Creating a Direct-to-Consumer “Side Hustle”: A Primer for Care Delivery Entities

It is no secret that care delivery professionals—clinicians and administrative professionals alike—are incredibly frustrated. Many are thinking about leaving the profession. An increasing number are getting an MBA, taking software courses, joining pharma company R&D departments, and becoming medical directors at managed care companies, where they do not have to be in direct patient care.

And this is true when American clinicians make eye-watering amounts of money. No society pays its doctors, surgeons, dentists, anesthesiologists, physical therapists, nurses, and pharmacists compensation that is close to US averages.

Why is this? The answer is always the same: The mind-numbing bureaucracy and constant low-intensity strife of the third-party payment system.

The few physicians who have direct-to-consumer businesses—Lasik clinicians, cosmetic surgeons, direct primary care practice owners—report greater satisfaction and professional pride than “providers.”

Let us examine if there is a way out of this morass.

Issues with Third-Party Payment-Based Care Delivery

• Wrong incentives: The fee-for-service payment system creates incentives for clinicians to do more tasks and bill them in the most expensive way possible. There is no incentive to keep individuals healthy. This payment model is bringing our nation closer to bankruptcy and causing moral injuries to all parties.
• Mind-numbing bureaucracy: Managed care companies’ non-answer to ever-escalating healthcare costs is to continue paying based on the wrong model, and add a mind-numbing level of bureaucracy: Prior authorizations, complicated claims reviews, etc. All this wastes time and money.
• Frustrated patients: Individuals are intensely frustrated at the price opacity in healthcare. To add insult to injury, care is fragmented. Lastly, individuals report that clinicians do not share health information about their cases with them, preferring to send them to expensive specialists.
• Atrophying of entrepreneurial/innovation muscles: Few clinicians want to be a cog in a Kafkaesque bureaucracy; most want to run small businesses, or at least have entrepreneurial elements in their jobs. The third-party payment system quashes that path.

Why Hasn’t Direct-to-Consumer Care Delivery Happened Yet?

If the third-party payment system is so bad, why don’t most clinicians sell directly to consumers? There are several reasons:

• Tax inequity: Our tax code provides a discriminatory tax advantage for employer-sponsored insurance, and therefore discriminates against consumer-purchased healthcare as well as individual-purchased health benefits.
• Fear, uncertainty, and doubt from managed care organizations and brokers: The managed care industry has used tax inequity as a conversation starter, and created a narrative that individuals can’t make smart healthcare and benefit choices: They need a patronizing employer to figure it out for them. This insulting—and manifestly false—narrative persists.
• Prohibition on physician ownership of care delivery businesses: Of the many rules and regulations that enable rent-seeking, this rule is one of the most egregious. In many states, physician ownership of care delivery businesses is prohibited. While it is possible to get around it with a combination of MSOs (managed service organizations ) and “friendly PCs (professional corporations),” it introduces complexity and deters people.
• Lack of attractive consumer experiences and “products” from care delivery entities: This one is mostly on care delivery entities. Most of them have invested nothing—zero, zilch, nada—in providing convenient, transparent care, creating offerings that are consumer-understandable, and selling them to individuals (not managed care organizations).

What is Different Now

As frustrating as the current situation is, there are many industry changes that can enable forward-thinking care delivery entities to reimagine healthcare.

