Trend | Healthcare Business Trends

Understanding the System Bottom Lines for Market-Based Primary Care

Trend | Healthcare Business Trends

Understanding the System Bottom Lines for Market-Based Primary Care

The concept of primary care is being transformed by changes to its subsystems related to  demand, supply, organization, and linkages.

Market-based primary care should be thought of as a “system of systems,” and the focus should be on working to optimize its potential.


As recently as 2000, when a new primary care physician would join a physician group, the physician would work to become a partner, the group would make a profit, and a partnership would become a career. But the world of primary care has changed, and it will continue to change.

To examine how it is changing, consider that primary care is a system of care—one that comprises several subsystems related to factors such as demand, supply, organization, and linkages. And it is changes to each of these subsystems that are transforming the whole concept of primary care. a

Demand

The first thing one notes in analyzing primary care demand is how different each person’s needs are from those of others. Some patients want a coach and a reliable source of advice, and others just want a pill or a referral. Some patients are interested in alternative medicine, and others want a surgical solution. Some are time-pressured and wish they could address all their healthcare issues over the Internet, and others want to linger and receive emotional support. Some are very sick (with complicated needs), and some are well. Some come with a good payment source, and some have no payment source.

From a systems perspective, the core function of primary care is either to provide a solution to a patient’s need or problem (a diagnosis and a treatment plan), or to recommend and facilitate a process for finding a solution.

Once the issue of payment is introduced, the challenges of delivering primary care increase. The “economic demand for primary care”—that is, who wants what, and what they are willing and able to pay for—can be analyzed in segments, based on factors such as wellness, healthcare “literacy,” and ability to pay.

A “gold standard” patient or member, for example, wants and can pay for:
  • Quick access 24/7/365
  • Success in receiving a diagnosis and facilitating a treatment plan
  • Friendly, caring physicians and other care providers and staff
  • Success in recommending and implementing any needed specialty care and procedures or medications
  • Ability to see the “best specialists” with faster than normal waiting times

A healthy, tech-savvy patient might prefer using an app to spending time in a waiting room. Such patients also can be very discerning, being aware of the word-of-mouth regarding the primary care physician, the physician’s office and team (including their appearance and ability to perform), and the health system’s brand.

Most patients are not “gold standard” patients, and this reality creates friction in market demand. For example, a Medicaid patient with complex needs might be best served by a well-coordinated team of caregivers, but the patient’s payment sources may or may not pay for the best care team. Primary care givers also are seeing a high percentage of patients who have behavioral as well as physical healthcare needs. The need to navigate patients away from opioid addiction has placed increased tension on primary care practices’ patient-physician relations.

The bottom line. Ultimately, to address demand primary care providers must do the following:
  • Sense quickly what each patient thinks he or she wants
  • Make judgment calls regarding the level of each patient’s problem (understanding that some patients require an experienced, talented primary care diagnostician while others have very simple needs)
  • Find the right solution for each patient (either a diagnosis and treatment plan, or some other action)
  • Where needed, facilitate the next step in care, such as a diagnostic test or a specialist visit (understanding that bottlenecks in the overall system of care can make it difficult to arrange for some patients to see the appropriate specialist, particularly where patients come with reimbursement that does not match well with their health needs)
  • Relate well to the patient (which can be a challenge, given that some patients—regardless of their payment resources—tend not to relate well to primary care practices)
  • Document and communicate (a growing task that requires increasing time and cost)

From a systems perspective, the process of optimizing primary care demand and matching it with available supply of primary care is anything but simple.

Supply

The next challenge in a market-based system is determining how supply should meet this growing and more varied demand.

Now that most primary care physicians are employed, most of the owners and managers of primary care are health systems, health plans, and other intermediary care companies (including a host of innovative startups). These owners have various motives, including the following, for example (where an organization might not be limited to just one):
  • Serving as the foundation of a care delivery system
  • Preventing primary care from becoming less accessible
  • Improving the overall efficiency of health care
  • Gaining overall market share
  • Being a source of profits

Market-Based Primary Care: A Systems Perspective


The most valuable and versatile production factor in primary care is the primary care physician, given that this individual can provide, supervise, refer, communicate, and/or document care. This resource has been shrinking relative to the size of the population for the past three decades, due to lower income and worse working conditions relative to other specialties.

The benchmark value for a primary care physician can be calculated as follows:

Average amount received from a primary care relative-value unit (RVU) × Average number of RVUs produced per hour b – Direct and indirect support costs of an hour of primary care

This value is based on a full-time clinician in a fee-for-service production model. The benchmark value for a primary care physician is much less than for most other specialties.

Most owners or managers of primary care functions realize that they must pay more than this benchmark value to attract and retain primary care physicians. c But they often struggle with knowing how much more and recognizing what nonfinancial changes might be needed.

