Cash-Only Practice Rewarding for MI Physician

For primary care physicians frustrated with the financial challenges of operating practices that bill services to insurance carriers, a cash-only practices could be a viable option.

After operating an independent practice in St. Joseph, MI, for a decade, Alan Smiy, MD, accepted an offer in 2012 to work as an employed physician at Borgess Health in Kalamazoo.

He went to work and shuttered his "very healthy" practice.

"We had a lot of patients. We had a good staff. But the business model in today's world was just not sustainable," Smiy said recently.

When he closed the doors at his primary care practice, Smiy had a patient base of 7,000 patients, with more than 4,000 having active charts. Despite the volume, however, the financial numbers were weak.

"One thing we noticed was increasing costs in our overhead from the manpower required to handle the patient load," he said.

Then there were the delays in insurance payments. "We would experience everything from a 60- to 90-day delay; and in some cases, up to six months. You would send in a claim that you thought was clean, and the insurance carriers would find ways to hang it up."

"When you add it all up," Smiy said, "a small business can only tolerate so much of that."

Employment vs. Independence
"As an employed physician, you definitely lose some autonomy in the decision making of how the practice is run; however, you also have administrative support to manage the stress of the day-to-day operations," he said. "This allows more concentrated time to focus on patient care. Also, your cash flow is at a predictable, constant rate."

"As an independent physician, you seemingly have more autonomy, but one quickly realizes that there are several imposed limitations from third-party payers who offer more obstacles in the way of patient care. Sadly, they are also responsible for a good portion of the cash flow challenges within the private practices. In both cases, the level of total compensation achieved is directly proportional to the effort given."

In 2015, the shortage of primary care physicians in St. Joseph tugged at Smiy's conscience. "Over the couple of years that we were closed, a number of other physician offices closed and one physician retired, leaving the community short about four or five primary care physicians."

"You figure if every practice was serving four or five thousand patients, that's about 20,000 patients who did not have a doctor to go to. At the same time, we noted that Medicare was not being accepted at many of the offices. We were hearing from people in town that there was more need for physicians."

After consulting with his wife, conducting research on the cash-only business model, and "saying a few prayers," Smiy took a leap of faith and re-opened his independent practice, this time on a part-time basis.

He decided to open a cash-only practice with office hours in the evenings and Friday afternoons. The schedule allowed Smiy to continue working at Borgess Health, without any conflicts of interest, he said.

"We opened in November 2015, and it's been steady growth ever since. There's been more acceptance of the cash practice. The patient population is growing."

Currently, Smiy sees about six patients a day at his part-time cash practice, and he expects patient volume to double this summer during the vacation season. The greatest factors driving growth of patient volume have been word-of-mouth and the fact that the practice offers after-hours appointments. He promotes the practice using Facebook, radio, and printed flyers distributed at area pharmacies.

Staffing includes a nurse and front-office receptionist working part-time hours, and Smiy's wife acts as office manager. It is generating a positive operating margin, he says.

Smiy cites three factors that have contributed to the measure of cash-only practice success that he has achieved so far:

1. Passing on savings from lower overhead costs to his patients. "Our rates are about 40% lower than other offices."
    
2. Delivering above-par service. "For some offices, you can call for an appointment and may have to wait three to six months before you can walk in the door. If I have a patient call me today, I am going to get them in Monday or Tuesday of next week."
    
3. Spending more time with patients. "What I do at this practice is what I was trained to do, and it allows me to be the physician that I want to be versus working in an environment where you are driven by quotas and government numbers."

The financial mechanism of a cash-only physician practice is relatively simple and efficient, he says.

"A patient comes in for a level of service such as diabetes follow-up. The patient get seen, they pay cash for their visit upfront, then they are given a receipt and a pre-populated insurance form—the CMS 1500 form—at the end of the visit along with instructions on how to submit the form."

The patient is instructed to submit the receipt and the CMS insurance form to his insurance carrier, and then to wait for reimbursement from the carrier.

Medicare patients are being reimbursed in about three weeks, and usually get 80% of their money back, says Smiy.

"When I took Medicare patients at my old practice, I would wait six months for many of those claims, and the reimbursement would not be anywhere near 80%. On a typical $150 charge, we might get back $22 or $23 from Medicare."