Tomatoes, ketchup, and direct primary care

According to OECD data, Americans see doctors less frequently than people in any developed nation. We are hospitalized less frequently, and we stay in the hospital less time than citizens of other nations. The vast majority of Americans, more than any other nation, describe themselves as healthy, and America has the largest percentage of young people in its population. So why is health care in America so much more expensive than it is in all those other developed countries? In the U.S., we spend more than twice as much as the nearest nation on administrative activities (over $200 billion per year). We also pay a lot more for each hospital stay, in spite of it being shorter. We pay orders of magnitude more for each imaging test, and we are paying a hefty price for medications we probably shouldn’t be taking. All of these things amount to one major difference between America and the (largely socialist) developed nations: Our unit pricing for medical services is completely out of whack.

Ignoring simple math, the government of the United States in cahoots with insurance companies, and a host of other global business interests, is hell bent on having Americans use even less medical services than the modest amounts they are currently using. This may be medically questionable, but one could see how overall health care expenditures could be reduced, if and only if, unit prices were held constant. To the certain dismay of every fourth grader learning how to multiply big numbers, the government is simultaneously encouraging unprecedented increases in unit prices.

By promulgating a flurry of complex regulations, the government is eliminating all small and lean medical facilities in favor of large quasi-monopolistic entities able and willing to raise unit prices at will. On an individual business level, these health care conglomerates are also seeing healthy increases in service volumes, driven by mass destruction of their competitors. Higher unit prices coupled with higher volume is a sure recipe for higher profits, even when discounting for extra costs of compliance with regulations, and decreased utilization on a personal patient level. Health insurers couldn’t care less about the allocation between volume and unit price, as long as total expenditures remain the same, or the increase is covered by taxpayer largesse and/or individual out of pocket responsibilities.

tomatoes
The net result is that when you buy fewer tomatoes, but you buy them all at the one mega store, and pay twice as much for each tomato, you get less tomatoes and the mega store gets more money. Since greed has no boundaries, maybe we can substitute ketchup for your tomatoes? Herein lays the value in value-based utilization of medical services, or tomatoes, because bait and switch is an honorable and time-tested business model. There is, however, a minor problem. What if the cashier refuses to cooperate and walks out? This, of course, is what thwarted value-based extraction of wealth in the nineties. Somehow, things seem different now. People are becoming increasingly convinced that ketchup is just a more convenient form of tomatoes while doctors are increasingly willing to peddle Heinz and none more so than primary care physicians.

Direct primary care

At one time, all care was direct, and most care was primary care. You called the doctor, he came to your house, did whatever he did, and before he left you gave him some sort of payment for his services, directly from your hand to his hand. If you had nothing to give, you went without, or relied on the doctor’s charitable nature, if he had one. Later on, you obtained health insurance, and you could send the receipt from your doctor to your insurer, and the insurer would reimburse you for all or part of the money you paid your doctor. Today, you sign a form to reassign your health insurance reimbursement to your doctor and let the two of them duke it out over proper reimbursements. A few decades ago, representatives of all doctors got together and recommended to the government, the largest health insurance payer in the country, that primary care work is essentially worthless. The government and all other insurers agreed.

A few disenchanted primary care doctors decided to bypass this unfair (to them) system and opened little concierge practices, where they charged what they believed their services are worth and where the patients paid directly to the physician owner. Just like an expert cupcake maker does not open a little bakery store to solve world hunger problems, these concierge docs never presumed that what they do is a solution for the national health care fiasco. They are small business owners who want to make a decent living by doing something they love doing, and are presumably very good at.

As is usually the case, some people figured out how to monetize this disenchantment with the system. Today, the direct primary care (DPC) moniker has been hijacked by a more ambitious business proposition. Establishments calling themselves DPC today are usually founded by entrepreneurial primary care physicians with the explicit goal of creating national chains of primary care clinics where practicing doctors are employees or franchise managers, like Starbucks or McDonald’s. DPC chains charge subscription fees hovering around $1,000 per patient per year regardless of utilization. This is significantly more than a primary care physician is paid by the typical mix of insurance plans. In return for the higher unit price, DPC chains promise to provide superior services, better doctors, higher availability, longer visits, and a host of ancillary benefits ranging from Skype visits to personal trainers (tomatoes).

The DPC chains were never intended to be truly direct pay practices, but they did purport to offer doctors who were too frightened to hang out their own shingle, another way to practice medicine free of micromanaging insurers. That didn’t last long, because most health care money (public and private) is controlled by health plans, and because venture capital is not in the habit of forgoing its obscene and customary returns on investment. Hence, these venture capital funded DPC chains are actively seeking, and some already have contracts with the same evil health insurance companies their employed physicians were trying to avoid. The directness of this model, which was tenuous from the get go, is now practically nonexistent.

Since the entire DPC terminology is headed straight down the drain, Todd Hixon, founder and managing partner at New Atlantic Ventures is suggesting a much more accurate definition of this model of primary care: “Population Management Primary Care (PMPC), a new business model based on retainer plus value-based payments to manage a set of customers.” First, “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.” Second, “PMPC providers will need to integrate with retail medicine providers, and also integrate with virtual medicine providers, or become partly virtual themselves,” so they can “equal” the lower pricing of these “other primary care providers” for delivering “low-acuity care more efficiently” (ketchup).

At this point there is not even a sliver of daylight between the old HMO doctor and the brave new PMPC doctor. No worries though, America, because Mr. Hixon, who is actively investing in PMPC companies, is assuring us that “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.” Or he might just hang himself from the first available chandelier.

Margalit Gur-Arie is founder, BizMed. She blogs at On Healthcare Technology.

View 12 Comments >

Most Popular