Season-1 Episode-4 - Finding the best pricing model for your practice
In this episode, we address pricing and how to create a reasonable pricing model for long-term viability. We discuss four models of pricing and give the pros and cons for each, along with tips for transitioning and growing your functional medicine practice. This topic is a passion of ours because we often see doctors with an immense amount of knowledge, and skills who are unsure of which pricing model is right for them. This decision will shape their practice, and help them understand how to transition into private practice, create a business model that allows them to fulfill their calling, and finally translate the calling to making a quality living.
Kara Ware (00:02):
Today, we actually decided to make a switch. We originally had planned to talk about the patient journey and mapping out that process. Who is that point of contact for each step of the patient’s journey? What online tool are we going to use for that point of contact and how are we going to prepare the patient to onboard not only the clinical practice and be an equal partner with the practitioner, but also onboard the patient to the technology that drives the practice? And although this is really an important discussion, we realized, wait, we’re forgetting something really important and that’s pricing. In this episode, we’re going to address pricing and how to create a reasonable pricing business model for longterm viability.
Nathan Morris (00:45):
So, Kara, I think it’s really important to understand how we go about creating a business model that lets us do what we were called to do. I think when we, as clinicians, came out of medical school and then residency, we were really put into this rat race as such where we had to see 20, 30, 35 patients a day. And it really created this situation of burnout where I really did not want to see patients anymore. And I wanted to do functional medicine.
Nathan Morris (01:16):
And so how do we go about doing what we’re really called to do, spending time with patients and really understanding the root cause of why they’re sick or why they’re having the problems they’re having? And if we can create that space for the patient to tell their story and for us to actually listen to them, then we’re really going to help them in the long run.
Nathan Morris (01:35):
And that’s what functional medicine is really about. But if we can’t create a viable business model, then really we’re set up for failure. So we can’t win, the patient doesn’t win, and society doesn’t win. So a great business model for me is how do we create a pricing structure where the patient wins, I win? I can actually feed my family. And how does society win? How do we create less burden on this hospital system we have and this healthcare system that we have, that’s fundamentally looking at the things that are after the fact, the diseases and we’re not looking at the root cause.
Nathan Morris (02:13):
So I think that’s why it’s really important what we’re talking about today because we need to pass on this knowledge, which I think is kind of in this black box, nobody talks about it. I’ve never really heard anybody talk about how much do you charge for a visit? How do you create that transition when you’re used to an insurance model? So I’m really excited about this talk today because it’s a passion of mine because I see so many doctors with the best of intentions, looking at functional medicine, they get all this great knowledge and then they don’t know how to translate it into making a living.
Nathan Morris (02:41):
So that’ll be a lot of fun as we look at the four different models that are really available to us. I’ve gone through three of the four, as I transitioned. I started out in the insurance model and then I went into a hybrid model where I charged a membership B and then I finally ended up in cash. And then there’s another that’s really taking on a lot of momentum right now, which is direct primary care is a modified concierge practice. And then we’ll also look at what happens if you’re contracted as a doctor. So really excited about this topic we’re going to be talking about today.
Yes. It sounds like there’s a lot to unpack when we talk about pricing and also how to make functional medicine affordable and more accessible too. So we’re going to weigh the pros and cons of these four functional medicine pricing models right after this
Nathan, so your first iteration of good medicine of your functional medicine practice was really taking your current model of insurance and your previous allopathic practice and doing functional medicine under that. Let’s take a look at the pros and cons of actually staying with what we know as we’re making this transition.
Nathan Morris (03:52):
Yeah. It was a lot more comfortable for me to stay in the insurance model. That’s one of the big pros. You’re going to do a visit. You’re going to be given a code of 99214. If you’re going to do it based on time, that’s about 25 minutes and you’re going to feel like, hey, you know what, I’m going to get paid each month.
Nathan Morris (04:13):
The problem, the cons are your functional medicine patients, to do them justice, you’re going to need to spend a lot more time than you’re used to in the traditional model. And even going to a 40-minute visit, which qualifies for 99215, you’re looking at cutting your insurance model payment probably by 33% per hour if you figure it out per hour. So the insurance model has some real failings when it comes to wanting to spend more time with your patient.