Primary care physicians tend to be motivated in part by nonfinancial considerations. The cultural changes of transitioning to an owner/manager organization are still being absorbed—with phrases like “burnout,” “financial versus caregiving mentality,” “manager versus physician,” and “personal versus group” having become increasingly common.

Those who were trained as primary care physicians initially also are migrating to other roles (e.g., as hospitalists, health system and health plan managers, entrepreneurs).

Numerous new primary care models are being developed and refined (in part to anticipate the shortage of primary care physicians). Early models emphasized leveraging nurse practitioners and other professionals. Other models leverage artificial intelligence, telemedicine, home visits, extensivists, care coordinators, and more self-direction by patients.

There now is a “spot market” for primary care, where a “patient demand unit” can contract for a “patient visit” with a “primary care unit of supply” over the Internet. Likely developments for primary care include Uber-like apps and employer-sponsored apps—the latter incorporating employee wellness incentives and ratings of primary care physicians and their office staffs.

The bottom line. Regarding the future of primary care supply, several questions remain to be answered:
  • Will the drop in the primary care physician/population ratio stabilize?
  • Will the new supply models (using fewer primary care physicians) be as effective as the old ones in meeting the health needs of the population?
  • Will organizations be able to develop a new primary care team, business model, and culture? Will there be several teams, models 
and cultures?
  • How will the new care models match up with the emerging segments of demand?
  • Will the total costs of care increase because of a failure to provide effective primary care?
  • Will the owners/managers of the primary care functions meet their overall objectives?

Organization

Organizations that own and/or manage primary care functions are only beginning to recognize how to optimize their value.

The bottom line. Primary care’s total value to its owners and/or managers goes beyond its direct cost. It helps organizations add market share and expand to new geographic service areas and new demand segments. It is a critical component of an organization’s move from volume to value.

The action agenda for owners and managers might include:
  • Paying primary care physicians enough above the benchmark to attract and retain more of them
  • Developing annual process improvement projects to reduce the “friction cost” of making referrals from primary care to specialty care, and then getting these two areas to work together to meet the patient’s needs
  • Implementing a multiyear strategy to make primary care professionals feel they are owners of the health system rather than vice versa
  • Leveraging selected primary care practices as beta sites for telemedicine, integrated physical and behavioral health, Internet-based visits, and other innovations (including establishing project goals, a manager, a budget, a target ROI, a time line, and a process for expanding to other sites if successful)
  • Having primary care practice leaders spearhead the transition to value-based payments within the system
  • Providing an aligned incentive structure for primary care leaders if and when value-based payments are successful

Linkages

The opportunities to add value with primary care linkages go beyond the boundaries of the organization. A recent HFMA study hypothesizes that the higher cost of care in some communities may be associated with too few linkages among providers. d Primary care linkages—including databases and protocols—could improve this situation.

Attractive opportunities also exist for both primary care practices within other organizations and owners and managers of primary care to learn from each other in different, noncompetitive markets.

The bottom line. Expressed in simplest terms, primary care’s value added often goes beyond the boundaries of its owner or manager.

Implications

The primary care business model is in flux. The costs of electronic health records, support staff, supplies, revenue cycle management, and real estate have become prohibitive relative to the typical income of a primary care practice. The old primary care economic model has proven unsustainable.

However, the current model also is not sustainable. Professionals are stretched and stressed, and the ratio of physicians to population is falling. The next model may not deliver the results that are to anyone’s liking—in health outcomes, patient satisfaction, physician satisfaction, or the total cost of care.

Meanwhile, the side benefits of good primary care—not only for patients but also for the owners and managers—are substantial. The case for further investment in primary care is strong. If owner and managers are to maximize their ROI, they must support further innovation. They must keep going, and that means keep analyzing and investing, to build primary care teams that are sustainable and can thrive.


Keith D. Moore, MCP, is CEO of McManis Consulting, Denver, and a member of HFMA’s Colorado Chapter.

Dean C. Coddington is a senior consultant with McManis Consulting, Denver.

Footnotes

a. Note: We acknowledge the inherent challenges in attempting to describe something as personalized as the needs of patients and primary caregivers using systems terminology. For example, we refer to a primary care physician here as a factor of production. Although such terms may sound abstract and impersonal, our message also is intended to reflect our enormous respect for people who provide primary care.

b. Including sensing patient wishes, developing diagnosis and treatment, communicating, referring, and documenting

c. The current average salary is $223,000; see Kane, L., Medscape Physician Compensation Report 2018, April 11, 2018.

d. Landman, J.H., Moore, K., Muhlestein, D., Smith, N.J., Winfireld, L.D., What Is Driving the Total Cost of Care , HFMA, Leavitt Partners, McManis Consulting, 2018. 

About the Authors

Keith D. Moore
MCP
Dean C. Coddington

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