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Nov
10

Discounts and doctors

Why do doctors contract with large networks to provide care at a deep discount? Do they expect to get more business from those relationships? If so, does that additional business ever arrive at their examining room? How many other physicians in their area are also contracted with that network? If there are many, are they merely joining to maintain their patient base?
Have they actually done the math to determine the impact of the discount on their finances?
Here’s an admittedly simplistic analysis of the financial impact of a discounted patient visit.

  • The “non-discounted” price would be $100
  • The discount is 20%
  • The net profit on the average patient visit (non-discounted) is 30% (an unreasonably high number, but easier to work with for our purposes)

The doctor makes a profit of $10 per discounted patient visit, and therefore must see three times as many patients to justify that 20% discount. And that’s before one factors in the additional fixed costs associated with the larger patient load – more parking, more staff, a larger waiting room, more examining rooms, and more of his/her professional time.
Perhaps more physicians are “doing the math”, and that is why managed care firms are having a much tougher time getting discounts.
The network deep discount model has other fundamental flaws, flaws that are only now beginning to be fully appreciated.


2 thoughts on “Discounts and doctors”

  1. Why do doctors contract with large networks to provide care at a deep discount?
    I think the answer to this question has not so much to do with physicians’ interest in gaining more patients. As you point out, the math doesn’t really work.
    I think the motivation has more to do with fear that patients will change docs if they don’t sign up. I’m not certain this is completely rational either, but I’m pretty sure that fear of an adverse consequence is a more powerful driver of behavior than the hope of a favorable outcome. Either way, I think the issue is decided to some signficant degree by the emotional (fears and hopes) rather than the rational (do the math). Can this be demonstrated? I doubt it, but I do believe it’s true. That’s just the irrational in me.
    People who have recently switched managed care plans (for example, changed jobs, or the employer changed insurers) can be sure that the “new” insurer took credit for bringing more patients into their networks. Well, yeah, but are they new patients to the practice? How many patients actually changed their doctor? I’m sure very few.

  2. Hey, my hmo/ppo? (Qualchoice) was scoped to the tune of over $7,000 within 10 months, the average office visit being reimbursed at not less than 300 (about 8 visits in all-no diagnosis or treatment given)

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Joe Paduda is the principal of Health Strategy Associates

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