Nathan Morris (04:42):
I know a lot of people are able to make it work, but it’s a real lean doing an insurance model and you tend to always want more time. And that was the thing that drove me crazy. I always wanted more time with my patients, but to meet my overhead and make the payments that I needed in my practice, I had to keep my time shorter than I would like.
Kara Ware (05:02):
And so you quickly realized just being solely insurance wasn’t going to work out. So then you went to the next iteration of good medicine, which was that hybrid model, the membership.
Nathan Morris (05:14):
Yeah. The hybrid model kind of came to me one night and I’m sure other people have come up with this. It’s not unique to me, but it felt unique to me. And I figured out how could I generate a little bit more money for those patients that I wanted to spend more time with, which was my functional medicine patients. And I said, let’s create this membership model. And I started out at the grand sum of a hundred dollars a year, which I needed to create some space in my practice.
Nathan Morris (05:44):
I had 13 to 1400 patients and I wanted to get it down to 800, a little bit more manageable. And I knew that I was going to create some transition, lose some people with that. And the $100 allowed me to make, with 800 patients times, I had $80,000 more a year to use for my overhead and to spend an extra 10 minutes per visit with my patients and they didn’t mind.
Nathan Morris (06:08):
And it really… because I knew what I was trying to do, I was trying to create more time. And it was a wonderful transition to be both in insurance and have this $100. Now, a caveat Kara, is really important is I created a document that explained that for this $100 and I was going to discount labs, I was going to discount supplements. I was going to give them benefits that they weren’t going to see under insurance or Medicare. And that’s a really important distinction. You can’t just charge an extra $100 and not delineate why you’re charging that, or that becomes a Medicare for all and other things that you do not want to get into. So we actually have that paperwork we’ll be sharing, but I think that’s a really nice transition. It can be more than $100 of course, but that’s where I started.
Kara Ware (06:53):
And that precautionary tip of overhead, keeping that overhead lean and how that directly results, especially to new practitioners, on your profit return.
Nathan Morris (07:03):
Yeah. I mean, when I started Kara, you remember the first office when I transitioned out of my 12 provider practice and I started out in 900 square feet, very, very low rent in a very inexpensive build-out because I knew that location was not as important as the craft of what I was doing in functional medicine and creating that reputation. So I really kept my overhead low. And so I didn’t have to charge as much and I could pass those savings on to patients.
Nathan Morris (07:36):
And everybody was used to the insurance model. So you can’t just jump in and create these outrageous prices to them. And so it was a really nice transition because I was able to keep my overhead much lower than my practice I had just left.
Kara Ware (07:54):
And that’s a good point how you mentioned your reputation was growing your word of mouth because you were spending that dedicated time with each patient and they were buying into the whole functional medicine process. Your word of mouth referrals were increasing and your reputation was soaring. And actually the complexity of patients then began to increase and your waiting times began to increase. And you realize now, again, something needed to change with your pricing model. So from the membership, you felt then ready to move into a cash model. So what are your practical advice and strategies when moving into this cash practice?
Nathan Morris (08:34):
You know, cash practice is a little scary, Kara, I will say. And because I had kind of grew up in the model of insurance and I was told that is how you do things and it’s wrong to charge cash and patients wouldn’t come if you charge cash.
Nathan Morris (08:50):
But you do reach a point where you realize some people are just seeing you because you’re on insurance, not because of the fact that you have all this knowledge base and you’ve been really educating yourself. And you need that delineating factor, one, to create space. You don’t need to be six to nine months out. The people that really needed to see me, weren’t able to get in to see me because I was so far out. And so, I wanted to be done with insurance.
Nathan Morris (09:16):
You know, one of the great things about cash is that you never have to get another request for a justification of services and all these things that come. And that was wonderful. But I was able to create where I could spend as much time as the patient wanted me to spend with them. You know, if they wanted me to spend two hours with them, they could just ask for that. And so, I started around $350 an hour and this was after four or five years, I think it’s even six.
