the need to REWRITE PRIMARY CARE
back to the future with direct primary care: new perspectives on an old business model
NOVEMBER 2024
by Kyle Sherrill
Direct primary care (DPC) is a simple idea. Pay a fixed monthly fee and receive unlimited primary care service from a doctor in your area. No catches — no hidden fees or adjustable premiums to worry about. It’s that easy. It’s a healthcare model that opts for simplicity over complexity. In the US, both doctors and patients are already seeing the benefits.
It works like this. Patients pay a monthly fee, directly to the doctor, typically somewhere between $20 and $100 for unlimited access to a local physician who handles any issues that fall under the umbrella of primary care1. This is your basic stuff: flu shots, broken arms, cuts and bruises. Anything outside of this realm, like specialist or emergency care, is not covered. Doctors are able to bypass the insurance, billing, and reimbursement hassle, cutting down on administrative fees and focusing primarily on clinical work. Additionally, they typically have a smaller patient pool (panel), serving closer to 500 patients than 2000; this allows more time per patient with potentially better personalization, treatment, and health outcomes2. DPC isn’t fee-for-service, and it’s not quite value-based care either (more on this later). It’s a strikingly simple idea that is catching traction in the US market. In 2015 only a handful of DPC clinics existed, today there’s more than 2400 nationwide, suggesting somewhere between 1M and 1.5M patients may be covered under a DPC model3.
what has been the catalyst for this recent surge in interest?
Based on interviews and desk research, we have identified several key factors that we believe are driving this trend. Patients are drawn to the promise of simplicity and transparency. The insurance industry is facing growing frustration from doctors due to the increasing complexity of the system. Furthermore, the high-volume, low-touch incentive structure offered by insurance was proving disadvantageous to both parties. It is also important to note that technology-enabled tools have made it easier than ever for healthcare professionals to own and operate an independent clinic. These tools enable entrepreneurial-minded healthcare professionals to take control, assume risk, and try something outside of the standard healthcare model. This new business model, which has been enhanced by technology, caught the attention of the Nina Capital team, prompting us to conduct further research into the DPC space.
Keen-eyed readers will note that DPC shares some similarities to advanced primary care (APC), notably a focus on better service at the point-of-care and longitudinal outcomes. APC can also leverage value-based care models. However, APC is underpinned by insurance and focuses on comprehensive care across the care continuum. Often APC adds more layers of complexity to provide wrap-around services that address holistic health, often at a population health level with a heavy emphasis on data integration and analytics. DPC eschews this complexity in favor of a simplified care paradigm. Both models seek to improve primary care but do so with very different financial structures and healthcare philosophies.
the good, the bad, and the ugly
Proponents of DPC claim that it’s a step towards the future of value-based care while enabling choice, increasing independence from middlemen, and improving health outcomes4. But of course, it’s never all champagne and roses. Critics offer that DPC simply trades one type of complexity for another. Instead of all services under one roof (mediated by the watchful eye of insurers) patients will need to navigate a system of fragmented parts themselves: DPC for primary care, specialist referral networks, specialized insurance products, non-localized coverage gaps, etc.
Some critics have pointed out that DPC-aligned physicians could be disincentivized to include complex patients in their panel. If you’re getting paid the same monthly fee from each, why include the older patient with five comorbidities when you could instead accept a healthy young one with a spotless health record? Also referred to as cream-skimming, this phenomenon presents a real risk for both individual and population health outcomes and is antithetical to the value-based outcomes that DPC proponents often highlight.
Zooming out, one reason that value-based care can work on a purely theoretical level is the presence of a neutral, independent evaluator that also holds the pot of money. With DPC the provider and the evaluator are the same person. In a DPC model, the provider and evaluator are the same person. This combination of roles carries significant responsibility and potential for abuse. However, at Nina Capital, we believe that most HCPs have chosen their profession because they are genuinely committed to helping patients. We believe that this negative aspect of DPC would be minimal over time and somewhat offset by the localization effects of the DPC model.
