Looking for more profits and less hassle? Consider firing your HMOs

Cash-only reimbursement becomes more popular

Fed up with managed care’s high costs, low reimbursement rates, and administrative hassles, Dean Peyton, MD, has eliminated HMOs from his practice.

Since making the switch last year, the Arlington, TX, family practitioner admits he sees fewer patients, but he also says he makes more money and provides better medical care than he did when most of his practice was managed care-based.

"We came to the realization that we couldn’t provide the level of health care that our patients deserved if we were dealing with HMOs," says Peyton, a co-founder of Arlington Family Practice.

Today, some 40% of the six-physician practice’s 1,200 patients pay cash. The rest are covered by traditional indemnity insurance or preferred provider organizations.

Like many other trends, this HMO-free concept started on the West Coast and is starting to spread across the country.

"Doctors have just become so frustrated with all the hassles that go with managed care," notes Vern Cherewatenko, MD, a family practitioner in Renton, WA. He is active in promoting the idea that doctors should drop their managed care plans in favor of patients who pay cash or are covered by plans that do less second-guessing of medical decisions.

"I’ve nuked about 80% of the insurance companies from my own practice," says Cherewatenko.

He argues that HMO reimbursement has gotten so low that physicians must sign up as many patients as possible just to make ends meet. That creates a situation in which a trip to the doctor is less pleasant for patients, and doctors are left with less time to spend with them.

"We’re forced to juggle patients in two, three, or four examination rooms at once, spending no more than 10 or 15 minutes with each one," Peyton says. "It’s incredibly distracting, and it just isn’t the level of care that patients deserve."

Besides fostering better patient care, Cherewatenko claims that because he does not have to adhere to HMO-mandated administrative requirements, he can charge a cash-paying patient much less, yet make more money than what his managed care contracts generated. Consider these two theoretical patients provided by Cherewatenko from his practice’s experience:

Case 1. Patient A has managed care insurance. The doctor normally charges $80 for a 10-minute office visit. But the insurance company’s contract specifies it will only pay $43 for the visit, for which the practice must incur $20 in administrative expenses and $30 in overhead charges related to the examination.

Bottom line: The practice loses $7 on the visit.

Case 2. Patient B pays cash. Because no claims have to be billed to an HMO, there are no additional administrative expenses. Given existing office overhead, the practice can charge that patient $35 for the visit and still make a $5 profit.

Outcome: "You can charge a reasonable fee and still make money when you’re dealing with cash," he says.

Cash-paying patients get discounts

Based on his experience with running a cash-oriented practice, Cherewatenko has created a payment program called SimpleCare, which he says is now being used by some 800 physicians nationwide.

The basic idea: Doctors charge cash-paying patients less, based on their actual costs, than they do managed care patients.

A similar program was also recently launched by Jefferson Physician Group, a Dallas-based practice. That program, called Liberty Care, gives cash-paying patients discounts of up to 50% on health services. It costs $120 annually per family. The program’s primary market is uninsured families, says Tim Paquette, Jefferson’s chief operating officer.

"There is a huge segment of our population that has to pay for medical services out of their own pocket," he says. "This enables them to get the same kinds of discounts that everyone gives to the HMOs."

"It’s so much simpler, cleaner, and straightforward to deal with the cash-paying patient than dealing with the managed care company," he says.

The big obstacle to a cash-only practice, of course, is that most consumers are insured. However, Cherewatenko estimates that 90% of people willing to pay cash at the doctor’s office don’t have managed care coverage.

Peyton admits he lost patients when he dropped HMOs. "But it hasn’t harmed us in any way. We’re thriving," he says. "Plus, my quality of life is much better."