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Business schools teach of the importance of knowing one’s competition: the strengths, weaknesses, marketing techniques, customer sources, and on and on.  Knowing one’s competition when running a medical practice uses much the same theory, and knowing about the practice across the street is just as important as knowing your own practice if you’re going to effectively spread the word about why your practice is different, if not better.

As healthcare reimbursement has evolved over the years, we’ve seen medical practice revenue models morph from primarily 3rd party payment to a mix between insurance payments and out-of-pocket cash from patients.  Many practices have moved to a completely cash based model, and you’ve seen examples of this through the development of cash pay retail clinics as well as in the rise of cash only concierge medical practices.

With this shift in revenue stream comes a whole new complexity as pertains to the “sale” of healthcare services to the public.  If a practice is now going to ask a patient to pay out-of-pocket for a greater share of their healthcare expenses (and in many cases, 100% of the payment), the service-based competition between that practice and the practice across the street becomes less relevant.  The bigger issue becomes how to compete for the dollars that patient might like to spend in the retail, automotive, or entertainment industries.

One part of the marketing equation has to do with differentiation; the how-to of making my practice look different from the one across the street.  This part of the equation is fairly easy in the case of cash based practice models.  By charging cash, service quality can increase dramatically through a smaller per-provider patient base, and often times the environment of care will be highly differentiated through more of a personalized, perhaps even spa-esque facility.

The tough part about cash pay medical practices is not competing against the neighboring practice though.  The tough part is competing against the purchase of discretionary items such as new cars, vacations, and flat panel televisions.  Unfortunately, (or fortunately, depending on which side of the coin you’re looking at), Americans view out of pocket expenditure for healthcare services to be discretionary.  For the most part, I believe this to be true, as when given the option between paying 100% cash for healthcare versus using a traditional healthcare practice that bills to 3rd party insurance, we do have a choice to keep more money in our pocket by using the traditional medical practice that will both delay and reduce our out-of-pocket responsibility.  Convincing the public to pay for healthcare, which can often be covered by insurance (or worse, not provided at all), when there is no alternative payment system that will put a flat panel TV in the home, is a challenging proposition.  To do this requires significant differentiation of the entire healthcare experience, such that patients are not merely buying an EKG or physical exam.  They need to be buying convenience, experience, and perhaps even status, when paying for concierge medical services or physical therapy sessions from a cash pay PT clinic.

Many have tried to integrate cash pay models into their medical practices.  While many have found a market and niche that works perfectly to support such models, others have come up against some of the issues discussed above.  This article from Medical Economics tells the story of a physician practice that wasn’t so fortunate, and I feel there are many lessons to be learned about how, when, and where to choose a cash pay model, and how to limit your risk along the way.

Our policy of trying to save patients money—combined with our patients’ reluctance to file claims because of the hassle—had backfired. And so, while we had more than a thousand patients, with many new ones coming in every day, few came for follow-up visits. And with receipts stagnant, the prospect that the business would somehow grow in the future was unlikely. I held on a little longer, but, five years after opening my cash-only practice, I finally sold it—lock, stock, and barrel—to our local hospital system. I’m now an employed physician, seeing many of the same patients I saw as a private practitioner. When I ask, they tell me they preferred the level of care they were getting before.

Looking back, the reality of what happened still stings. Despite our best intentions, sound financing, and perseverance, we couldn’t make our model work. That’s the message I deliver to any physician who asks me about my experience. Not only must patients value your service, but you must realize your own worth as a physician and act accordingly.