A backwater for the last twenty years, primary care in the U.S. is now in the throes of revolution. Many agree that stronger primary care is central to a better performing healthcare system. But dramatically different business, delivery, and clinical models are emerging and competing.
It is easy to see how primary care has big potential for bending the cost curve (1). Each primary doctor influences at least $10 million of annual healthcare spend. You can ballpark that as 2,500 customers (2) per doctor times $9,000 average healthcare spend per capita in the U.S. (= $22 million), less a discount to account for situations where the primary care doc has less influence.
Four-fifths of U.S. healthcare cost is driven by chronic disease, mostly lifestyle disease (eating too much bad food with too little exercise). Once established, these conditions must typically be managed; they are seldom curable. Primary care docs are in the best position to teach people to live healthier and intervene early when disease begins to appear, which reduces downstream cost and bends the curve in a big way.
With the rapid proliferation of high-deductible health plans, consumers now have skin in the healthcare game, but they don’t know what to do. And when seriously ill, we are not in a position to shop and haggle with the healthcare system. Primary care doctors are best positioned to help consumers understand healthcare decisions and cost/value trade-offs: to make consumer-driven medicine real.
Payers are showing interest in more intensive primary care. CMS (3) recently introduced payment for annual Medicare wellness appointments. Other payers are investing in new primary care models.
At the same time, the structure of primary care is changing, and new business models are emerging. Hospitals have been acquiring primary care practices at rapid rate. Virtual primary care is scaling and gaining support from plan sponsors and payers. “Retail” primary care is growing fast: urgent care centers provide less-expensive out of hours care and major retailers now have thousands of in-store clinics. Wal-Mart says it aims to be the nation’s largest primary care provider. Meanwhile independent primary care practices, which for a while were disappearing, are re-emerging as larger, strong groups with new business models.
Each of these offerings does different things well. Virtual care improves access greatly, reduces costs, and could dramatically reduce emergency room demand. Clinically, it seems to work well for uncomplicated problems. Current offerings don’t build strong doctor/consumer (3) relationships, however, and hence are not well suited to complex or chronic problems or behavior change.
Free-standing urgent care and in-store primary care fall between virtual and traditional primary care in capability and convenience. Integration with a major retailer offers merchandizing opportunities that may prove powerful: e.g., capturing the value of prescriptions written and creating traffic for other products, which could result in better value for money in primary care to encourage customers to come in.
Doctors employed by hospital systems benefit from tight integration to the information system and specialized services of the hospital and its brand. They often have quotas and incentives to refer patients to the systems’ advanced care services, however, which create a conflict of interest with their customers (their patients and payers).
Independent primary care is undergoing renaissance: becoming both re-energized and modernized. Population Management Primary Care (“PMPC”), a new business model based on retainer plus value-based payments to manage a set of customers (4), aligns the interests of doctors, their customers, and payers better. Plan sponsors and payers are showing willingness to spend more with primary care practices that can reduce the total cost of healthcare, and proof that this works is emerging. The challenge here is breaking out of the fee-for-service mindset that has shaped the medical world: e.g., how does a payer know it is receiving value if it does not see claims data?
It’s no surprise that entrepreneurs and venture capital investors are playing a big role here. The leading virtual primary care companies (e.g., TelaDoc, MDLive) and the leading retainer and value-payment based primary care companies (e.g., Iora, OneMedical) are mostly entrepreneur-led and VC backed (5).
Where will this evolution lead? I expect two shapes to emerge from the mist. Sophisticated independent payers (health plans, large employers, managed care organizations) will want to work with strong Population Management Primary Care companies to manage their members to good health at affordable cost. This makes more sense than putting members in the hands primary care doctors employed by hospital-centered health systems whose economic incentive is utilization. However, hospital systems will fight back by offering lump-sum prices for bundled services, which puts the onus of managing cost on them. Second, PMPC providers will need to integrate with retail medicine providers, and also integrate with virtual medicine providers, or become partly virtual themselves. Their rapid growth shows that virtual and retail providers have a strong value proposition based on price, convenience, and access to care. And their lower prices put pressure on other primary care providers to deliver low-acuity care more efficiently. PMPC providers need to incorporate this or equal it.
The comfortable, simple primary care of Marcus Welby, MD is long gone, but if Dr. Welby came back and took a look at what is happening, he might like what he sees.
Notes:
- “Bending the cost curve” refers to slowing the rate of growth of U.S. healthcare spending.
- I use the words “customer” or “client” in lieu of “patient” wherever possible.
- The Center for Medicare and Medicaid Services, which runs these programs within the Department of Health and Human Services.
- Also called “Direct Primary Care” or “Retainer-Based Primary Care”.
- NAV.VC, in which I am a partner, is a venture capital investment fund. It does not have an economic interest in any of the companies mentioned in this post, but it does invest in similar companies.