Nathan Morris (09:46):
Yeah, it was six years of care before I felt comfortable moving to a cash practice. Looking back, I may have been able to move a little bit quicker, but I just wasn’t comfortable. It is scary, but I would have been really nervous to move directly from an insurance direct to cash. And I think a lot of people feel like you have to do that with functional medicine. Oh, I just have to go direct to cash. And I’ve got to charge what the industry leaders are charging.
Nathan Morris (10:09):
And guess what? There’s not going to be a lot of people banging down your door until you establish that reputation. So what I’ve been talking about is really creating that transition to the reputation and then moving to the cash model where you can get the patient everything they need. You can create what you need, which is some space and some time to actually do what you do best. And the funny thing is it’s a feed-forward cycle. The more time you spend the better you are at functional medicine, the more they’re going to refer their family and friends, and you’re going to have… but it’s almost like, as a good friend of mine says, crawl, walk, and then run.
Nathan Morris (10:47):
So the cash model for me is the running side. And that’s what I’m going to do when I open here in Colorado is I’m just going to go back to cash. I think I can’t go back. I’m just spoiled now because I really enjoy not having to deal with the insurance side of things.
Kara Ware (11:04):
You’re running now.
Nathan Morris (11:05):
I’m running now. I put in my licks and I’ve been doing it since 2008 and I’ve got my certification in functional medicine. I’ve done all the things I feel like I need to do that, that I can justify that right now, but I did a lot of crawling for a lot of years and then some walking. And then this is my run step.
Kara Ware (11:26):
And Nathan Morris, when you transitioned into cash, you mentioned your rate was at $350 an hour, which when I met you, I remember saying, wow, that’s all you’re charging? But you had this philosophy that as you were gaining your reputation and as you were getting to the place where your practice was full and you had that waitlist, you realized you needed to not only charge patients for your time, but you wanted to leave funds so that they could purchase the out of pocket labs and supplements and stay with you for several years, rather than being scared off at that first appointment.
Nathan Morris (11:59):
Yeah. It’s a really hard line to walk. What do you need to charge to make a living to feed your family, pay your overhead. But at the same time, leave the patient some room that they can pay for their groceries and their utility bill. And they have other things they need to be doing. And a lot of them have this health condition that’s not letting them be as productive as they need to be.
Nathan Morris (12:21):
You need them to be on doctor quality supplements. You need them to get some labs that sometimes they’re not covered by insurance. And so, it’s just a hard line to walk. And I’ve just always erred on the side of trying to keep my fees on the lower side and from a country boy from Louisiana and I used to pay $40 for a doctor’s visit and get x-rays and lab work. I think in my mind, I’m like, holy crap, what am I charging? But in the industry, it’s really an affordable price.
Nathan Morris (12:51):
Kara, you’re never going to feel completely comfortable as a provider with whatever you charge. You’re always going to be looking at it going, is that too much? Is that too little? And that’s okay. It’s just, you need to figure out what you need to meet your needs and also leave room for the patient to meet their needs.
Kara Ware (13:12):
And you mentioned the DPC model, direct primary care model, and concierge. Now I kind of see this almost as an option besides membership in a way as an incremental step to moving towards cash. Tell us about this option. I know that you didn’t necessarily choose it. It really wasn’t around at the time when you were starting out, but what do you think of this option as a transition into functional medicine?
Nathan Morris (13:34):
I really liked the DPC model. I had one of my colleagues who was a previous partner got fed up with the traditional model of seeing 30 patients a day. And he very successfully transitioned into the direct primary care model. But I think as a functional medicine practitioner, this makes a lot of sense especially as you’re starting out and you have your allopathic practice or your traditional practice, and you want to transition into functional medicine and the direct primary care model is where you charge $100 a month, maybe $80 a month.
Nathan Morris (14:08):
That’s really to be determined and you have six to 800 patients. And with those monthly payments, people can set up their own appointments. They have accessibility at all times, and they actually honor that. And don’t call you in the middle of the night a lot. I found that out. I thought they would be calling you all the time, but they don’t. And so that is a really excellent model for doctors that are in our traditional type practice. They understand functional medicine. They really want to transition into that. And it creates that I think… I mean, I would have definitely looked at it if I had known about it when I started because you’re out of insurance, but you’re creating a more affordable model for patients, for sure.