• Employer frustration at a breaking point: In 2009–2010, when President Obama’s team designed ACA, employers was largely OK with the status quo. (The law passed in 2010.) Today, a large percentage of employers are frustrated and angry at the current system’s costs and opacity. At many organizations, benefits decisions have moved from HR (human resources) to the CFO (chief financial officer) office. That change will further increase this dissatisfaction, as the C-suite clearly understands the drag of employee health benefits on earnings.
• High consumer cost-share leading to consumer openness to new models: If employer contributions have gone up faster than inflation, employee contributions have gone up ever more. Even the least-interested, least-aware employee is now keenly aware of the bite that their cost sharing—both for premiums and care—takes out of their paychecks. The only way many employees can afford their premium cost-share is to go with large deductibles (> $7,000). This turns employer-sponsored insurance into catastrophic coverage and re-pricing. However, the re-pricing adds value only because care delivery entities have not analyzed it clearly. My hope is that this article changes that.
• New entrants: Even with several high-profile failures/retrenchments in “retail healthcare” (Walmart Health, VillageMD), the field of consumer-focused care delivery continues to move forward. ChenMed, Sanitas, CVS Health (albeit with a limited set of products), and small DPC (direct primary care) practices are changing the landscape.
• Regulatory changes: The regulatory environment is changing. ICHRAs (individual coverage health reimbursement accounts) will bring benefits decisions in the hands of individuals. (First Principles has written extensively about ICHRAs. We will not analyze the ICHRA trend in this issue.) Texas and Tennessee have “right to shop” laws that require the cost of consumer-purchased healthcare to apply toward fully insured plans’ deductibles in some circumstances.

How to Create a Direct-to-Consumer “Side Hustle”

Here is a simple playbook that will work for almost all clinical specialties.

• Start with current patients: A big issue with traditional DPC is that the clinician/care entity needs to build a new panel of customers. But there is no need for that step. The care delivery entity should simply focus on its existing patient base, which comes to the entity through the third-party system. “Panel building problem” solved!
• Define “products” based on patient demand: It is depressing that care delivery entities do not have “products”—bundles of services that a consumer will understand. Let us use an example to see how we can fix that. Today, if you ask a primary care physician how much an office visit will cost, they will answer “we don’t know,” or start spouting CPT (common procedure terminology) jargon. Stop already! That mindset is keeping you a prisoner of today’s third-party payment system. Think instead oft the requests from your current patients. If they simply want an “office visit,” you can categorize most visits into three types: simple, regular, and complex. (BTW, many office visit CPT codes also follow this rubric.) With a 30-second verbal questionnaire, you will be able to ascertain which product is needed. You should then answer with a fixed price, e.g., “$75 for your office visit.” This step is so unnatural to today’s American doctors that saying this out aloud is a good exercise. Let us recognize that for some visits, you will end up doing more (perhaps meaningfully more) work that the price justifies. On the other hand, for other visits, you will do much less work that the price demands. The objective of a price is not to make the same amount of money on every transaction. It is to make money in the business. This is how Marriott Hotels, LA Fitness, and AMC Theaters make money. It is not hard; it simply requires you to unlearn the lies they taught you.
• Price lower than “charge master”: Once you understand your products, the second step is to move away from the “retail price list”/“chargemaster.“ The chargemaster is an artifact of the broken third-party payment system. Almost no care delivery entity ever gets chargemaster amounts from managed care organizations. In any case, as we discussed in the previous point, care delivery products are not defined by ICD-10, CPT codes, modifiers, and the other gunk of the current system. For the medical economics geeks among you, consumer-facing products are closer to DRGs (diagnosis-related groups) than anything else in today’s system. Your direct-to-consumer prices should be cognizant of the zero collection efforts, as well as a much-higher lifetime value of a consumer who will stay with you across employers and managed care relationships.
• Invest in a good digital experience and convenience: Today, developing good digital experiences is easier than ever. Developing good analog experiences, however, is difficult. For instance, how do you make care available 24 x 7? We will tackle this question in a subsequent First Principles issue. For now, getting to good digital experiences and better (not necessarily good) analog experiences will be enough for you to succeed.
• Pivot based on market feedback: No one—not even First Principles—knows the specific portfolio of products and prices that will resonate in the market. You may start with office visits but may find success in addressing slips-and-falls. The good news is: This playbook requires minimal capital, new talent, or regulatory changes. Keep your ears to the ground and pivot based on market signals.

Have you tried—or know a care delivery entity that has implemented—a side hustle of direct-to-consumer care delivery? If so, what was your experience?