I was recently interviewed by a doctoral student on cash-based PT practice sustainability and about the business model for my private-pay practice in general. I’ll be splitting the interview into two parts because the answer to the first question ended up being so long.

What made you decide to open your business as a cash-based clinic versus going into contract with insurance companies?

I’ll apologize in advance for this lengthy answer but this one really deserves some detail.

There is ample information available on the dire situation our Social Security and Medicare systems face. One example is a great article titled “The Global Budget Race” in Wilson Quarterly that eloquently describes this unfortunate scenario. To help answer the “why I started a Cash practice” question, I’d like to include some excerpts from the article to give an overview of where we stand as a country, what’s likely to change, and how it will affect the PT field and health care practitioners in general.

Last year, Medicare and Medicaid made up almost 22 percent of the federal budget . . . By 2050, together with the additional costs of the new health care law, they will expand to 48 percent of the budget . . . Not even its strongest proponents claim that the new health care law, the Patient Protection and Affordable Care Act, will solve our long-term health care spending problems. Even if all its provisions work as predicted, the CBO (Congressional Budget Office) estimates that over the next 20 years, it will reduce health care expenditures by ‘only’ $1.1 trillion. That’s a truly massive sum, of course, but in 2030, it is expected to amount to only a half-percentage-point reduction in total health care expenditures as a share of GDP, not enough to produce a substantial change in the long-term financial prognosis.

The authors go on to say that:

The hard work of cost containment has not even begun. According to President Obama, the new law took into account “every idea out there about how to reduce or at least slow the cost of health care over time.” Barring some breathtaking new developments, perhaps in prevention or low-cost technology, future belt tightening will pose even more unattractive choices.

In analyzing the current health care reforms, the article states that:

by far the biggest ‘savings’ in the Obama health care law come from a cut in payments to private physicians, hospitals, and health care providers generally. All take a big hit under the new law – and much commentary has focused on whether political pressure will lead Congress to reverse these reductions. The long-term trend seems clear, though: Taxpayers in the future will not pay providers as much as they do now.

Besharov, D. & Call, D., (2010, Autumn). The Global Budget Race. The Wilson Quarterly, 34, 38-50.

This last statement appears an inevitable reality for providers within the Medicare and Health Insurance systems; but what about those providers in Cash-based practices? I can’t predict the future, but it seems that those within the Insurance/Medicare system are having their livelihoods increasingly shaped by politicians, while those in Cash practices have a much better chance of actually increasing their income over time.

The fact is that government spending on HealthCare must, and will, be cut drastically in the future (whether or not this most recent legislation is repealed or changed). There is simply no way that reimbursement levels and benefits for the population can continue the way they are now, without the system going completely bankrupt. With the coming changes, it is likely that reimbursement for tertiary (non-vital) services like Physical Therapy will take some of the biggest hits.

Insurance companies tend to follow the lead of Medicare

Since insurance companies tend to follow suit with changes in Medicare, we cannot expect to continue making the same income that we do now using the same model we currently follow (even if you decide to stop accepting Medicare, and only contract with Insurance companies).

Not only will our field see a decrease in reimbursement in the future, but patients will also have fewer benefits and avenues for getting the treatment they need and want. Anyone out there remember the Balanced Budget Act of 1997? I didn’t have to live through it as a PT, but I certainly heard a lot about it and the effects it had on our field. When I read reports like those above, I can’t help but imagine that the coming changes will be even worse and longer lasting.

Opting out of the reimbursement system

So returning to the question of why I started a cash-based practice rather than contracting with insurance companies … it has to do with the information above as well as my experience as an employee in an insurance-based clinic.

1) I want to have the best possible chance of keeping a nice income doing what I love, even when the sobering changes mentioned above hit our field;

2) I want my decisions about patient care always to be 100% about what my patients need; not about what services get reimbursed;

3) I can’t stand paperwork and rushing from one patient to the next every 20 minutes.

Since this is a paper and interview about cash-practice sustainability, I’d like to propose we also consider this question (to my readers as well):

Given what we know is coming (and already happening) for Healthcare reimbursements and cost cuts, how sustainable is the current Physical Therapy business model based almost entirely on Insurance and Medicare reimbursement?

Let us know your thoughts in the comments below.

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