Can Startups Save Primary Care?
Today, primary care is considered the bees’ knees of value-based care delivery. Instead of being viewed as the punter of the football team, the primary care physician (PCP) has become the quarterback of the patient’s care team, calling plays for both clinical and social services. The entire concept of the accountable care organization (ACO) or patient-centered medical home (PCMH) crumbles without financially- and clinically-aligned PCPs. This sea change has resulted in rapid employment or alignment to health systems, as well as a surge in venture capital being invested into the primary care space.
Before we get too far in the weeds, let’s first begin with the definition of primary care. The American Academy of Family Physicians (AAFP) defines a primary care physician as a specialist typically trained in Family Medicine, Internal Medicine, or Pediatrics. Some women do use their OB/GYN as their PCP, but these specialists are not traditionally considered PCPs. Now if you’ve gone to your local PCP and noticed that your care provider is not wearing a white coat with the “MD” or “DO” credentials, you are either receiving treatment from a hipster physician, nurse practitioner (NP), or physician assistant (PA). Two of the three professionals are trained in family medicine and can provide primary care services under the responsibility of an associated PCP. At least one of the three has a beard.
The crazy thing is, despite the industries heightened focus on the importance of PCPs, we’re still expecting a shortage of primary care providers. In April 2019, the Association of American Medical Colleges (AAMC) released a report estimating a shortage of between 21,100 and 55,200 PCPs by 2032. Given we just passed 2020, this not that far off. The primary reason for the shortage is the growing and aging population. Thanks mom and dad. Digging into the numbers will really knock your socks off, with the U.S. Census estimating that individuals over the age of 65 will increase 48% over that same time period. Like a double-edged sword, the issue is not just on the patient demand side though. One-third of all currently active doctors will be older than 65 in the next decade and could begin to retire. Many of these individuals are independent PCPs who have resisted employment by large health systems.
Now the easiest solution would be to wave a magic wand and dramatically increase the supply of medical students selecting primary care versus other specialties. However, in the absence of any Hogwarts-trained healthcare enthusiasts, we have to face the realities of today’s medical school situation. 75% of medical school students in the class of 2018 graduated with student debt, with the average loan debt of $196,520. With that loan balance, you’d owe approximately $2,212 a month on a standard, 10-year federal repayment plan. If you compare that with the earning potential, pediatrics and family medicine are consistently among the lowest paid specialties. According to Medscape, in 2019 PCPs earned an average of $237,000, while specialists earned an average of $341,000. That is a big difference. This all despite the fact that according to a Merritt Hawkins report estimating PCPs generated $2.1 million for their affiliated hospitals in the previous 12 months. This referral value to the hospital even exceeded Otolaryngology ($1.9 million), despite the fact the average annual physician compensation for an Otolaryngologist is $471,000.
The other important characteristic that healthcare economists and researchers have closely monitored is increase in hospital employment and alignment of PCPs versus physicians who own their own independent practices. The fear being that employed PCPs have the potential to refer testing, therapies, and services back to the mothership hospital, as opposed to independent specialists, labs, ambulatory surgical centers, or imaging centers. These hospitals charge considerably higher professional and facility fees, particularly for commercially insured patients. The crazy part of value-based care is that some of the clinically integrated network (CIN) provisions and waivers associated with primary care allow hospitals to align networks of independent PCPs and ensure they receive much higher negotiated rates. Aligning PCP networks to highly motivated and sophisticated health systems who are actively involved in significant downside risk contracts has clear benefits, but the potential for inefficiency and shoring up referral patterns does exist.
Now back to the world of healthcare startups as they relate to primary care. I’ve said it before and I’ll say it again, the successful One Medical (NASDAQ: ONEM) IPO was the single best thing for primary care startups. Yes, they focus on a particular clientele (commercially insured in urban markets). Yes, they are charging a $199 annual fee for access to their care that many Americans cannot afford. Yes, they will likely grow revenue through higher volume and negotiated reimbursement contracts by partnering with health systems, referred to as health networks. However, 3 weeks after the IPO, the company maintains a market valuation cap of $2.8 billion with nine months of net revenue equaling $199 million and $34 million is losses during the same time period. That is impressive and should be encouraging for current PCP startups.
There are a ton of other primary care focused startups and companies that should not be overshadowed. Each takes on a slightly different approach, whether they focus on a specific population (e.g., Medicare Advantage), actually employ physicians themselves, or serve as administratively- and clinically-aligned vendors for networks of PCPs. I strongly believe in the value of these organizations using technology-driven communication, remote monitoring, home care, and intensive wrap-around care management services for complex populations to offer a new model of care.
If there was ever a downside for creating the primary care-led revolution towards value-based care, I believe it would be the production of charlatans claiming to “primary care consultants” or point-solutions that only affect a sliver of the problem. I see lots of claims related to SAAS startups who utilize an AI-based, machine learning analytics program that spits out a list of high-risk patients. After many years trying to squeeze clinical and financial value out of total-cost-of-care models, that is no longer enough. In my opinion, PCPs should seek partners who can not only provide technology, but also have clinical resources and are willing to stand by their performance in terms of compensation. No guaranteed PMPMs if performance doesn’t add measurable and definitive value, unless the organization is willing to take downside risk exposure. They also need to help your PCP organization understand how to set the rules of the game in your advantage. Otherwise, you will never win regardless of performance (e.g., trend rates, minimum savings thresholds, rebasing, shared savings, etc.).
Now I’m not claiming I know everything, but my experience was borne out of helping health systems and physician groups across the country manage total-cost-of-care contracts in Medicare fee-for-service (FFS), Medicare Advantage, Commercial, and Medicaid managed care while at Evolent Health. For those unaware, Evolent Care Partners is a solution focused on enabling independent PCPs with the capital and resources needed to participate and succeed within two-sided contracts. In addition to Evolent Health, there are a bunch of other primary care startups that I appreciate. They did not pay me (although I should’ve asked before), but here are a few startups that I would research before thinking about primary care in a value-based care world.
- One Medical: Provider for Commercial
- Iora Health: Provider for Medicare
- Oak Street Health: Provider for Medicare
- ChenMed: Provider for Medicare
- Privia Health: Population health management partner for primary care
- VillageMD: Population health management partner for primary care / provider
- Aledade: Population health management partner for independent primary care
At the end of the day, primary care still receives a pitiful amount of the total spend in healthcare. The best estimates believe only 5-7% of healthcare spending devoted to primary care. In a RAND Corporation study, researchers predicted 2.12-4.88% of total Medicare fee-for-service medical and prescription drug spending. However, the power of referral, care management, and addressing the social determinants of health (e.g., housing, food, transportation, etc.) holds the promise of a better tomorrow. I am hopeful that the trends over the past few years will continue and new startups will be developed that further innovate on the $260 billion primary care market in the U.S..