Cash-Only and Concierge-Based Medicine: Roles in the Health Care Payment Landscape

Hena Ahmed1

1Harvard Medical School, Boston, MA, USA
Address correspondence to:

The discord between physicians and insurance companies over compensation for medical services is not new. In 1936, the editor of the New England Journal of Medicine in “Unpaid Bills of Doctors and Hospitals” described the disarray between physicians and insurance, stating, “You are all aware of the fact that physicians and hospitals lose tremendous sums of money annually… The sad and grievous part of the story is that moneys have been set aside by your insurance companies to pay for the medical and surgical services rendered, but these moneys too frequently are not distributed to physicians and hospitals…” [12]. Unfortunately, similar challenges in the payment infrastructure exist in the health care system nearly 78 years later.

As a result of increasing frustration with the current health care payment system, a growing trend emerged in which primary care practitioners began shifting to new forms of payments for services, specifically cash-only payment practices. Another subset of physicians elect to receive both cash payments and patient insurance for services, practicing “retainer” or “concierge” medicine [1]. Analysts argue that the shift to cash-only and concierge systems reflect the deteriorating state of the current healthcare system [5]. The mounting frustration arises from a combination of private insurance payments and drastic declines in reimbursement rates from Medicare and Medicaid [6]. With increasing overhead costs, physicians are finding it less economical to accept patients from Medicare and Medicaid, with many physicians refusing to accept these patients altogether [18]. This paper will describe the incorporation of cash-only and concierge-based payment systems into the current health care payment infrastructure and the potential long-term ramifications of these changes.

In a “cash-only” or “direct payment” method of practice, physicians refuse to accept insurance and require payment upon receipt of services [4]. The first cash-only practices emerged in the late 1990s in the form of boutique practices that allowed physicians to cater to the wealthy [14]. This practice shifted as physicians also sought to eliminate the administrative and insurance hassle in their practices, and began offering services to uninsured and underserved populations for lower pay-per-visit charges [14]. This method gives primary care practitioners increased autonomy in their practice and allows for richer relationships with patients. By accepting cash-only payments, many practitioners have drastically reduced their patient volumes in order to spend more time with individual patients and deliver higher quality care [8].

Although frequent media attention and anecdotes from current cash-only payment providers portrays this form of practice as a popular and exponentially growing trend, preliminary data suggests that this form of practice is still in the vast minority of health care practice today [18]. In 2012, the Survey of America’s Physicians, one of the largest and most comprehensive surveys of physicians in the U.S., found that out of 13,575 respondents, approximately seven percent of physicians, plan to move to cash-only or concierge-based practices [18]. In addition, 9.6% of physicians who own their practices, in contrast to 4.5% who are employed by a hospital or group practice, plan on moving to concierge-based medical practice. This particularly highlights the increasing pressure on private practitioners to better manage their overhead costs based on reimbursement rates of insurers, Medicare, and Medicaid in the current payment landscape.

According to the American Academy of Family Practitioners, in 2010, only 3% of family practitioners in the organization’s Practice Profile Survey indicated that they practice in a “cash-only, direct-care, concierge, boutique, or retainer medical practice.” This amounts to approximately 3,000 physicians out of over 97,000 members. Despite this small fraction of practitioners, the Center for Studying Health Systems and Change reported as of 2008, 12.6% of all physicians practice in a non-managed care setting, an increase from 11.5% in 2005. Of the 954,000 physicians in the U.S., this figure would suggest that 118,000 are not practicing under a managed care system.

The greatest challenge for many physicians exploring the transition from managed care to cash-only or concierge-based practice lies in determining whether it is a sustainable method of practice. Of physicians, 42.7% mostly disagree and 32.8% somewhat disagree that hospital employment of physicians is a positive trend and likely to enhance quality of care and decrease costs; however, the majority of physicians (87.4%) still practice in a managed care type system [18]. This illustrates that although physicians recognize the problems in the health care system, there is hesitation in moving away from a managed care system.

Family practitioners throughout the country present different experiences with cash-only practices. According to Letters in Family Practice Management, physicians state,

“After eight years in the rat race, I opted out of Medicare, canceled all insurance contracts and converted to a cash office on Jan. 1. These changes have rekindled the fire of family medicine for me…Family physicians are in a unique position to do this because our services are affordable on a cash basis. My visits start at $35.” – Jaymi S Meyers, MD, Seneca, S.C.

