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How to navigate direct pay successfully


Focus on patients not payers

The Medicare payment reform law  Congress passed in 2015 intended to reward doctors for value and good outcomes rather than the number of services they provide, but it may have an unintended consequence: causing more primary care doctors to opt out of Medicare in favor of direct pay practice models.


Further reading: Top MACRA apps physicians need to download


That’s because under the reform law, known as the Medicare Access and CHIP Reauthorization Act (MACRA), most independent primary care physicians will have to document and report their progress on a variety of quality-related measures to be paid for their services to Medicare patients. For doctors already feeling frustrated and overburdened by paperwork and government requirements, MACRA could be the final impetus to finding a different way to practice medicine-such as direct pay. 

“People are looking for any way out, and direct pay is one way to not have to deal with the requirements of MACRA,” says Philip Eskew, DO, JD, founder of, a resource for direct pay practices.  

According to Eskew, about 400 practices in 540 locations use some form of direct pay. That’s up from 141 practices in 273 locations cited in a 2015 article in the Journal of the American Board of Family Medicine, using data collected in 2014. Direct pay practices are clustered largely on the east coast and in Florida, Texas and Colorado.

But in spite of its rapid growth, direct pay is not right for everyone or in all circumstances, experts say. Making it work requires the right combination of a physician’s personal characteristics and patients’ willingness to accept a very different way of paying for their healthcare. Moreover, large numbers of practices converting to direct pay likely would raise questions about access to care for Medicare patients, or those unable to afford a monthly fee.

The attraction of direct pay

What makes direct pay an attractive alternative is that practices employing the model don’t accept payments from third-party payers, whether public or commercial. Instead, practices charge patients a monthly fee-usually between $50 and $75-that generally covers all visits and standard services found in a primary care practice. (Some practices also levy small per-visit charges.)


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In addition, direct pay practices usually have smaller patient panels-typically around 600 per physician, compared with the 2,500 or so found in most standard primary care practices. The smaller panels allow physicians to spend more time with each patient than their fee-for-service counterparts.  

Even with the income from membership fees, though, direct pay practices’ gross revenues often are less than in fee-for-service. That means they must also reduce overhead costs-a goal made easier by the fact that they no longer need employees for tasks such as billing insurers, obtaining prior authorizations and checking on the status of patient copays and deductibles.

According to Larry Bauer, chief executive officer of the Family Medicine Education Consortium Inc. (FMEC), a direct pay educational and advocacy organization, overhead costs for direct pay practices typically consume between 25% and 30% of practice revenue. That compares with 50% to 55% for most fee-for-service practices.    

Some practices that call themselves direct pay maintain contracts with some third-party payers and continue treating some patients on a fee-for service basis. Eskew refers to these as “hybrid” practices to distinguish them from “pure” direct practices that accept no third-party payments.

“These practices like the security of those regular payments they were accustomed to getting,” Eskew says, even though it means their overhead costs are usually higher-and their panels are larger-than in pure practices. 

Another direct pay option for physicians is to work for a company that provides primary care services to large self-insured employers, such as corporations or government bodies. These companies, such as Iora Health, R-Health, and Qliance generally focus on providing care to employees of corporations and governments, although some also include individual memberships. 

Next: “Safe to say that if I expanded to working my practice 100%"


Like independent direct pay practices, these companies don’t contract with third-party payers, and provide extended appointment times and highly individualized care to patients.  


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Parallel with the development of direct pay practices-and often referred to interchangeably with them-has been the development of “concierge” practices. Similar to direct pay, concierge practices feature smaller patient panels and charge patients a monthly membership fee.

Unlike direct pay, however, most concierge practices continue to accept payments from Medicare and commercial insurers. Their monthly membership fees are higher, usually in the hundreds of dollars. In return, patients receive extras such as 24/7 access to their physician and guaranteed same- or next-day appointments. 


One physician’s experience

Marty Schulman, MD, decided he wanted to try direct pay after 15 years with a faculty primary care practice at the University of California-San Diego (UCSD). The pressures on him and his colleagues had been steadily mounting, he recalls, to the point where he was expected to see some 20 patients daily while dealing with expanding quantities of paperwork. 

Eleven years later, Schulman now operates a direct pay practice out of a one-room office in Cardiff-by-the Sea, California. He works entirely by himself-no staff and no other medical professionals. His patient panel numbers around 200. Without third-party payer contracts, Schulman’s revenue comes from patient membership fees along with per-visit charges.

But since that doesn’t bring in enough to support himself and his family he supplements his income with travel medicine, medical consulting for an eating disorders residential treatment center, and contract work for UCSD.

“Safe to say that if I expanded to working my practice 100% and got to full volume I would make less than the salaries that I see being offered in ads for family medicine positions around the country,” he says. 

