Physician, Heal Thy Business Model

It took a physical collapse to make this doctor reexamine her practice and set herself on the road to profitability

Jesse Moore remembers the day in 2002 when he saved the life of Dr. Elizabeth Vaughan. Moore had been providing marketing and financial assistance to the Martinsville (Va.) physician. "She was working 90 hours a week seeing patients, trying to provide the level of medical care she had always provided in the past, before managed care and insurance companies took over," he says. It was akin to being on a treadmill that kept going faster. Eventually she couldn't keep up.

And because of reduced reimbursements, the practice began losing money. "She was running herself down physically and mentally," says Moore. "At the end of this particular day, she just collapsed. She was barely conscious. Her skin was silver-gray. I rushed her to a nearby emergency room, and they revived her."

Vaughan remembers her blood pressure being 70/50 (normal is 120/80). Moore remembers it being lower than that. They both agree that her adrenal system had collapsed, and if she hadn't obtained immediate medical attention, she probably would have died.


  It took Vaughan nearly three weeks to recover enough to come back to work, at which point Moore sat her down and explained that she needed to choose between two business models under which her practice could be financially viable. In one model, an extension of what she had been doing by working under contract with various insurance companies and HMOs, she would need to build her already busy practice of about 4,500 patients up to more than 5,000 patients.

In the second model, she would take a completely different approach to her practice. She wouldn't be part of any insurance or HMO networks. Patients would pay a fee for her services, and recover separately whatever insurance reimbursement to which they might be entitled.

Most important, she'd only need 600 patients to make her practice viable. There would be no accounts receivable problems associated with collecting from insurance companies. Patients would pay before leaving the office.

She went with Model No. 2, "so I could see fewer patients and do the medicine I enjoy," which is integrative medicine, or the combination of traditional and holistic approaches, she says. It is the kind of medicine three generations of her family have practiced, beginning with her great-grandfather, who became president of the American Medical Association in the late 1800s. It is also the rare opportunity left in the U.S. for medical practitioners to sell their services at retail, rather than wholesale, prices.


  So Vaughan started over at age 50. She closed her practice and sold her house in Martinsville, a city in a downward economic spiral, and moved 30 miles across the state line to Greensboro, N.C., where she thought she'd find a much more favorable environment for the new model of medical care she envisioned. One part of her previous practice she couldn't leave behind was more than $100,000 of debt.

Today, Vaughan, 53, is well on her way to her 600-patient goal, with 541 active patients. They typically pay between $350 (for an office visit) and $1,000 (for a physical, with lab tests). She has seven employees, including a physician's assistant and nursing and administrative staff. Demand for her services is strong enough that she is looking to hire two additional physicians "of like mind." The money-losing days of managed care in Martinsville are a distant memory.

No one knows exactly how many physicians have become as fed up as Vaughan with the managed-care approach. But as doctors spend less time with each patient -- and have to see more patients to keep their earnings even -- the number is growing. In many cities, doctors have begun "boutique" practices where patients pay an annual fee of several thousand dollars a year to enjoy longer office visits and cell-phone access to their doctors.


  "You have a very antagonistic relationship between physicians and managed-care providers," says an official of the American Medical Association. He points out that while many doctors would like to be doing what Vaughan is, it's not an easy path. "It's very difficult for physicians to gain access to a patient base" willing and able to forego the existing networks, he says.

Vaughan's business model certainly wasn't an overnight hit. It took her about a year to understand the market well enough to attract the patients she needed. Initially, she figured she'd charge $1,500 a year per patient over and above regular insurance-covered fees for office visits and be "a doctor to the wealthy."

She launched a heavy print-media advertising program and arranged to give free lectures through local civic organizations. She also got herself onto a local TV program as a medical expert.


  As it turned out, the annual-fee idea wasn't well received, so like any light-footed entrepreneur, she ditched it. Moreover, her patients weren't necessarily the very wealthy. "Most of them were business owners like me," she says. "Some of them had insurance and some didn't." They were attracted by her integrative approach to medicine, she realized. "They wanted to make lifestyle changes, lose weight."

Vaughan estimates she spends an hour-and-a-half with each patient during an initial assessment visit (assuming the patient isn't coming with a specific urgent issue, like bronchitis). "I do holistic medicine, which I define as 'the whole list.'"

Her own near-death experience under managed care together with her ability to shift business gears at age 50 and stake out an entirely new business model have convinced Vaughan that not only does America's health care system need major repair, but that the repairs involve moving 180 degrees from managed care.


  On her Web site ( she advises her patients to opt for major medical coverage, under which insurance covers treatment over and above a significant deductible, say $1,000 or $2,000. "Once, we had major medical coverage. It made sense. It covered you for disasters, just like your fire insurance on your house. But do you expect your fire insurer to pay for the 89-cent batteries in your smoke detectors? That's what we expect from health insurers, and it doesn't make sense."

She couldn't be more pleased with her new business model. "I took a leap of faith that enough people would want ownership of their health care, and would pay me regardless of whether they got reimbursed by insurance," she says. "It worked."

Within two months, her debt will be fully paid-off. Dr. Vaughan has discovered for herself the advantages of selling retail.

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