I. Introduction.

Concierge medicine has gained considerable traction over the last decade. Hundreds of physicians have started some form of such practices, and there are certainly many more to come. This article is about one such form and the central legal issue it faces.Few have ever been thrilled with the word “concierge” to describe a physician’s practice. Indeed, soon after the creation of the first national concierge medicine organization in mid-2003 (the American Society of Concierge Physicians (“ASCP”)), its name was changed to remove the dreaded word.¹  Unfortunately, descriptors of complex things are usually more valuable as short-hand names than as working definitions, so it is not hard to see why the word “concierge” has stuck and is now used almost universally²  as a very loose way of referring to a physician practice that restricts its patient population to those able and willing to pay pre-determined periodic sums directly to the physician.One virtue of such an imprecise but convenient moniker in this context is that there are so many variations and permutations of concierge practices that any effort to find a good, convenient definition that might apply to all types of concierge medicine would be impossible. But one effort to rebrand a particular type is having some success, and that type is the subject of this article. In 2006, when Washington State was considering adopting legislation to control concierge practices,³ the proponents decided to adopt the word “direct” to describe the type of concierge medicine they wanted the legislation to permit. The word “direct” does not have the same negative connotations as the word “concierge,” and it has the further incidental advantage of accurately describing the essential characteristic of these practices.

A “direct” practice is one where the patient pays a pre-determined periodic fee directly to the physician in exchange for the physician’s promise to care for the patient at no additional charge.

There are, of course, some variations on this theme, but this is the essential element common to all direct practices.A typical attribute of a direct practice is that the physician has opted out of Medicare. The reason for this is that Medicare, of course, controls how much a physician may charge for “covered services,” and charging a Medicare patient a predetermined flat fee for future medical services would almost certainly violate these billing limits. The Medicare billing rules could also prohibit a non-opted out physician from operating a practice in which her non-Medicare patients are “direct” patients but her Medicare patients are not. These “hybrid” direct practices have to deal with the Medicare billing rule that prohibits a physician from billing Medicare an amount greater than the amount he usually charges for the same services to non-Medicare patients.⁴  These billing restrictions cause virtually all direct-practice physicians to opt out of Medicare.⁵

It is now common to classify concierge practices as either “fee for non-covered services” (“FNCS”) practices or direct practices. The one factor that distinguishes one from the other is that in a direct practice the patient receives medical care without paying anything more than the predetermined periodic fee, while in an FNCS practice medical services are billed in the traditional fashion.⁶  This fundamental difference gives rise to the one major legal risk of direct practices: that they might be insurance.The theory behind this assertion is that, by accepting a predetermined fee in advance (the “premium”) in exchange for the promise to provide all the primary medical care the patient (the “insured”) needs during the term of the agreement, the physician (the “insurer”) is underwriting a risk. The best example of the official assertion of this principle is from the Maryland Insurance Commissioner, who in 2009 issued an opinion declaring that virtually all direct practices were subject to Maryland’s insurance code.⁷

Another example is the case of Dr. John Muney, where the New York State Insurance Commissioner (“NYIC”) asserted that Dr. Muney’s direct practice violated the New York insurance laws. Dr. Muney agreed to settle the dispute by agreeing to charge $33 per “sick visit,” a modification that in the Commissioner’s mind transformed his practice from an insurance company into a run-of-the-mill physician’s clinic.Implicit in the NYIC’s position and the eventual settlement of the matter was a concept that is instructive in contemplating the “risk” element that leads some to argue that direct practices should be regulated as insurance companies – the distinction between a “well visit” and a “sick visit.” Although Dr. Muney did not distinguish between the two, his practice, like virtually all direct practices, called for a predetermined periodic fee (in Dr. Muney’s case a monthly one) that entitled the patient to an unlimited number of visits. “Well visits” means “preventative” encounters with a physician or at least visits that do not arise because the patient is sick or injured. A “sick visit” is when the patient is sick or injured and needs treatment or advice, an event that is not volitional – the patient has no choice in the matter, as she would if she were to decide to visit the physician for a preventative examination or discussion (that is, a “well visit”).

Apparently the only part of Dr. Muney’s arrangement that was offensive to the NYIC was that which allowed the patient, when sick or injured, to visit the physician an unlimited number of times without any further payment. In a March 6, 2009, letter to Dr. Muney’s attorney, the NYIC restated the settlement terms that had been reached with Dr. Muney and drew the distinction between “those services stemming from non-fortuitous events” (well visits) that were included in the Muney package and “those services stemming from fortuitous events [sick visits] that require an additional fee.”  This additional fee, which the Commissioner required for the “fortuitous” visits, was $33 per visit. The Commissioner also noted Dr. Muney’s agreement to limit the “$33 sick visits” to fifteen per year, after which the patient would be expected to pay the regular, non-discounted rate for an office visit.Clearly the NYIC was not concerned with “well visits,” and rightly so. As hard as it might be to claim that a physician agreeing to treat a sick or injured patient for a predetermined, one-time fee is operating an insurance company, it is much harder to reach the same conclusion just because a physician agrees to see a patient as often as the patient likes to discuss matters of preventative health.

On December 19, 2008, the Maryland Insurance Commissioner (“MIC”) held a public hearing to determine whether concierge medicine practices in Maryland “constitute the business of insurance.”  The conclusion as to direct practices was that in almost all cases they were, subject to a few modest qualifications. Taking off on the idiom “the devil is in the details,” the MIC concluded that⁸ one way or the other any determination would have to be made on a case-by-case basis because “the devil is in the contract” (between the physician and the patient).In order to examine the question of whether direct practices are indeed the “business of insurance,” let’s create an example of a prototype direct practice that would now certainly be considered insurance in Maryland.

Consider a direct practice of Dr. Martin, our hypothetical family physician. She agrees to provide her patients with all the family medicine services they need for the ensuing year in exchange for an up-front payment of $1,200 each. Dr. Martin has 400 patients, so her practice generates $480,000 a year from these flat fees, and she does not bill insurance companies or Medicare. Indeed, she has opted out of Medicare. If we assume that all the fees are collected on the first day of the year, Dr. Martin is holding $480,000 to start the year and has the obligation for that year to furnish her 400 patients with all the primary care she can personally provide.

Source: John R. Marquis, Warner, Norcross and Judd, February 14, 2014; http://wnj.com/Publications/Are-Direct-Practices-Insurance