Kara Ware (14:56):
And then the last model that we mentioned, many practitioners are in a contracted position with a hospital and their contract does not allow them to really do these things you’ve mentioned. So what are some steps there to begin this process of transitioning towards a functional medicine practice?
Nathan Morris (15:13):
Yeah, there’s a sticky wicket. I think that’s one, I’ve put a lot of time thinking about because I was thinking what if I was in a contracted position, what would I do? And I think the contract position, there are abilities to start transitioning out of the traditional model and creating a name for yourself in the functional medicine.
Nathan Morris (15:34):
And really what I think I would have done. And I think this is a decent idea. And I’ve talked to some doctors that have done this is create a separate LLC, a separate corporation that’s not contracted with the hospital that you… If you have a half-day or a full day, a Saturday, that you start seeing functional medicine practice patients. And during that day, you build that reputation. And the next time you contract out, maybe you only work three days a week for that contracted organization. And then you work two days in your functional medicine practice, and it doesn’t break any laws. It doesn’t break any contracts because it’s a separate LLC from you. And you can talk to a lawyer about that and an accountant, but there are ways around that, but you can start creating that reputation. And I know quite a few doctors that did that and it works well.
Kara Ware (16:24):
And another conversation for a different episode is how do we attract patients into this LLC to grow your functional medicine while you’re still working in that contracted position.
Nathan Morris (16:36):
Kara Ware (16:37):
So let’s summarize the pros and cons of these four functional medicine pricing models. You know, of course, every practice is truly unique and each practitioner will discover their own unique model maybe even beyond what we’ve discussed here, but, at the end of the day, we’re looking at how can we be paid for what we love to do and how to be of service to our communities. So Nathan Morris, let’s summarize starting first with the model of the contracted practitioner since we just ended with that. What’s your top two advice, starting that LLC, and then beginning to understand and look into how to drive patients to your practice.
Nathan Morris (17:16):
Yeah, I mean, the first thing you do is you create a separate entity that is not contracted with the hospital that you’re working for and that’s 50% of the positions. So that’s a lot of people out there that are looking at functional medicine that has other obligations. Then the second thing you really want to do, and what’s great is you already have a full patient population that you can say, hey, I would love to discuss this with you, but I don’t have the allowance to do that during this visit. If you would like to see me in my functional medicine setting, you can be there. I mean, you’ve got these patients that are right there in front of you, but there’s going to be some that want to know more with the popularity of what we’re doing right now in functional medicine.
Kara Ware (18:02):
And then for new practitioners, the summary for where first things first, where to start.
Nathan Morris (18:08):
Yeah. So I think new practitioners, so often they are told to run and it’s just too scary. I couldn’t run. I had to crawl, so cash isn’t the only option for sure. You don’t have to create a micro-practice and you don’t have to do these really bizarre things to you at the time. You can work your way to that. That’s great. And it’s really about insulating yourself in the transition and feeling comfortable with that transition and, and understanding that a little bit at a time until you feel comfortable and you can move forward.
Nathan Morris (18:43):
You have two options before leaping off the cliff in cash [inaudible 00:18:47]. Consider the direct primary care, which I really like as you’ve heard, or the hybrid model, which is the membership model where they pay $100, $200. I know a lady that was close to me that was charging $1,200 a year for a membership and also charging insurance. And she was full, I mean, months and months waiting to see her. So I was way low, but that’s okay. That was what I was comfortable with. And everybody’s unique.
Nathan Morris (19:11):
It’s not like I have the magic solution and listen to me, you really have to look at your situation. And I think that’s what you do a great job with Kara Ware is helping doctors understand with their unique situation, how do they leverage these things to have success?
Kara Ware (19:27):
Thank you. Right. It’s just like our patients’ care, right? How do we break this down into small steps that feel easy and are a natural match to our current ability so we can feel successful.
Nathan Morris (19:37):
Kara Ware (19:38):
And you summarized that the final pricing model that I had on my mind is what do you do when you get busy? And that example you gave of the woman who was charging $1,200 a membership plus her hourly fee goes to show that when you get really busy and you’ve built that reputation and you’re running, you’re going to be able to ultimately charge those fees that you want to.
