages the back office, Atlas.MD is a subscription-based practice EHR, and Spruce Health connects providers directly to patients and allows practices to easily offer new, differentiated services to patients. This is the cycle that will push more cash-pay medicine into healthcare.

Cash-pay medicine is not for every provider and not for every consumer. But, it does fit well with a growing number of independent practices that want to remain viable and can’t survive against larger provider networks and health systems. I predict 2018 will be the year that cash pay, subscription medicine becomes a real option for both providers and patients.

Follow the healthcare trends series by subscribing to blog updates on the right. Next up, we’ll discuss post-EHR healthcare.

This guide to GDPR for the healthcare industry will prepare you to do business in the EU and understand how to handle PHI of EU citizens. With Datica, you’ll be ready when GDPR takes effect on May 25, 2018.

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