Paul Martino, VillageMD, on the retailization of primary care

Stay updated on our releases: subscribe on Twitter, Spotify or Apple.

In this episode of The Pulse Podcast, we interview Paul Martino, Co-Founder and Chief Strategy Officer at VillageMD. Founded in 2013 with backers including Oak HC/FT and Kinnevik, VillageMD is a leading provider of healthcare for organizations moving toward a primary care-led, high-value clinical model. It has grown to include 2,500+ physicians across eight markets and is responsible for approximately 500,000 lives and $3 billion in total medical spend in value-based contracts. In July of this year, VillageMD made waves by announcing their expanded partnership with Walgreens, who will invest $1B in VillageMD to open 500–700 physician-staffed clinics inside its drugstores in more than 30 U.S. markets in the next five years.

A 30-year veteran of the healthcare industry, Paul has driven growth and fostered innovation as a health plan executive. Prior to VillageMD, he was Senior Vice President of Clinical Strategy and Innovation at Anthem/WellPoint, where he was instrumental in architecting Anthem’s payment innovation strategy, its Patient Centered Primary Care model, and value-based contracts with Anthem’s primary care physician network. His earlier companies include Cigna, Aetna, and Kaiser Permanente.

Start — 8:00: Paul’s background

• Childhood pharmacist-philosopher dreams: As a kid, Paul wanted to work at a pharmacy owned by his neighbors. He thought he would work for them as a pharmacist, but instead was a delivery driver serving emergency convalescent facilities. The experience inspired him to enroll at the University of Connecticut to study pharmacy, but he quickly learned science classes weren’t for him. After a few turns, Paul landed on a Philosophy major.
• Upon his graduation in 1982, interest rates were 18%, and the unemployment rate was 12%. The demand for philosophy majors was inconsequential. His options were to join the U.S. Peace Corps, a management trainee program with the Connecticut General Life Insurance Company (now Cigna) in Columbus, OH, or a job at Aetna as an underwriter in Hartford, CT. He really didn’t want to live with his parents, so he took the job in Ohio, leading to a 32 year career as a health plan executive.
• On his career as a health plan executive: Paul’s last stop before VillageMD was working as SVP of Clinical Strategy and Innovation at Anthem. Everyone in that role before and after Paul was a physician, so the experience was unique for Paul — especially since he was at the reigns while the ACA was passed. Paul syndicated shifting to a value-based care model to leaders and consultants around Anthem — but it didn’t go so well.

“Everybody gets 15 minutes of fame, and my little 15 minutes of fame didn’t go so well. Because, to quote one of the insurance executives in the room, [value-based care] is an interesting idea, but it’s not who we are.”

• The genesis of VillageMD: After some leadership changes, Paul ran this idea up the flagpole again and garnered interest to create a company with Accretive Health (now R1 RCM) in which Anthem would hold a minority stake. Tim Barry and Dr. Clive Fields (now co-founders and leaders at VillageMD) were, respectively, the President and Chief Medical Officer of the Accretive population health business. However, Paul eventually decided to leave Anthem, and at that point Tim Barry and Paul decided to create the business plan for a value based primary care business outside of Anthem and Accretive.
• They pitched their idea to Optum leader Andy Slavitt, who later became the Acting Administrator of CMS, looking for seed capital, but were met with an acquisition offer instead. Paul’s non-compete from Anthem wouldn’t allow him to work for Optum, so they turned down the Optum offer and raised a $4M angel round elsewhere. Tim, Dr. Fields, and Paul took zero income for the first three years of the company to get it going.
• On remaining independent and private: Optum has offered to acquire VillageMD on many more occasions, but VillageMD has declined each time. In fact, Paul believes there needs to be a major competitor to Optum. If you talk to physicians today, they’re fatigued, and their economics are unstable, especially during (and likely after) the pandemic.

“Most physicians would say if they don’t want to remain independent, which is becoming scarier and scarier, they have two options: sell to a health system, or sell to Optum. VillageMD wants to be the preferred employer of choice for physicians that choose this latter employment as an option.”

8:00–18:00: The landscape of at-risk primary care

• Why insurance companies are not set up to provide value-based care: From Paul’s perspective, unless there is better economic alignment between providers and payers, we will continue to operationalize poor decision making. Paul references Dr. Don Berwick’s (former Administrator of CMS under President Obama) speech collection Escape Fire. In this book, Dr. Berwick says of physicians that everybody’s doing their job, but those jobs were designed wrong. We pay hospitals to fill their beds, and pay specialists to do procedures.
• VillageMD’s co-founder Dr. Fields often says an older male that dies will die with prostate cancer, but not from prostate cancer — that is, there is an over-proceduralization of healthcare that harms patients more than their conditions. Paul was consumed with the idea of not doing things to people, but to support this, the insurance industry has to evolve. The future industry will have more entities bearing risk supported by strides from CMS, like the Direct Contracting Model.

Editor’s note: Direct contracting is a new CMMI alternative payment model whereby providers can contract directly with CMS for partial capitation on primary care services for Medicare fee-for-service (FFS) beneficiaries that don’t normally fall under capitation (or other value-based care) arrangements. This means if a primary care provider group sees Medicare FFS beneficiaries, the group can contract directly with CMS to take risk on those beneficiaries and receive capitated payments (similar to MA). The model is set to launch in early 2021. More available here.

