Three Real Challenges with Insurance-based Mental Healthcare

Busy counseling practices today, with some exceptions, are insurance driven. There are good things that come from working with insurance companies. Clients who might not have been able to afford your services now have access. Also, it’s much easier to induce clients to buy services when someone else is paying the bill.

However, it’s not all perfect. There’s operational costs to checking benefits, submitting claims, chasing AR (accounts receivable), and responding to audits. While these are costly hassles, these aren’t the real challenges that come with building an insurance-based practice. In this month’s column, I’ll address a 3 of the “real” challenges and provide a few (partial) solutions.

1. Your Business Has 5 Customers

In most areas, the top 5 payers will account for 80% of your business. Having the majority of your practice supported by a few large payers means that if the relationship with any one of them goes south—say a payer lowers reimbursement rates, brings mental health services in-house, or otherwise terminates their relationship with you, you’ve lost a large chunk of your revenue.

Large customers lower the financial value of your business: John Warrillow, author of the book Built to Sell, calls it “The downside of dependence.” If your company manufactures tubing, and Toyota’s purchases account for 50% of your sales, your company’s worth less than if no customer constituted more than 10%.

“But wait,” You might ask, “aren’t your clients your customers?” Sort of. If you own a toy store and a child picks out a toy and mom buys it, who’s your customer? The child gets the toy, but mom’s making the purchase. With insurance-based mental health, clients have not bought into the idea that they’re your customers. Clients are disconnected from what your services really cost—they don’t know what you’re reimbursed, nor do they feel responsible for charges if insurance fails to pay (despite what your informed consent says).

This bring us to the second real problem…

2. You Have No Negotiation Power

In major sectors of the US healthcare industry (in most states), hospital systems, pharmaceutical companies, and insurance companies battle over prices. If a hospital system is big enough in a given area, it can demand higher rates. If a pharmaceutical company has medications without generic alternatives, they too can raise prices. If an insurance company covers the majority of the lives in a market, they can demand lower prices. In general, the three need each other, and all three have power to negotiate.

Outpatient mental health is different. We’re in a fragmented industry with lots of supply (i.e., lots of counselors working alone or in small practices). Mental health providers often have zero negotiating power. When we do “negotiate” with insurance companies, the conversation isn’t “this is the rate you need to pay me to join your network” it’s “will you please let me in your network?” If you drop out of a network because the company is a pain-in-the-neck to get reimbursed from or because the rates are too low, somehow there’s 10 other counselors in private practice scrambling to take your place.

This leads us to the next problem…

3. You Don’t Control Your Price

Legend has it, long ago a therapist would accept a client’s insurance and then charge the client the remaining balance of the his/her full rate. Such a practice (balance billing) is long since forbidden for providers in network with insurance companies. As a business owner, having prices that you can’t control should make you uneasy. In a free market, prices vary. A coat from Burlington Coat Factory doesn’t cost the same as one from Nordstrom.
Brand quality, customer service, and the overall experience of the two stores differs. If prices are fixed, you might feel okay if you’re running a business on the lower end. If you’re Nordstrom, however, you’re finding it problematic to build and operate a high-quality Nordstrom store at a fixed (presumably lower) price. Fixed pricing leads to lower standards.

Other fragmented healthcare industries don’t experience the same price controls as mental health counseling.

• Massage therapists and acupuncturists still don’t take insurance in most cases.
• When patients visit their dentists they’re told that insurance “will help” with the cost but benefits get maxed out quickly (meaning clients are used to paying out of pocket).
• The chiropractor’s unit of service is so brief (~10 minutes), one’s $20 copay represents a large portion of their fee, which means insurance reimbursements are a small slice of their revenue (The chain The Joint doesn’t even accept insurance anymore and the out-of-pocket difference to clients isn’t cost prohibitive).
• Lastly, for optometrists, many insurance plans don’t cover every service (like contact lens exams), and almost never does insurance cover the full cost of glasses and contacts.

Is the answer to reclaim control of your price and run a cash practice? That’s difficult. In counseling, if a client has a $20 copay and your cash rate is $100 per session, you’re asking the client to pay a 500% increase in out-of-pocket expense. Understandably, the pool of clients willing to tolerate this increase is small.

What’s the solution?

Is there one solution? No, but here are some partial solutions that might help you build a business in a decidedly insurance-based mental health industry. Admittedly, none are great.

1. If someone’s paying you to be Burlington Coat Factory (or Goodwill), don’t give them Nordstrom: rent cheaper space, provide less customer service. In general, adjust your service in accordance with the amount you’re being paid.
2. Find a way to upsell your clients on something insurance won’t pay for. This will need to be optional, so you’ll have to offer something that clients really want.
3. Leave the mental health field entirely. Do something where you can help people and also earn compensation in alignment with your education, training, and effort.
4. Continue to offer counseling, but diversify your practice with services for which you can control the terms such as public speaking, consulting, crisis intervention, or executive / leadership coaching.
5. Try taking out-of-network benefits only. It’s an uphill path as a decreasing number of clients have them, and such benefits—when one has them—are often limited.
6. Only work with insurance payers that reimburse an amount with which you’re satisfied. You’ll make more revenue per session, but it might lower the market value of your business (see problem 1).

In this column I introduced three challenges, and a handful of imperfect solutions. Certainly, as profession more discussion about these issues can be helpful. What are your thoughts? Let me know on twitter @thriveworks.