The upside of cash-pay for providers

...Mostly that the existing reimbursement system is terrible

The weirdest parts of the medical industry happen in the interstices. It’s also where the biggest opportunity for startup disruption is.

Case in point: the system for physician reimbursement. It’s…terrible. It’s unwieldy, difficult to track, and physicians often get paid by insurers months after a patient encounter. But a new bucket of startups are starting to build out a cash-pay system that exists alongside the insurer system, creating new opportunities for the uninsured, the under-insured, and patients and doctors who are sick of waiting for the current system to change.

When an insured patient visits the doctor, the doctor generally receives payment from two different streams: (1) the patient’s co-pay/deductible amount, and (2) the amount paid by insurance.

In a previous newsletter, I talked about how revenue cycle management companies track down the portion owed by patients. In this newsletter, I’ll talk about how physicians access the portion owed by insurance.

After the physician sees the patient, the physician’s office sends a medical claim to the patient’s insurance company. If the physician is in-network, meaning the doctor has a contractual relationship with the insurer, the insurer issues the agreed-upon reimbursement amount for the patient’s visit.

Current system

In-network reimbursement

This seems like it should be simple, right? The insurer and doctor have a contractual relationship with an agreed-upon reimbursement amount for the services rendered to the patient. But it’s not simple.

Insurers frequently outsource the reimbursement process to a few very large entities that handle such things. These entities are not known for their efficiency, their goodwill toward physicians, or their care for patients. They are also the target of private equity investment that monetizes inefficiencies and provides no incentive to improve.

Change Healthcare is one of the biggest reimbursement entities. Change was originally a WebMD company renamed Emdeon in 2005. In 2015, they acquired another company called Change and rebranded with that name. At some point, Blackstone became a majority investor. And in 2016, the entity became even larger, when McKesson merged its IT unit with Change. Change has rolled up a lot of the space, with no fewer than 13 acquisitions in 11 years.

Change’s real grift is on the reimbursement side. They send reimbursements in the form of prepaid cards—that have credit card processing fee attached. If the physician’s office wants a paper check, they have to call and request a paper check for every patient encounter, which can compound the time to reimbursement by months.

Change is not the only payment processing entity that uses this tactic. Zelis also sends prepaid digital cards with a processing fee. Zelis—which has had its own mergers—is partly owned by Parthenon Capital, Bain Capital Private Equity, and Bain Capital Ventures.

In a 2020 report following the Zelis investment, Bain consultants wrote about the opportunity to be had in payments by charging a processing fee per payment. The upside for the provider, according to the report, is slightly more simplicity.

The paper and pen accurately captures how slowly the system works

The system is inefficient and frustrating for providers, the individuals at the bottom of this system that have the least cash liquidity from month to month.

Zelis et al. did not invent the idea of charging a fee for “convenience” (and then more or less forcing people into accepting that fee)—other companies do this too. DoorDash, for example, charges its delivery drivers $1.99 to receive their earnings at the end of a shift. Either way, though, it’s exploitative.

Out-of-network reimbursement

If the physician is out-of-network, the insurer will likely cover some of the visit and leave some for the patient to cover—but again, it’s not as simple as it seems.

Insurers have leveraged the murkiness of provider reimbursement against providers. Anthem Blue Cross Blue Shield, for example, is in the midst of a lawsuit alleging that it purposely sends paper reimbursement checks to patients instead of providers when the provider is out-of-network. According to the lawsuit, Anthem tells providers that they either have to collect the checks from patients themselves…or join Anthem’s network to be reimbursed the standard way.

Under this scheme, patients may unwittingly receive checks for as much as $300,000, with no explanation that the checks are meant to go to the provider. More than one patient has simply taken the money and disappeared. Even more have spent the money, leaving them with nothing with which to pay the physician. At least one patient, according to a friend in medical billing (who has directly experienced this phenomenon), got very nervous that she was part of a scheme and ripped up the checks she received.

So the physician reimbursement system sucks, is dominated by a few large entities that push physicians around and use patients as pawns, and it moves extremely slowly. Now what?

Cash-pay market

Well, as Nikhil Krishnan and Steve Hardgrove both noted in their newsletters last week, there’s a small but growing medical infrastructure that completely bypasses insurers and therefore completely bypasses insurers’ reimbursement systems: the cash-pay market.

Cash-pay, unlike everything else discussed so far in this newsletter, is very straightforward. A patient goes to their cash-pay provider, who has a single, known price upfront. The patient pays the doctor cash for services rendered. The doctor immediately gets payment, the patient isn’t hit with any surprises; the whole encounter harkens back to a simpler period of medical care.

