the case studies

CASE STUDIES

1. Move to a Concierge Model or a Direct Primary Care–Medicine Business Model?

Michael Glen runs the General Medical Clinic, a group of 22 primary care physicians in a prosperous suburb of Philadelphia, Pennsylvania. He has held this position for just over ten years and has seen many changes to the healthcare sector. The clinic includes a spectrum of primary care providers, with six general internal medicine, six pediatricians, and ten family practitioners. The clinic has prospered, and almost all the physicians have full or near-full practices. However, in the past five years, expenses have continued to increase, while revenues remained stagnant. Although compared to national standards the physicians appear to make good salaries, their take-home pay has been flat over the past three years, and they are concerned that it may decrease if healthcare reform proceeds. Currently, General Medical Clinic’s primary care practitioners make about $190,000 per year, with some variation for age, practice intensity, and other factors.

The clinic has billed insurance and sought to collect the difference from the patient or, if the patient was uninsured, would seek to set up a payment plan. Its patient load consists of 25 percent Medicaid, 40 percent Medicare, 5 percent bad debt, and 30 percent commercial insurance. Currently, it did not have any capitated contracts.

Michael recently attended a conference where he learned about concierge medicine and direct primary care (DPC). The presenter noted that more and more physicians feel overworked, revenues and salaries are flat, and many doctors spend more and more time on nonclinical paperwork. Many primary care physicians, she reported, have begun to look for practice options with alternative financial arrangements. Capitation has been one option, but it has not been very successful for most primary care practices.

Concierge medicine and direct primary care (DPC) are two relatively new options that could solve these problems, the presenter said. In concierge medicine, practices charge their patients a flat fee (monthly or annually) for enhanced services and greater access. These “enhanced” services usually include same-day access to the doctor, which might be done via cellular phone or text messaging. Such practices often also provide online consultations; unlimited office visits with no copayments; and free prescription refills, house calls, and preventive care services. Most concierge medicine services also bill patients’ insurance.

The woman also described DPC, which, like concierge medicine, charges a monthly or annual fee to patients for enhanced services and access. DPC differs from concierge medicine, as practices do not bill insurance for medical visits, and generally no third-party involvement occurs. Therefore, all of the work associated with billings, claims, and coding is eliminated (Qamar 2014). DPC services also generally include basic lab tests, vaccinations, and generic drugs at or near cost. Practices using either model derive most of their revenues from membership fees and generally experience an increase in profitability.

The proponents at the conference suggested that both models would work well for patients with complex medical conditions needing careful monitoring and help coordinating multiple specialists. As both are relatively new practice models, only a few studies exist, and they suggest better outcomes. One study showed patients in a DPC model had 27 percent fewer visits to the emergency department and 60 percent fewer hospital days, and their healthcare costs their employers 20 percent less (Beck 2017). A study on concierge medicine showed decreases in preventable hospital use, with 56 percent fewer nonelective admissions and more than 90 percent fewer readmissions (Goodman 2014).

Concierge practices generally charge monthly fees beginning at $175 a month, but they can cost more than $5,000 per year. Most practices that move to concierge medicine retain only 15–35 percent of their existing patients. A concierge physician generally maintains a patient panel of only 300 to 600 patients. DPC practices charge a bit less, however, with monthly fees of about $100. Therefore, DPC practices tend to have larger patient panels of 600–800 per physician (Colwell 2016).

Even though concierge medicine and DPC practices often target upper-middle-class families, some seek higher-income families and maintain an even more restrictive and expensive practice. A few very restrictive practices charge $40,000 to $80,000 per family for an extensive, immediate array of services. These practices may include only 50 families in their patient panels. These high-end practices can increase a primary care physician’s annual income to about $600,000 (Schwartz 2017).

General Medical Clinic’s primary care physicians each currently serve 2,000–3,000 active patients. The older physicians have enjoyed a relationship with many of their patients for more than 20 years. Moving to either model would mean each physician would lose over 1,000 patients—more than 22,000 individuals for the full clinic.

The insurance market in Pennsylvania has changed and will continue to do so. These changes may encourage families to consider concierge medicine or DPC. One survey shows that over half (51 percent) of workers have a healthcare plan that requires them to pay up to $1,000 of out-of-pocket costs for healthcare before their insurance covers any of the expenses. Patients also complain about the long waits in physician offices and very short physician consultation during visits. Data show that an average primary care physician in a traditional practice spends 13 to 15 minutes seeing a patient, while a physician in a DPC practice would spend 30 to 60 minutes (Ramsey 2017).

Some studies show that patients appear to like concierge medicine and DPC, as the monthly fee provides basic checkups with same-day or next-day appointments and the right to purchase medications and lab tests at or near wholesale prices. These services come with virtually round-the-clock access to a primary care doctor, which might include using FaceTime while a family is on vacation or a meeting in the office for stitches after a bad fall on a Saturday night. Since DPC practices do not accept insurance, patients owe no copayments or other costs beyond the monthly fee for office visits and primary care.

Yet there are a few problems—for example, up-front, prepaid fees in both models do not qualify as medical expenses that can be reimbursed from a flexible spending account or health savings account. The biggest challenge is that patients must have the financial means to pay the fees. In General Medical Clinic’s case, most of the less wealthy patients would not participate. A move to either model requires that the clinic target its affluent patients.

Michael also read that a large company from Philadelphia plans to enter concierge medicine and DPC across the East Coast and announced its intent to enroll up to 800,000 workers in the next few years. It plans to offer very high salaries to attract good primary care practitioners for its expansion. Given General Medical Clinic’s current business model, Michael fears that he would be unable to match any lucrative salary offers from this company, and his physicians would leave.

Michael also has ethical concerns about both models. Adopting either model forces patients to find a new physician in a market with primary care shortages. Decreasing a physician’s patient panel, as both models do, would also intensify the primary care shortage. In addition, currently, primary care physicians refer many patients to specialists. Reducing the primary care panels would directly reduce the number of referrals to specialists, which might affect the clinic’s ability to negotiate better commercial insurance contracts.

General Medical Clinic will hold an executive committee meeting in two days. Michael wants to be able to present both options fairly. He needs to develop an overview and make a recommendation.

Questions

What are the advantages and disadvantages of the General Medical Clinic moving its primary care physicians to concierge or DPC models?

How would General Medical Clinic’s business model need to change if it moved to either model? Specifically, how would its value, input, processes, and revenues change?

Given the direction of healthcare, what would you recommend if you were Michael?