The trade-off is being able to spend more time with his patients. Most appointments run a minimum of 30 minutes, and he has no qualms about spending up to 90 minutes with a patient when necessary. 

“I would be making more money for sure in my old practice, but a lot of patients need more than the 10 or 15 minutes I was able to give them,” he says. “For me it’s worth it to earn less just to be able to practice medicine this way.”

Requirements for success 

So what does it take to make a successful transition from a fee-for-service to a direct pay practice? Probably the most important requirement, experts say, is the willingness of patients to go along with the change. Unlike in fee-for-service practices, direct pay patients must pay every month regardless of whether they actually use the practice’s services. That requires a different way of thinking about their care and their care provider, Scherger notes.

“The patient has to really value the direct primary care doctor’s services enough to pay for them,” he says. While the monthly fee is generally on par with what most people pay for cable TV or cell phone service, he adds, “only a certain fraction of the population is willing to make that kind of payment for their doctor to be available at any time and to not be rushed when he treats them.”


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And it’s not just the patients who have to be willing to take a chance, notes Eskew. “The physicians making the jump have to have a high tolerance for risk,” he says. “Not just in terms of willingness to accept a lower salary, at least at first, but unless they’re willing to do a lot of homework and preparation, they could find themselves failing quickly.” 

Schulman’s decision to start a direct pay practice was especially risky, in that he started his from scratch rather than converting an existing fee-for-service practice, or convincing patients from his former practice to join him.

Next: “It’s really tough starting from scratch"


“It’s really tough starting from scratch, but if you have the wherewithal to get by on a minimal income for a while you can do it, especially if you’re in an area where people have to wait a long time to get an appointment with their existing doctor,” he says.



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“Where I live is fairly affluent, and I’m surrounded by even more affluent communities,” he says, adding that for some patients regardless of their income, “it’s really important to have their doctor be available at a moment’s notice, to get in the same day, and to not be rushed.”

In addition, Schulman’s practice straddles the direct pay and concierge models, in that he has no third-party payer contracts, but provides his patients with 24/7 access to him. He charges $800 annually for the first member of a family, and $500 for additional members. He also charges per-visit, etc.

ACA repeal

Although the Affordable Care Act (ACA) has grabbed much of the healthcare spotlight in recent years, most experts think the law didn’t greatly affect the growth or direction of direct pay, nor will the law’s likely repeal. 

On the other hand, the uncertainty surrounding the law’s fate, and what might replace it, could cause more doctors to embrace direct pay, says John Moore, MD. As founder and CEO of Twine Health, an online platform designed to help patients communicate with primary care practices between visits, Moore maintains close contacts with many primary care doctors. 

“We’re hearing a lot from primary care docs who were on the fence as to whether they would stick with their current job or jump ship and start a direct primary care practice,” he says. “With the election over they’re saying, ‘I don’t want to sit around cranking away on the hamster wheel [of fee-for-service practice] for another five or 10 years or whatever,’” Moore says. “It’s energizing people to make the change.”  

What about those left out? 

Despite its appeal, the direct pay model still faces a variety of obstacles to its growth, including state laws and IRS regulations. In addition, some in the medical community worry that its widespread adoption could limit access to care for Medicare patients or those unable to pay a monthly fee.


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The American College of Physicians summarized many of the equity concerns surrounding direct pay practices in a December 2015 article in Annals of Internal Medicine. Among its recommendations to practices thinking of switching to a direct pay model are to:

  • Consider the impact that reducing patient panel sizes could have on the local community, and help patients who don’t stay in the practice to find other providers, 

  • Consider the impact of a retainer fee on patients and the local community, and look for ways to reduce barriers to care for lower-income patients resulting from the fee, and

  • Consider the patient-centered medical home as a model that could accomplish many of the same goals as direct pay but without limiting patient access to care


But direct pay advocates say access concerns are exaggerated, or that doctors will find solutions to them. Eskew points out, for example, that because Medicare currently pays less than most commercial payers, many doctors already limit the number of Medicare beneficiaries in their panels. He foresees monthly fees coming down as greater numbers of practices adopt the model, making it more affordable to both Medicare and low-income patients.

Scherger predicts that the spread of direct pay will cause Medicare beneficiaries to use the program more for catastrophic coverage or to cover major medical expenses, while relying on direct pay practices for routine care.

As for lower income Americans being priced out of direct pay, the FMEC’s Bauer notes that most Americans now have cell phones, and the monthly cost of cell phone service is about the same as a direct pay practice. Moreover, he says, removing the constraints imposed by government and commercial payers will enable physicians to solve the access problem on their own. 

“If you free the doctors to do what they believe is right while still being able to earn a living,” he says, “they’ll figure it out.”   

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