Mistake #17 — Being Cash Only, Not Credentialing

Business is the art of extracting money from another man’s pocket without resorting to violence.
— Max Amsterdam

Urgent care clinic receptionist to potential patient: “Sorry. We don’t take your insurance. You will need to pay cash today.”

Many have found this to be a fatal error in starting an urgent care. Hundreds have tried; all (that I am aware of) have failed. To my knowledge not a single truly successful urgent care center in the country operates on a cash-only basis. (Note: Please send me an email if you are aware of an exception. I know of one urgent care in California that sees a little over twenty patients per day on a cash-only basis.) Even the Minute Clinics, staffed with only a registered nurse in a Target Store, found that patients would not pay cash for their care. Now, they have credentialed their providers and bill insurance for ninety-five percent of their patients. If a cash-only model did not work in the big box store, it is very unlikely to work in a fullservice urgent care center.

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Over and over again, I hear startup urgent care entrepreneurs say their situation is unique. They have surveyed the community, and they are perfectly happy to write a check for $180 for a visit. Or they have a personal conviction that health care is a “privilege” that has “value” and “people should pay for it out of their pocket,” then they “will value their healthcare.” This all sounds great. We even agree with much of this. If, however, the urgent care entrepreneur decides to go cash only, only the school of hard knocks can and will change his or her mind. Her situation rapidly turns out to not be all that unique. She finds out the public really sees most healthcare as a prepaid right of employment. Her patients’ first words to the front desk almost always phrase the same question, “Do you take my insurance?” If the answer in your startup urgent care clinic is, “No. We take cash, check or credit card,” most patients will never see more of your facility than the reception area. If even one-quarter of your potential patients walk out the door because you are cash only, you are likely to take years longer until your new urgent care center reaches break even.

What generally happens when a startup tries to go cash only? After two or three months of staring at empty waiting rooms, the clinic realizes their situation is not that unique. They will scramble to sign contracts with managed care organizations (MCOs) and credential their urgent care providers. It takes at least three to four months to get the contracts signed. It takes three months to credential the urgent care physicians. It takes another year until the providers are listed in MCO publication, listing credentialed urgent care centers. The urgent care hemorrhages several hundred thousand dollars. All of this could have been prevented if the contracting and credentialing process had begun several months before the opening date of the urgent care.

If you need a concrete example, you may be interested in a 2003 BizJournals article on Night Owl Pediatrics in the San Francisco Bay area. The paper noted that the owners took some “calculated risks.” They decided “not to wrangle with insurance companies [i.e., not to contract with insurers]…. [They charged] a flat $100 fee for basic procedures, and [never] more than $200 for more complicated cases such as lacerations that require sedation…. They wanted to focus on quality rather than on volume.” But, notes BizJournals, the “consumers weren’t ready” for this model. Four months after opening the owner is quoted as saying, “Where are all the patients?”

As with most successful entrepreneurs, they realized their mistake and began “negotiating with insurance carriers.” Today their website clearly states, “We now accept most insurance plans. If we are not enrolled in your program, we will bill your carrier as an out-of-plan provider.” Yes, the cash-only urgent care rarely works, and it has been tried many times. Entrepreneurs who try it either fail or end up losing hundreds-of-thousands-of-dollars more than necessary. It seems a lot less painful to learn from the mistakes of others rather than think your situation is unique and risk being another object lesson of the futility of the cash-only model.

The lesson here seems quite clear. Find the important managed care organizations in your area, negotiate contracts, and get your physicians credentialed as fast as you can. When should you start? It will take at least five months (often more) for almost all plans to complete this process. Although I have worked with scores of startup urgent care clinics, I have never seen a startup complete the credentialing process in time for opening day at the urgent care clinic.