‘Boutique’ practices expand, give doctors revenue potential of $1 million annually

“Boutique” practices, also called “concierge” or “retainer-based” practices, are sprouting up rapidly in metro markets around the country, satisfying patients’ desires for closer relationships with physicians, and physicians’ desires for higher incomes and more time to focus on patients’ long-term health improvement.

Boutique physicians charge substantial annual out-of-pocket fees to provide relatively small numbers of patients with quicker access, longer visits, and more thorough preventive, wellness and diagnostic services than typically are covered by health insurance or managed care.

The number of boutique practices has grown quickly since 2000, and managers in the practices expect that to continue. MDVIP, a Boca Raton, Fla., firm that helps physicians start and manage boutique practices, has grown since March 2001 from a single practice in south Florida to 25 physicians in 14 locations in seven states, says Darin Engelhardt, MDVIP’s general counsel and chief financial officer. [MD.sup.2] (“MD Squared”)–a Seattle practice that claims to be the first of this type, having started in 1996–has four affiliated physicians in two offices and has plans to expand nationally, says CEO Jon Moses. Engelhardt says the concierge medicine presence in the overall national medical market is “very small,” probably 125 to 175 physicians.

Boutique medicine is of course aimed at high-income patients. Howard Maron, M.D., [MD.sup.2]’s founder, headed VIP medicine at the 1990 Seattle Goodwill Games and was team physician for the Seattle Supersonics in professional basketball. His concept is “‘custom’ medical care where the doctor, equipment, pharmaceuticals and staff are brought to patients to meet their unique needs.”

Income Potential Far Exceeds Benchmarks

Nearly all boutique doctors are primary care physicians (PCPs) in solo or small-group practices of two or three physicians. Such practices give PCPs the chance to earn several times the benchmark median primary care income of about $150,000.

For instance, [MD.sup.2]’s four physicians limit themselves to 100 patients each at average fees of $10,000 per patient per year, Moses says. Thus, each physician’s gross revenues can approximate $1 million per year (100 X $10,000). Moses adds that the physicians are very busy because of the extensive services they provide for patients.

Physicians affiliated with MDVIP are internists who limit themselves to 600 patients, Engelhardt says. Their fees are $1,500 per patient per year. Engelhardt explains that physicians in the program can take anywhere from a month to 24 months to fill their patient rosters, depending in part on how many patients from their old practices sign up with their new practices. Eventually, Engelhardt adds, all or nearly all the doctors reach or approach the 600-patient limit. Thus, their revenues from MDVIP activities can approximate $900,000 (600 X $1,500) per year.

In addition, MDVIP physicians bill Medicare and commercial insurers for diagnosis and treatment of illness and injury. “All of our physicians who have Medicare patients bill Medicare,” he says. Some MDVIP physicians are “in network” for commercial insurance plans and bill those plans as well. Other MDVIP physicians don’t join insurers’ networks, or may be out of network with a particular patient’s insurance, he notes, but patients still may seek out-of-network coverage for the costs of reimbursable care. Thus, with insurance collections, MDVIP physicians can pull in approximately $1 million in annual revenue.

As for practice costs, Engelhardt says “overhead certainly does not increase in our model” compared with overhead in member physicians’ previous practices. “Most physicians see a decrease” in costs when they join MDVIP, “while some see costs about the same” as before. “Sometimes they need less staff [than before],” he adds, and “sometimes they need about the same. Some move to new offices” and may need less space. While Engelhardt did not offer specific figures, the MGMA median national operating cost per physician for single-specialty internal medicine practices in 2001 was $234,000. (MGMA will release 2002 cost data in October.)

The $1 million revenue potential in boutique medicine is “off the charts.” The MGMA 90th percentile collections for professional charges by general internists in 2002 was $449,000. The Sullivan, Cotter & Associates 90th percentile collections by staff physician general internists in large multispecialty practices in 2002 was $463,000 (see articles, p. 1 and p. 9). Thus, the $1 million potential is more than twice the 90th percentile collections benchmark from both sources.

Most MDVIP physicians earn substantially more than they did in their previous practices, Engelhardt says.

Other PCPs have set up similar practices without affiliating with a firm or other physicians. The specific services covered, and the contractual patient/physician arrangements, vary widely from practice to practice in this field.