Nathan Morris (20:02):
Right. And I think the practitioners that have been in practice a while, I think the final piece of advice I would give is if you’ve got a nine to 12-month wait, I think it’s probably time for you to increase your prices because you need to create that space where people that really want to see you can get in and they don’t need to wait for more than one to two months. And unfortunately, that’s how you create that space because I found that as I increased my prices and created a little bit of a barrier there, I got more patients that really wanted to see me, not because I was in insurance, not because of affordability, but because they had heard about what I was able to do.
Nathan Morris (20:44):
So I think we shouldn’t mince too much about when it’s time to increase, go ahead and do that. Now you’re running and you can create the $400, $500 an hour patient visit.
Kara Ware (20:56):
Exactly. So Good Medicine On the Go is going to produce biweekly episodes. One episode will be focusing on practice implementation topics, such as this today, the pricing model discussion. And then the other monthly episode is going to be the clinical pearls, the clinical aspects, where we will interview thought leaders in our industry and be able to summarize significantly large topics and distill them down into practical and actionable steps that you, the listener, can apply the next day.
Kara Ware (21:32):
Our next episode will be with Morgan Knull to understand the genetic underpinnings to appetite and satiety and how this genetic consult can be a fantastic driver for patient engagement. So we’ll see you in a couple of weeks.
Nathan Morris (21:46):
Looking forward to it, Kara.
[1:25] Functional medicine requires more time spent understanding the root cause of our patient’s symptoms and creating a space for them to tell their story. Finding a business model that allows this is crucial, but so is creating a price structure where doctors can make a living.
[4:13] Insurance Model: Pros — It is often what we know best and what both the practitioner and patient are most familiar with, and can keep costs generally lower for your patient… Cons — Not a lot of time with patients; doctors must hit a higher quantity of patients when using the insurance model, which means they are unable to spend time deeply understanding each patient. This often leads to practitioner burnout.
[5:50] Hybrid Model: Dr. Morris would have been really nervous to move from an insurance model direct to cash, so he elected to use a Hybrid Model. The Hybrid Model provides a stepping stone for doctors transitioning from insurance to cash models in functional medicine. Pros — a great option to include insurance and create membership models to grow your patient base. This model may give doctors more time with their patients, and provides a stepping stone towards a full cash practice. Cons – Each doctor must delineate the benefits of the extra costs of membership, because patients are unlikely to pay the fee if
[8:30] Dr. Morris explains how the transition to functional medicine can often make doctors feel like they have to charge what the industry leaders are charging, even if it is a huge leap for them personally. When starting out, Dr. Morris kept his overhead low so he didn’t have to charge as much and he could pass those savings on to his patients. As Dr. Morris’s reputation was growing and word of mouth referrals kept increasing he then felt ready to move to the cash model.
[9:10] Cash Model: Doctors may benefit from crawling, walking, and then running, or in pricing model terms – insurance, hybrid, then cash. Pros — Cash practice can be a little scary but it allows a doctor to spend as much time with the patient as needed. Cons — It can also be difficult to know what to charge, and to find the sweet spot where you can make a living, but your patients can also afford the extra costs that come with paying for their own supplements and labs. New functional medicine doctors could benefit from offering a discount to their industry-standard rate as they grow their patient base.
[13:55] Direct to Primary Care / DPC Model: Pro — This model makes a lot of sense when you are transitioning to functional medicine. It creates a more affordable way to build your reputation and patient base. You can charge a set fee where people can manage their own appointments and Dr. Morris believes patients really do respect communication boundaries.
[15:35] Contracted Position: When contracted with a hospital, it is still possible to also transition into functional medicine. Pros – you already have a full patient population that you can say, hey, I would love to discuss this with you, but I don’t have the allowance to do that during this visit. If you would like to see me in my functional medicine setting, you can see me there, Cons – contract positions often limit a practitioner, especially when it comes to pricing, patients, and practice decisions. To overcome this, Dr. Morris suggests creating a separate LLC or corporation that you can direct patients to, and work with a lawyer and/or accountant to make sure it’s done correctly.
[20:54] Overall, Dr. Morris likes about the hybrid and cash models because they create a space where people don’t have to wait months to see you, and the people that really need your care are able to get it in a timely manner.
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