Zocdoc's new pricing rankles New York doctors

Local doctors and medical groups are sick over recent changes Zocdoc made to its pricing policy. On July 1 the company started charging for a patient's initial booking rather than a monthly fee. The change means doctors who attract lots of new patients through the site will end up paying more.

Zocdoc had pitched the change as a way to attract suburban, rural and other practices that don't have enough patients to justify paying Zocdoc a flat monthly fee.

How the physician community reacts could be pivotal for one of New York's most promising health-technology companies, which since its 2007 founding has raised $223 million from such investors as Salesforce CEO Marc Benioff, Amazon CEO Jeff Bezos, Goldman Sachs and Khosla Ventures.

Some doctors have voiced frustration but have stuck with the platform. Major groups with hundreds of physicians, including NYU Langone and Tarrytown-based ENT & Allergy Associates, have stopped using the service. An NYU Langone spokeswoman said the health system's contract with Zocdoc had ended, and it decided not to renew because it has its own online scheduling system. ENT & Allergy declined to comment.

Zocdoc was created to help patients book doctor appointments online. Its website allows users to search according to their symptoms or desired specialist type, location and insurance plan. Search results include ratings for each doctor based on reviews, which are verified to have come from actual patients. Users, for whom Zocdoc is free, can select an available time slot and fill out forms online.

A company spokeswoman told Crain's that more than half of providers in New York are paying the same or less annually for Zocdoc's service under the new policy. Doctors could opt in to it beginning April 1. Providers were able to stick with the old model until their contract expired or July 1, whichever came sooner.

Physicians now pay an annual $299 licensing fee, rather than the previous price of $3,000 a year, and pay a charge for new patients booking through Zocdoc that ranges from $35 to $110 based on their specialty. Primary care doctors pay less than high-priced specialists.

Dan Arick, an ear, nose and throat doctor with offices in Carroll Gardens, Brooklyn, and Lower Manhattan, said he formerly paid Zocdoc about $250 monthly and got around 25 new patients from the service each month. Now the service wants to charge $60 per initial booking—even if the person doesn't show up. His odds of collecting a $60 no-show fee from a new patient are low.

For a typical first visit, Arick estimated he might be paid $75 to $150 by the insurance company. Although he comes out ahead if the patient shows up, Zocdoc is cutting into his profit margin.

"They're basically taking a piece of my practice," Arick said. "I don't want them to be a business partner even though I could theoretically make more money."

But rather than abandon the platform altogether, he opted to change his agreement with Zocdoc. Arick now pays the annual licensing fee in exchange for Zocdoc powering the booking link on his website. New patients who use that link can book an appointment without Arick incurring the $60 fee. But new patients trying to book an appointment with Arick on Zocdoc's website are told he doesn't have availability.

"We're aware that there's a vocal minority of providers who continue to publicly voice concerns about our new model," the Zocdoc spokeswoman said. "Most have received tremendous value over many years from participating in Zocdoc's marketplace under our legacy subscription model and are now upset that their prices may be increasing. We have seen, however, that there is often a disconnect between what these vocal providers are saying and what they are doing."

Indeed, some providers continue with Zocdoc despite objecting to the new pricing. Dr. Andras Fenyves, a primary care doctor who owns Prominis Medical Services, which has 12 offices in Brooklyn, Queens and Staten Island, said he is upset but doesn't see an alternative.

"We may cut ties, but for now we are keeping it," he said. "I don't blame them from the business perspective. Right now they don't have a good competitor. If there's anyone that wants to compete with them, I will sign up immediately."

Zocdoc said the number of providers paying to be in its marketplace has risen "roughly 5%" since the new policy took effect in July, and it has retained the "overwhelming majority" of its New York practices. But legal challenges remain.

Doctors unhappy with the change have looked to regulators for relief. The Medical Society of the State of New York raised legal concerns with Zocdoc about whether charging per booking represented fee splitting, in which physicians divide their revenue with groups not licensed to provide health services. Fee splitting is banned by the state. But Zocdoc worked with the state Department of Health and the governor's office to develop its pricing policy, and the agency and the state attorney general told the medical society that Zocdoc was not engaging in the practice.

At the federal level, Zocdoc could be at risk of violating an anti-kickback statute that prohibits doctors from paying for referrals. That could be "an area of vulnerability" for the company, said Rebecca Simone, a healthcare attorney and partner at Nixon Peabody.

Zocdoc seems to think so too. It has blocked users who say they are Medicare or Medicaid beneficiaries from booking visits through its site. But it is looking for a way to restore access to those users.

"For over a year we have been engaged in productive discussions with the U.S. Department of Health and Human Services to ensure that Zocdoc can serve all patients, regardless of their insurance status," theZocdoc spokeswoman said. "These conversations are ongoing."

Dr. Arthur Fougner, president of the medical society and an OB/GYN with Northwell Health in Manhasset, said he understands the appeal of Zocdoc for younger people who prefer doing things online. But he said there are other ways to find a doctor. (Northwell doesn't use Zocdoc.)

"Patients get to doctors by word of mouth or referrals from other doctors. A lot of us still have reservations on the legality of the whole thing," Fougner said of Zocdoc.

Patient-review sites, such as Healthgrades and Vitals, offer booking. Hospital systems such as the aforementioned NYU Langone have begun to do so as well.

Much is at stake for Zocdoc, which might at some point sell shares to the public. The company has not outwardly signaled interest in an initial public offering, but its age and the amount of money it has raised make it similar to health-tech companies that have gone public, according to Rock Health, a venture fund that tracks the industry.

To remain on its upward trajectory, Zocdoc must hold on to existing customers while adding hundreds of providers.

"Our new pricing model, which was designed to bring more providers on to our marketplace, is working exactly as intended," said Dr. Oliver Kharraz, Zocdoc's founder and CEO, in a statement. "This transition continues to be the right decision for our business, our providers and the millions of New Yorkers we serve."

"Zocdoc's new pricing rankles New York doctors" originally appeared in Crain's New York Business.