Before the pandemic, cash-pay primary care, also called direct primary care or DPC, was already growing. A 2018 survey by the American Academy of Family Physicians found that 3% of surveyed family physicians were practicing within a DPC model, and an additional 3% were actively transitioning. Forty-one percent of family physicians not already under a DPC model indicated that they would be interested in transitioning.

The pandemic, however, is further entrenching the cash-pay phenomenon. With unemployment numbers high and employment seeming unsteady heading into a winter of COVID-19, it’s likely that the rate of uninsured will continue to rise. The weak safety net for health care in the U.S. means that many people will be forced to use cash-pay options if they access health care at all.

And as cash-pay becomes more common, there are more options for patients seeking care. The below graphic is how I think of the space—at one end are the traditional cash-pay options, where really anyone can drive up to a physical location and receive care for a preset price. At the other end are the boutique options, usually catering to a wealthier clientele who are insured but unhappy with the care they’ve received in the traditional medical system. And in the middle are the “new” cash-pay services, which seem initially targeted at those with a high health literacy and a willingness to shop around, but which will likely spread to a wider clientele as cash-pay becomes more mainstream.

Traditional cash-pay

The cash-pay model has a history of providing for people marginalized by the existing system or simply unable to pay increasingly exorbitant prices. Look at Planned Parenthood and the Surgery Center of Oklahoma for examples.


Walmart is continuing in this tradition and trying to center itself as the new health care provider for some rural areas. Walmart clinics, which offer cash-pay services for everything from primary care to eye and dental care, are growing.

And Walmart’s partnership with Clover (despite my skepticism of Clover) means they’ll be able to offer Medicare Advantage plans to their older population, sweetened by the $400-a-year that Clover members get to spend on over-the-counter health expenses at Walmart locations.


In my opinion, it’s a dangerous game to hinge rural primary care on Walmart, a retailer with a history of underpaying employees. The federal government needs a better rural health care plan than throwing up its arms and relying on Walmart to correctly align incentives—but I guess we’ll see what happens.

New cash-pay

In the middle of the cash-pay spectrum are the new startups targeting (at least initially) health-literate users able to access the Internet. Sesame and GoodRx both fall into this category. These two startups, covered in detail by Steve’s newsletter, offer direct primary care and make cash-pay prescriptions easier, respectively. Taken together, they’re building out the infrastructure of a medical system that exists outside the extremely complicated and frustrating current system.

Other startups, like MDLive, allow patients to deal directly with physicians for certain services. The platform allows patients to search any procedure and see providers in their area offering that procedure for a set cost. The patient can then add that procedure to their cart and take the voucher to the doctor’s office in the way they used to take their insurance card.

And Cedar—while not a care-based startup—is contributing to the infrastructure outside the traditional revenue cycle management system by allowing patients to manage their payments in a more direct way. Cedar’s vibey app and payment plans corresponding to the patient’s demographics and ability to pay (the below image, for example, is a plan for a younger patient without the cash flow to pay in full) help break the grasp of traditional RCM over the industry.

Boutique cash-pay

Start-ups like Parsley Health offer functional medicine services—including time with a board-certified doctor—for a monthly fee, entirely outside of insurance coverage. They also offer lab services (made easier by start-ups like Rupa Health) which are also frequently outside the realm of insurance. The patients using boutique cash-pay services usually have insurance and can submit claims to their insurers, but the coverage varies. For right now, this bucket of start-ups, in direct contrast to cash-pay places like Walmart’s new clinics, target a wealthy demographic of mostly women who can afford to carefully optimize their health.


While the cash-pay system is largely hinged on the increase of uninsured in the U.S.—worsened by the pandemic and potentially heightened even further if the ACA is repealed by the Supreme Court in the next few months—it may have some attractive qualities for physicians. In other words, some percentage of physicians—a minority, but with the potential to be a significant minority—might move into the cash-pay business as a business strategy.

The cash-pay system, in other words, seems poised to grow significantly. It’s part of a larger price transparency movement with bipartisan support (one of the only accomplishments of the Trump health policy team is the price transparency regulations expected to go into effect on January 1, 2021).

But cash-pay wouldn’t be so attractive if there was some kind of…I don’t know, universal insurance coverage. Or if the reimbursement industry followed the normal rules of business and paid physicians for their time at the point of service or shortly thereafter, rather than months down the line in the form of a prepaid credit card for every single patient interaction.

In lieu of that, startups filling these gaps will continue to grow and offer patients workarounds to our increasingly patchy system.