Zooming even further out, let’s try a thought experiment. What happens if most physicians switch to a DPC next year? Each converted doctor goes from seeing 2500 patients a year to 500 patients a year. Who covers the other 80%? This is another criticism leveled at DPC; the current model couldn’t support the patient load within the current healthcare system. Of course, proponents will turn around and say that with improved health outcomes, there will be less burden on the system as a whole, and perhaps that 80% won’t need care in the first place. The jury is still out, however, on the order of magnitude that can be claimed here. For now, it remains an interesting question to consider: where is the equilibrium point as this new business model continues to take hold.
we have recently been examining the potential for need-driven, tech-enabled innovation in the DPC ecosystem.
We have already observed notable progress in this area, with numerous companies securing substantial funding (Decent, Hint Health, etc.) and prominent tech firms entering the field (Amazon’s OneMedical). Building on these developments, we sought to investigate potential avenues for early-stage startups to explore. Our initial assessment suggests three primary segments that warrant further investigation:
Incremental innovation — tailored tech enablement to own and operate DPC clinics
Starting your own practice has never been easy but physicians have been doing it since time immemorial. Today’s technological advances have been built around simplifying complexities that were inherent to the fragmentation of healthcare systems as they scaled (e.g. addressing billing, coding, operations across disparate systems). With the simplicity of the DPC model, there’s less opportunity here than in a traditional FFS model. However, we’ve noticed an ever-growing set of DPC-specific solutions to help HCPs operate within the new DPC paradigm: tailored EHRs, patient-facing communication platforms, workflow and integration solutions,etc.
From market signals, it seems that these point solutions will likely consolidate into a handful of winners for each market need (e.g.) 2–3 leading DPC-specific EHRs, 1–2 clinic operations tools, etc. It’s also likely that these types of solutions will be capped by the ultimate size of the DPC market as adjacent solutions already exist in the market that would limit horizontal growth.
Enablement at scale — solutions that offer DPC to the mass market
Putting aside any apocalyptic predictions of healthcare infrastructure collapse, how does DPC move beyond a hyper-localized, fragmented web of independent practitioners? We’ve already seen clinic consolidation at the national level and can only assume this trend will continue. What tools and technologies will be needed to deploy DPC at scale? We’ve seen some hints. The first is a few companies working on supply/demand matching between heterogeneous patient populations and DPC clinic locations for self-funded employers interested in offering DPC to their employees. This is the critical building block for serving patients at scale, but we believe more technology solutions will be needed to manage DPC challenges at a consolidated, regional, or national level. How can tech be deployed for patient management across time and space, integration between disparate systems and networks (more on this later), and perhaps, eventually, enablement for value-based care?
Integration — technology to create a seamless experience without the admin cost
DPC only covers primary care. This is not an indictment but a reminder that DPC exists within a broader ecosystem of solutions needed to cover the full spectrum of patient care. This requires coordination and integration between systems with different stakeholders and incentives. As a practical example, if a patient requires specialist care, the DPC physician may not have the tools to track patient care across both systems, leading to gaps in care coordination. We believe technology can solve many of these integration problems to improve coordination and improve patient experience while keeping costs low. We’ve seen relatively fewer companies working in this particular space, but we assume it’s a reflection of the immaturity of the DPC market. Importantly, we believe these solutions could also be ones that scale outside of the DPC market to find traction in other healthcare markets as interoperability will forever be a challenge in healthcare.
On reflection, we believe that the potential market for DPC is constrained by the simplicity of the model.
On a positive note, the market is still in its infancy. There is a significant opportunity for early-stage ventures to develop tech-enabled tools if they act swiftly. We value your input and welcome any insights you may have. Do you believe we have overlooked any aspects in our analysis? Is there a project you are working on that does not align with our categorization? What should we prioritize investigating next?
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