Why my cash-only practice failed

As an internist just starting out, I received many compliments for my energy and diagnostic acumen. Buoyed by those compliments, I decided to do something that many physicians with more experience wouldn't even think of-open a cash-only practice. In return for dipping into their own pockets, patients would be entitled to longer office visits, unlimited phone and e-mail access, and guaranteed follow-up on all test results.

And so, armed with a sizeable low-interest loan from my parents and unwavering emotional and financial support from my husband, an anesthesiologist, I set forth.

The stars for us seemed perfectly aligned

On paper, our business model was disarmingly simple: We'd see patient Smith, hand her a superbill, and request that she pay at the time of service. After that, the patient could either submit the bill to her insurer for out-of-network benefits or throw it in the trash-which, astonishingly, most patients did. Initially, our rates were roughly commensurate with what health plans in our area were paying their contracted physicians. And, because I considered myself an expert coder, I fully expected that whatever ancillary services I billed for would be fully reimbursed.

There was yet another reason for optimism. In 2002, the year we opened our doors, medical savings accounts (as they were then known) looked like the next big thing. That concept, I believed, perfectly suited our cash-only practice, since it encouraged patients to make intelligent decisions about their healthcare dollars. Most people I talked to agreed, but not everyone. Several questioned why anyone with insurance would pay out-of-pocket for something they could get for much less, or even for free.

Undeterred, we pressed on, opening our office and readying ourselves for business. When my dear friend announced herself as my first patient, I almost cried.

We pay ourselves a modest bonus

The first few months in practice were a learning experience.

Mathematically challenged, I somehow managed to keep our books in order, albeit with an ever-increasing deficit. I also put together an "assembly-required" desk, ordered linens, and embarked on a marketing plan, scoring a two-page spread in our local magazine and a spot as the regular health consultant on our local TV network affiliate. When I wasn't doing these things, I gave free health-related lectures at schools, churches, Pizza Huts, parks, and neighborhood meetings. For someone with no marketing training, I did a darn fine job.

By year's end, we were breaking even, thanks to the lengths we went to to keep our overhead ridiculously low. In fact, I started to measure all expenditures in terms of patient visits. To pay for a $100 box of supplies, for instance, I'd need to see one patient; supplies costing double that amount would mean two patients, and so on. Thanks to our cost-cutting, we managed, after 36 months, to pay ourselves a modest bonus. But I was still a long way from paying off the six-figure loan my parents had extended to me.

Our business model starts to show cracks

The trick now was to get our fledgling business to turn a profit.

My partner brought in a consultant. After studying our expenses and productivity, he declared, "You don't value yourselves enough-and because of that, your practice will never go beyond the break-even point."

It was true-we were practically giving our services away. To save our patients money, we often undercoded. Even when follow-up visits were medically indicated, we were reluctant to schedule them for the same reason.