The COVID-19 pandemic has taken its toll on Texas’ independent physicians, many of whom have reported substantially lower patient volume, practice revenue, and clinical hours. Some have been forced to close their practices.
Although many business and heath care restrictions have been lifted in recent weeks, patients continue to lose jobs, insurance, and income – and physician practices continue to suffer.
What does this economic uncertainty mean for physicians who are considering opening their own practices?
Regardless of how the pandemic is affecting the economy, people always will need health care. This may be the best time to open a new practice, incorporating lessons learned during the pandemic, including telemedicine as a practice necessity.
Still, many aspects of starting a practice – developing a business plan, choosing a business model, and securing a loan – have changed because of the pandemic. Current conditions simply require that physicians consider options carefully, embrace change, and be ready to innovate.
If you’re thinking about taking the leap into becoming a practice owner, Texas Medical Association consultant Yvonne Mounkhoune has outlined a few aspects of starting a business to consider.
Developing a proforma
During the pandemic, developing a proforma – a business plan with projected cost and revenue – has become more challenging. The benchmarks historically used to project charges and collection, salaries, and operation expenses may be less accurate considering the reduction in patient volume and revenue, implementation of telemedicine, and uncertainty about the future. Other proforma components, like staffing and operating expenses, are all based on these projections.
Current benchmarks are based on physician-reported performance data collected in the past two years, which most experts agree looks drastically different from 2020 and may continue to vary in coming years. Therefore, it’s a good idea to be conservative when using these benchmarks to create a sustainable business model. The proforma will need to demonstrate manageable operating expenses, efficient use of personnel, and strategic planning for flexibility and growth.
Securing a loan
Some banks in Texas have shared with TMA that they are conducting business as usual and open to funding new business ventures. However, banks that are accepting new loan applications are adhering to stricter guidelines in underwriting, and the loan process is reportedly taking longer, delaying the project timeline. Some large banks, including Bank of America, are suspending funding for new physician practices in response to the instability in the economy and the health care industry.
Working capital and operating expenses
Revenue projections determine the loan amount, which impacts everything else. That includes how much money you have available to spend on getting the doors open , and how much working capital you have accessible to pay operating expenses in the first several months of being open.
Due to COVID-19, the following practice components, and associated costs, require additional consideration:
- Staffing
- Determining how many employees you will need
- Interviewing new staff remotely, e.g. via teleconference; and
- Training on personal protective equipment (PPE), COVID-19 precautions, policies and procedures.
- Supplies
- Having enough PPE on hand;
- Planning for supply chain disruption, back orders, and delivery delays; and
- Estimating use of disposable, single-use products.
- Equipment and furniture
- Deciding whether to buy new or used equipment;
- Determining how many chair you really need in the waiting room; and
- Planning for extra cleaning and sanitizing.
- Technology
- Selecting which hardware to use, e.g. desktops, laptops, and tablets;
- Choosing a software platform for electronic medical record and practice management systems that include an integrated telehealth component; and
- Meeting your patients’ communication needs.
Business model
Even without the pandemic, the choice of business model is not as cut and dry as it used to be in a primarily fee-for-service environment.
A new practice generally has little bargaining power when it comes to contract negotiation with commercial payers. Unlike an existing practice, large group, or hospital system, new practices have no historical data to leverage for higher payment rates or performance-based contracting. Fee-for-service contracting focuses on the numbers, meaning physicians only get paid when services are rendered, and only when those services are covered.
COVID-19 has highlighted flaws in the way we traditionally pay for health care as noted in the July 22 issue of The New England Journal of Medicine.
“When the market for well-paid services collapses, so do health care providers,” the article says.
The current system incentivizes higher cost and volume, ignores primary care and behavioral health as vital first-line health defenses, and persistently underserves poor and rural communities, it says.
Andy Slavitt, former acting administrator of the Centers for Medicare & Medicaid Services (CMS), is encouraging CEOs to “recognize that maintaining a fee-for-service heavy operating model, while understandable, amounts to simply returning to a system that doesn’t work well and won’t last long-term.”
However, a few business models have weathered the COVID-19 storm.
Direct primary care, concierge medicine, and value-based health care – which do not rely on fee-for-service reimbursement – are surviving. These models have one general concept in common: They are paid per patient per month for all care, rather than for each specific visit or procedure performed.
Direct primary care (DPC) and concierge medicine are both membership models. DPC practices do not accept insurance, rather they charge a monthly membership fee that covers most needs for the average patient. The fee is guaranteed income for the practice every month.
Concierge medicine is based on an annual membership fee, possibly paid monthly, covering services that are often not reimbursable by commercial insurance or government payers; however, insurance is typically utilized when appropriate. Concierge practice may devote a portion of clinic hours to concierge patients or become 100% concierge.
Both business models allow physicians more time with patients because the volume incentive is no longer in play. They both also include greater access to physicians, same day appointments, and other enhanced services. Patient and physician satisfaction are reportedly higher in these models.
However, despite sounding like the health care panacea, DPC and concierge medicine do not have universal appeal because of the annual or monthly fee required to be a member in these practices. A segment of the population simply does not have the extra income available to pay the fees, or they have affordable insurance through their employers.
These models work well for healthy individuals or those with relatively stable chronic health conditions like diabetes or hypertension. Patients with multiple comorbidities or uncontrolled chronic conditions, requiring specialist involvement and several medications, may have higher health care needs that would make these models cost prohibitive for them.
The value-based care business model is seemingly the best of both worlds: It incorporates quality with payment, resulting in a model that essentially pays on a per-member, per-month basis, or per episode of care, is paid by commercial or government payors, and allows for enhanced services and more meaningful time with patients. This model reportedly also has resulted in greater physician, staff, and patient satisfaction. Note that most value-based care models in Texas currently only offer pay-for-performance bonuses and gainshare opportunities. However, CMS has stressed its goal for all Medicare beneficiaries, and at least half of commercially insured patients, to be cared for under a risk-bearing valued based care model by 2025.
TMA is committed to helping physician practices remain independent by seizing the opportunity to innovate and take the lead. This creates an environment in which patients are engaged and partner with their physician for better health, and in which physicians and staff experience greater work satisfaction, all within an economically viable construct.
The TMA Education Center is developing a series of podcasts, webinars, and publications about value-based care, specifically focused on and designed for smaller, independent, physician-owned practices. Check out the TMA Education Center and TMA Practice Well podcast frequently for new education.