The Economics of Medical Practice (in other words, why your visit cost so much) A Candid Review

If you know me, I sometimes speak very candidly about things, even to a fault.  However, I really thought it would be informative for patients to know how we created our price structure and to help them know why we are really here.

The reason I went to PA school back in 1981 (rather than MD-medical school) was because I wanted to get as much medical training as I could, as quickly as I could, and get to the developing world were the need was the most. To make a long story short, my wife, kids and I spent two years living and working in a slum outside of Cairo, Egypt, but had to return to the states because one of our kids was really sick (he is now, twenty years later, healthy and working on a PhD at the University of Washington).

After arriving back to the states, I found my fulfillment by getting back into headache work and have remained in it since.  My primary motive for getting into medicine was helping people in need, not trying to make money. That same spirit is behind my creation of the Pacific Rim Headache Center.

I left a wonderful position at Mayo Clinic to come to Anacortes in 2002 because of our pursuit of a better quality of life in the outdoors. My next big step, I left Cascade Neurologic in the spring of this (2011) year to create a headache sufferer-centered practice.

About a year ago it was time to create the visit pricing for the new clinic. I tried very hard to keep the prices as low as possible.  Like most Americans I am somewhat outraged by the cost of healthcare, and the fact that it is rising far faster than inflation.

I crunched numbers for days.  Through the subsequent weeks I learned, more realistically, the extreme costs of opening and sustaining a medical practice.  I eventually reduced my own salary to bare bones and created the most cost-efficient practice I could.  We do things like keeping our office staff to a minimum.  Kaaren (the office manager) and I each do the work of two people. We also do things like use a free EHR (electronic heath record). It isn’t the best, but it is free (some others are about $40,000 to set up).  I could write many more pages on the things we have done to keep the costs down, but I will stop at this point.

I wish the public could see the extremely complex system for doing healthcare in America and how that complexity translates into costs.  Everyone is aware of the cost of malpractice. We are starting with a $4,000/year premium but that will quickly rise to $10,000/year as our patient population grows.  There are also required fees, including continuing training in headache medicine, for Dr. Moren and myself to keep our knowledge up-to-date and our licenses active in the state of Washington. Those costs are another $7,000/year. However, what most people are unaware of is the extremely complex relationship that a medical practice must have with health care insurers.  That alone adds more than 50 cents to every dollar billed.

It is hard for a medical practice to survive unless they participate with most of the regional health care insurers.  Few patients can afford to pay out-of-pocket for medical care. The insuers are therefore put in a position of great leverage over a medical practice and the only persons they have to answer to are their  subscribers. It is very difficult for subscribers to have a major voice unless they can organize as a group.

First, just to do business with insurance companies, you must navigate a very convoluted system of being “credentialed” with each one.  Part of the reason is that the insurance company wants their subscribers seeing only qualified practitioners. That is a good thing. But the rules are broad yet obscure. Because the process is so complex, you must hire professional negotiators to lead you though the maze. Those negotiators have cost us $20,000 this year alone.

Credentialing is only the beginning of the process.  Once you are approved, it is very difficult for a medical practice to get paid for the service, which they have delivered to the patient. There is a mind-boggling labyrinth of paper-work with every claim submission and each twist and turn, data point and blank creates the potentiality for errors. The insurance companies don’t have an incentive to streamline the process because for every submission that is lost in the system, or has inadvertent error, they don’t have to pay.

To navigate the system, first, you must have a sophisticated computer program just to start the process. Our’s cost $500/ month.  Then the bills must pass through a total of five sets of hands (the provider’s, the office manger’s, the biller’s, the processor, the clearing house and finally the insurer).  Each step of the process cost more money.  Then, when that is said and done, the insurer also has a financial incentive to reject as many claims as possible. So then, weeks later, you must start the complex process all over, trying to appease their denial.

These rejections are often based on micro-details that can drive you crazy. For example, right now we have one insurer, that is refusing to pay us over $2,000 in claims, because they had the wrong tax ID for the clinic in their computer for a while. Two digits of a nine-digit number were reversed. Their staff are probably the ones who put the digits into their computers incorrectly. This has been corrected, however, we have been fighting with them for five months over this money. In the end, even if they do pay us, we would have spent 50% of the money just to process the claim.

Beyond what was mentioned above, if the insurers do pay, they pay only .65 cents on every dollar billed. Medical clinics have very little power to negotiate a higher rate. So, when you do the math, the poorer payers, such as all the government ones (like DSHS, Medicare, TriCare) can cost us more to process the claim than they will ever pay us. So it is a net loss. That is why more and more practices are refusing to accept these government payers, and the patients are the ones being hurt.

So, the things I mentioned are just the additional cost of a medical practice. On top of that, you must add the normal business costs, the same costs that the hardware store must pay. These include; rent, utilities, state excise tax, payroll taxes, L and I taxes, city (Bellingham) excise taxs, legal fees, advertising, bookkeeper, CPA and payroll.

My main point is that our motive for creating the Pacific Rim Headache Center, is for the patient and certainly not about money. It is truly patient-centered. Even though our prices are low when you look at the industry standards, I’m still sorry that we couldn’t have made them lower.

Patients are rarely told about this economic picture. I think it is important to share it because when I am sitting and listening to your headache story, I want you to know what motivates me to come to work every day. It isn’t making money, but giving my heart and time trying to help you to get better.

J. Michael Jones, MPAS-C