One particular argument for the cash-only payment model is that it allows physicians to significantly decrease administrative costs related to insurance company filing and thus decrease total overhead costs. Brian Forrest, MD, runs an acclaimed practice of the cash-payment model called AccessHealthcare in Apex, N.C. His practice has been heralded as one of the best examples of this model. Forrest explains that through his “Access Card” discount plan, patients pay $300 a year for a card and $20 per office visit. The average patient who needs a complete physical, four follow-up visits, and a sick visit will spend in total $420 on primary care annually [8]. In contrast, the average American family spends $700 per year on health insurance premiums ($3,300 per family), which excludes co-pays, deductibles, or employers’ contributions [8]. This model is also preferred even for individuals who have insurance, particularly because the office visit costs are less than their in-network co-pays, and often includes lab tests that are also typically not covered. Therefore, these patients still saved money in the long run [8]. For his patients who did not have traditional insurance, Forrest recommended that they purchase high-deductible, low-premium plans that covered them for unforeseen hospitalizations. This ultimately saved patients money annually and still gave them access to the primary care they needed.

Other physicians have found tremendous difficulty in establishing and sustaining a cash-only practice.

“Our policy of trying to save patients money-combined with our patients’ reluctance to file claims because of the hassle-had backfired…While we had more than a thousand patients, with many new ones coming in every day, few came for follow-up visits… Five years after opening my cash-only practice, I finally sold it…I’m now an employed physician, seeing many of the same patients I saw as a private practitioner…They tell me they preferred the level of care they were getting before.” – Emily Kaufman Frank, MD, Carmel, I.N.

One major criticism of cash-only payment practices refers to the impact it will have on access to health care for the underserved and uninsured. Analysts argue that with a shift towards cash-only practice, an increasing number of individuals will be unable to afford their long-term physicians. These non-concierge physicians who do not participate in managed care contracts alienate patients that cannot afford to pay both insurance premiums and cash-only practice payments. In addition, physicians refusing Medicare and Medicaid patients exacerbate the shortage of primary care physicians to populations that cannot afford health care without government aid. In 2012, physicians reported that due to time or cost constraints, 8.6% have been compelled to close their practices to Medicare patients and 26.7% to Medicaid patients, an increase from 6.2% and 17.8%, respectively, in 2008 [18]. Because together Medicare and Medicaid patients comprise 48.9% of physicians’ patient volumes, a decrease or elimination of services entirely to this patient population will ultimately worsen health disparities to the uninsured and underserved.

However, practitioners of cash-only payment system contend that their practices actually increase access for these underserved populations. Physicians published in the Family Management Practice Letters stating,

“I helped create a cash-only practice in Albuquerque, N.M., in January 2005. Our goal is to serve working poor, uninsured and immigrant families needing urgent as well as ongoing care… A cash-only practice allows you the flexibility to offer your services at a reduced rate to poorer uninsured patients.”

Other physicians have similarly stated,

“My overhead is low, so my services are cheap [$20-$25 per visit], which makes it possible for middle- and low-income families (including some who are insured, and others who are not) to afford me” [8].

These arguments suggest that cash-based practices may provide greater access to care than previously contended. However, this debate is ongoing with few physicians or physician organizations publicly arriving at a consensus on cash-based practices.