‘Not a Replacement for Insurance’

Moses says [MD.sup.2] physicians deliver care not available elsewhere, such as appointments often lasting an hour, extensive preventive care, thorough annual physicals, and even advocacy for patients with payers and other providers. [MD.sup.2] doctors practice a “proactive, preventive” approach to health, he adds. They also provide the full range of primary care.

[MD.sup.2] doctors don’t bill insurers or participate in insurers’ networks, Moses notes. “We encourage the patients to have insurance for everything else” besides primary care, he continues, including hospitalization, specialists and drugs. “This is not a replacement for insurance in any way.”

MDVIP physicians enjoy “dramatically enhanced professional satisfaction,” Engelhardt says, because they are able to devote time to patients’ preventive and wellness needs. They also face far fewer reimbursement hassles and restrictions on their roles as medical professionals, he adds.

The main things that patients get from MDVIP doctors–and the only services for which the fee is paid–are preventive and wellness services and a much-enhanced relationship with the physician, says Engelhardt. “The physician is just a starting point,” he adds. The physician “has time to work with patients almost as a coach” on their overall health programs. The patients also get same- or next-day appointments, longer visits with physicians and ancillary services.

There is a “clear line between preventive services” and diagnosis and treatment of illness and injury, Engelhardt says. He asserts that in general, Medicare rules and commercial insurance contracts preclude physicians from charging payers for preventive services because they are beyond the scope of such coverage. Medicare and commercial insurers also preclude physicians from charging patients anything but copays or coinsurance for any services that are expressly “covered or presumed” to be covered, he adds. (Of course, many commercial insurers and to a lesser extent Medicare do cover generally accepted preventive checkups and tests and disease management programs.)

A service that MDVIP provides to physicians who decide to establish a practice under the company’s program is assistance with leaving the old practice. Continuity of care for patients who don’t join the new practice is emphasized, Engelhardt says.

Washington State Looks at Legality

The Washington state Office of the Insurance Commissioner (OIC) is examining whether boutique practices violate any laws by duplicating services already covered by health plans or by bearing financial insurance risk without reserves or licenses.

An Aug. 15 letter from Deputy Insurance Commissioner Beth Berendt to a consumer–whose name was not disclosed but who may have written to OIC to complain that the investigation and legal analysis were unjustified–says the office “has merely initiated preliminary fact-finding into this issue.” The office is meeting with doctors from these practices to conduct the investigation, says OIC spokeswoman Stephanie Marquis. The office has not yet reached any conclusions, she adds.

In two July 29 “technical assistance advisories” defining the inquiry, OIC, headed by Insurance Commissioner Mike Kreidler, appeared to take fairly definite stances on the duplication and insurance-licensing issues. On the licensing issue OIC wrote: Arrangements “where the patient receives all of his or her primary care services, such as unlimited office visits, physical exams, lab tests, routine imaging and minor surgery, for a predetermined, fixed fee … result in a transfer of risk and, in essence, are insurance agreements.”

On the duplication issue OIC wrote: “If the participating provider requires patients to pay the fee in order to access care which is covered under the terms of the patient’s benefit contract, such additional mandatory charges violate the terms of the provider’s contracts” with insurers.

Moses declines to comment on the issues raised by OIC. [MD.sup.2] is participating actively in the insurance office’s “preliminary dialogue” on these issues, he adds.

Engelhardt says boutique care was studied by the Massachusetts and Florida state governments and passed legal muster in both places, with the Florida inquiry specifically finding no problem with the MDVIP model. He cautions that the issues in the Washington state inquiry may be different because the services of [MD.sup.2] and other practices there may differ from the services of practices in other states.

In June 2003, the American Medical Association (AMA) issued an ethical guidance on boutique practices. AMA raised no objection to boutique physicians receiving reimbursement from patients’ health plans and affirmed patients’ “freedom to select and supplement [health] insurance.” It warned, however, that care must be “provided only on the basis of scientific evidence, sound medical judgment, relevant professional guidelines and concern for economic prudence.” The association also urged physicians in these practices not to promise more or better diagnostic or therapeutic services than could be obtained through insured services.

Contact the Washington insurance commissioner’s office at www.insurance.wa.gov, Engelhardt at (561) 886-1486 or darin@mdvip.com, and Moses at (208) 725-2292 or info@md2.com.

COPYRIGHT 2003 Atlantic Information Services, Inc.

COPYRIGHT 2003 Gale Group

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