As a clinician entrepreneur, one of the most critical decisions you'll face when opening or growing your practice is whether to accept insurance or operate with a cash-pay model. Both options have their advantages and challenges, and what’s best for you depends on your goals, patient population, and the kind of experience you want to provide. This guide will walk you through the key differences between the two models and help you make an informed decision.

At Otto Health, we help clinicians launch cash-pay practices. We believe the quality of care for functional, preventive, and holistic services is often meaningfully higher in a cash-pay context. Our goal is to enable high-quality provider-patient relationships that result in meaningful improvements in quality of life for both patients and providers. Additionally, many of the services Otto supports clinicians in offering are not covered under insurance. Given these limitations, we find that we are able to achieve our goal most often in a cash-pay context.

With that said, for certain types of care, accepting insurance makes a lot of sense. This guide will walk you through the key differences between the two models and help you make an informed decision.

Cash-pay practices

The cash-pay model, also known as direct pay, allows patients to pay out-of-pocket for their services, bypassing insurance altogether. Here’s what you need to consider:

Pros of cash-pay

• More control over your practice: Without the need to navigate insurance company rules and reimbursement rates, you gain complete autonomy over your services, pricing, and time.

• Simplified billing and administration: No need for complex billing codes or dealing with denied claims. Cash-pay reduces administrative burden and allows you to focus more on patient care.

• Faster payments: You get paid at the time of service, improving cash flow and eliminating long waits for insurance reimbursements.

• More personalized care: Cash-pay models often allow for longer appointment times and more personalized care, which can lead to higher patient satisfaction and loyalty.

• No dependence on insurance reimbursement rates: You’re free to set your rates based on the value of your services, not what insurance companies dictate.

Challenges of cash-pay

• Patient access: Cash-pay practices may not be affordable for all patients, especially those who rely heavily on insurance. This could limit your patient base.

• Marketing challenges: Since patients must pay out-of-pocket, you'll need to clearly communicate the value of your services and justify your pricing.

• No insurance network referrals: Cash-pay clinicians don't get the benefit of being listed in insurance networks, which can be a source of referrals.

Insurance-based practices

In the insurance-pay world, you contract with insurance companies to get reimbursed for the services you provide. This is quite a standard model for many medical practices, but it comes with its own set of challenges.

Pros of accepting insurance

• Broader patient access: Patients with insurance often prefer to use their benefits, meaning you'll have a larger pool of potential patients. Being in-network with insurance plans can make your services more accessible to a wider demographic.

• Lower barrier to entry for patients: Patients with coverage may be more likely to seek care because as long as your services are covered, patients won’t have to pay the full cost out of pocket.

• Network referrals: Insurance companies often refer patients to in-network providers, potentially providing a steady flow of new patients.

Cons of accepting insurance

• Challenging setup: Getting credentialed with insurance companies can be expensive and time-consuming. This process can be especially challenging for independent advanced practice providers (nurse practitioners and physician assistants)

• Complex and time-consuming billing: The administrative burden of submitting claims, following up on payments, and dealing with denials can be overwhelming and expensive. Practices often need to hire billing specialists to manage this.

• Lower reimbursements: Insurance companies set their own reimbursement rates, which may be significantly lower than the actual value of your services. You may have to see more patients to generate the same revenue.

• Limited autonomy: Insurance plans dictate which services are covered, often limiting the kind of care you can provide. You may find yourself constrained by what insurance deems medically necessary rather than what’s best for the patient.

• Delayed payments: Insurance claims can take weeks or even months to process, impacting your practice’s cash flow and financial stability.

Choosing between cash-pay and insurance-based

Choosing between cash-pay and insurance-pay isn't a one-size-fits-all decision. Here are some factors to consider when deciding what’s best for your practice:

Patient demographics

Who are your ideal patients? If you’re targeting patients seeking high-quality, personalized, or holistic care (such as in functional medicine, weight loss, or hormone health), they may be more willing to pay out of pocket. On the other hand, if your patient base is more cost-sensitive or reliant on insurance, accepting insurance may be necessary to meet their needs.

Type of care

Some types of care lend themselves better to cash-pay than others. Practices focusing on preventive care, functional medicine, wellness, concierge medicine, or alternative therapies often find that their services are not typically covered by insurance. In this world, it makes a lot of sense to operate a cash-pay practice because the patient would be paying out-of-pocket no matter what. Conversely, if you provide services that are traditionally covered by insurance, your patients may expect to use their coverage.

Administrative capacity

Cash-pay practices can streamline administrative tasks by eliminating insurance billing, while insurance-based practices require a more robust administrative infrastructure to handle claims, denials, and reimbursements. If you prefer a lean operation, cash-pay might be more appealing.

Desired work style

Running a cash-pay practice often means seeing fewer patients for longer, more in-depth visits. On the flip side, insurance-based practices may require higher patient volumes with less time per-patient to make the practice financially viable. Think about what kind of work environment and lifestyle you want as a clinician.

Revenue and profitability

While insurance-based practices can rely on a steady flow of patients, their profit margins may be lower due to reduced reimbursement rates and higher administrative costs. Cash-pay practices can charge more per service, but they must also invest in patient acquisition and retention efforts to sustain profitability. You can read here for several low-cost marketing ideas.

A note on hybrid models

Some clinicians find that a hybrid model, offering both cash-pay and insurance options, works for their practice. This allows clinicians to cater to a broader range of patients while still providing premium services outside of insurance coverage.

At the same time, this model might be the most administratively and operationally complex of all. Hybrid practices often require two billing or admin systems to operate. The workflows for billing and administering care can be completely different depending on how hybrid practices are structured. Additionally, often the cash-pay parts of hybrid practices still end up having to abide by certain rules and regulations imposed by the insurance-based parts of the business in order for the insurance side of the practice to stay compliant. Finally, the value proposition of hybrid practices for prospective patients can be quite confusing. For newer clinician entrepreneurs, this model can prove to be quite operationally complex and will likely be quite challenging to implement without dedicated administrative support.

Final thoughts

Deciding whether to accept insurance or adopt a cash-pay model is a significant choice that will impact your practice’s operations, finances, and patient relationships. Take the time to evaluate your goals, your patients’ needs, and the type of care you want to provide.

At Otto Health, we help clinicians launch, run, and grow successful cash-pay practices by streamlining everything from patient acquisition to billing. If you choose to go the cash-pay route, our software ensures you have the tools you need to thrive.