Unlike the cash-based practices described by Forrest, some physicians have opted to practice concierge-based medicine. In this model, physicians advertise expanded medical care and individualized attention, collecting charges from both insurance companies and directly from patients [16]. The medical community sharply contrasts in their opinion of these practices, which often are referred to as “boutique” or “luxury” practices wherein patients who pay an additional fee are offered the best care at a particular practice. In the next one to three years, 9.6% of physicians who own their practices plan to switch to concierge practice [18]. The fee charged by physicians is sometimes referred to as a “retainer” fee, and ranges anywhere from a few hundred dollars to several thousand dollars annually. Many physicians argue that this surcharge allow them to decrease their patient volume, spend more time with individual patients, invest in patient centered medical homes or electronic medical records. The growth of concierge practices and the willingness of patients to pay physician surcharges illustrates the difficulty for patients to find good quality primary care [2]. In addition, patients who cannot afford to pay this luxury retainer fee will be further excluded and add to the millions of individuals who do not have adequate access to primary care [3]. Physicians who practice concierge-based medicine were found to serve fewer African American (7% vs. 16%), Hispanic (4% vs 14%), or Medicaid (5% vs. 15%) patients. Physicians who converted to concierge-based practices from non-retainer practices (85%) kept only 12% of their previous patients [1]. Of these physicians, 84% provide charity care and 17% continue to see patients who do not make retainer payments [1]. Given the preference for and exclusion of populations in the concierge-based model, this payment system is more likely to severely impact health care access to underserved populations.

Other driving factor in the debate is the rate of uncompensated care. Physicians seem to provide overwhelmingly high rates of uncompensated care, and thus many in primary care may view cash-based practices as a way to receive lower rates from underserved populations rather than no compensation at all. Currently, 39.3% of all U.S. physicians report providing more than $50,000 in uncompensated care annually within the current payment infrastructure [18]. Furthermore, with 45.1% of physicians planning on placing new or additional limits on Medicare and Medicaid patients and 22% planning on reducing the amount of charity care they deliver as a result of the ongoing problems with Medicare fee schedule updates, the need for a new payment delivery system is imminent.

Given the challenges physicians face with insurance reimbursements and Medicare and Medicaid programs, the passage of the Affordable Care Act (ACA) may potentially reduce the number of physicians shifting toward cash-based and concierge medicine.  The Affordable Care Act primarily addresses challenges with universal coverage, insurance company abuses, uncompensated care, and Medicare reimbursements. With the universal mandate requiring insurance coverage of all individuals in the U.S. through employer-based, government-sponsored, or other private health insurance, physicians will be less likely to lose significant annual earnings in uncompensated care. An analysis of the impact of the ACA in The New England Journal of Medicine determined,

“With the number of uninsured people projected to drop by half, policymakers anticipated a substantial decrease in the uncompensated care provided at acute care hospitals. Consequently, beginning in 2014 the ACA initiates a series of payment reductions under the Medicare and Medicaid Disproportionate Share Hospital (DSH) programs. These programs, which pay out about $22 billion annually, partially reimburse nearly three quarters of U.S. hospitals for otherwise uncompensated care provided to low-income patients.” [19].

This form of re-compensation and bundled payment will ensure that physicians receive appropriate, sufficient, and regular payments for services, ensuring long-term feasibility of health care practice.

In Title III, the ACA addresses Improving the Quality and Efficiency of Healthcare, particularly in the context of Medicare payment reforms. The ACA expands payments and reimbursements from Medicare, particularly in the context of preventative and rural health practices. Because cash-based medical practices are favored by physicians in low-to-middle income rural areas, the expansion of Medicare reimbursement coverage in these settings may lead fewer physicians to adopt these practices.

Private insurance company reimbursements represent their own challenges, and although the ACA does not directly identify changes in reimbursements for physicians from private insurers, it does address reducing insurance company frauds and abuses. The Center for Consumer Information and Insurance Oversight (CCIIO) enforces the ACA provisions for reimbursement by overseeing private insurers. Because many practitioners of concierge-based medicine charge a premium for their services in heavily populated regions, the enforcement of insurance reimbursements in essential to limiting an increase in demand and subsequent rise in health care costs in heavily populated areas.

Because the scope and long-term effects of cash-payment and concierge-based practices are not fully understood, it is difficult to assess health outcomes resulting from these practices. However, given the preference for certain populations within each model, health outcomes are more likely to be negatively impacted in a shift to these payment methods. Many of the experiences of these physicians are anecdotally described, and little investigation has been conducted into the regional distribution of these practices and the factors that are associated with success or failure in these models. These practices indicate a much greater problem in the payment structure of healthcare at large and continued delay of improvements could have severe consequences for the patient population in the U.S. The ACA may potentially resolve some of the concerns of payment infrastructure and long-term viability of medical practice in the U.S., limiting the migration of physicians to cash-based practices in rural settings and concierge-based medicine in urban settings.


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