• In Paul’s words, hospitals rolled out of bed one day and said, I’m going to call myself a health system that employs many physicians and does many things that are not necessarily in the patient’s best interest. Similarly, insurance companies rolled out of bed one day and called themselves a health plan.

“If you roam the hallways of large insurance companies, the loud voices in the room are actuaries who excel at evaluating and underwriting risk. But, if you ask them about the right patient care for a Type II diabetic? They don’t know, but are charged with financing that program.”

• On risk-bearing primary care startups: The path to profitability in an organization like Oak Street Health or Iora Health is really long and hard, and few of their clinics have even reached full profitability today. That’s why Paul thinks ChenMed, which has been around for a few decades, hasn’t grown out of Florida more aggressively. Comparably, VillageMD’s unit economics are attractive, mainly because it is working with existing physicians with existing patient panels. Building de no clinics, hiring new teams, and recruiting patients requires a lot of capital and SG&A expenditures. In the Walgreens model, VillageMD is trying to be the employer of choice for those physicians who have already raised their hand and said, “I’m willing to be employed”.
• Paul wants companies like Aledade, Agilon, Iora, Oak Street, and others to succeed, because our current healthcare system needs to be challenged. But these companies are serving different niches. Full stack companies care for a subset of a population, usually comprising chronically ill, high-risk Medicare/MA/dual eligible patients that are off the charts with high medical need. In these models, companies set up a new clinic, recruit physicians, then recruit patients. Unlike that model, enablement companies like Aledade work with existing practices in existing markets, and enable them to perform better than the rest of the market in a Medicare Shared Savings Program (MSSP) model.

18:00–23:30: How VillageMD adds value

• VillageMD’s goal is to be the largest provider of at-risk primary care in the country, with physicians having ownership in the company so that they benefit from the economics that VillageMD creates. VillageMD’s MSO structure is nothing more than a support mechanism for at-risk primary care for physicians. We’ve seen this movie before in the 1990s under the name “physician practice management” or PPMs. These companies aggregated physicians, shaved some costs off the top, and burdened physicians with the rest. VillageMD is different — as Dr. Fields would say, “I want somebody that’s actually doing things to help me and with me, not to me.” This is a subtle but significant distinction: MSOs are intended to do things with and for physicians, not to them.
• VillageMD’s DocOS is analogous to the iPhone’s Operating System (iOS). Consumers don’t usually know how iOS works, but they know that if they have to get to the airport, they have an app and called Uber, and a car shows up to bring them to the airport.That is the goal for DocOS: physicians don’t have to worry about changing their EMR (today, VillageMD works with about 50 EMRs), extracting claims data from payers or HIEs, or creating an ADT feed from hospital systems.
• When Paul worked for Anthem, his team provided physicians with reports like hotspotter (e.g., heavy patient utilizers), or gaps in care. Providers would respond that they would see patients for 10 hours with a potential lucky lunch break, then go home to manage their kids activities while charting in the EMR. Providers fondly call this“pajama time”. Providers would ask, “When do you think I’m going to use your hotspot or report?” Giving information to physicians at a point in time where they can use it while seeing patients, without requiring extra training or IT costs, is VillageMD’s goal. This can help reduce physician burnout, remove the burden of worrying about all the things that health systems require to physicians to worry about, and help physicians focus on what they spent their lives learning to do: be in the moment and give patients the care they deserve.
• Usually doctors are pillars of their communities, and independent community providers cost on average 10% less than PCPs employed by health systems. VillageMD’s business model is to primarily support independent primary care physicians, and Paul believes they generate the best economic outcome because of the way they practice care. PCPs are among the lowest compensated physicians, so by choosing to be a PCP, a PCP has already made a poor economic decision. All of them are in healthcare to do right by patients, so VillageMD wants to empower that spirit even more, help PCPs achieve better economics, and ultimately drive better patient experience and outcomes.

23:30 — End: The VillageMD-Walgreens partnership

• Why Walgreens?: Walgreens is attractive because they serve a community — that’s their role in America. 92% of Americans live within five miles of a Walgreens. VillageMD’s view is if you get a better clinical outcome with a better patient experience, and higher physician job satisfaction, cost reduction will follow.

“Walgreens is at the intersection of Main and Main Streets serving convenient access to pharmacies and ‘the front of the store’. If you take the most commonly used provider in the health care system, which is primary care, with the most commonly used service, which is drug prescriptions, and co-locate them, you’re likely going to get a better clinical outcome.”

Editor’s note: For context, Walgreens has nearly twice as many stores as Walmart (9,323 Walgreens drugstores vs 4,865 U.S. Walmart locations with a pharmacy as of 2019); Walgreens is the largest retail pharmacy chain in the U.S. by number of pharmacists and stores, and second largest after CVS by revenue. From their joint press release, in July 2020, “Walgreens and VillageMD announced an expanded partnership to open 500 to 700 ‘Village Medical at Walgreens’ physician-led primary care clinics in more than 30 U.S. markets in the next five years, with the intent to build hundreds more thereafter. The clinics will uniquely integrate a Walgreens pharmacist into VillageMD’s multidisciplinary, and will be staffed by more than 3,600 primary care providers to be recruited by VillageMD. The clinics will accept a wide range of health insurance options, and offer comprehensive primary care across a broad range of physician services. Additionally, 24/7 care will be available via telehealth and at-home visits. More than 50% will be located in Health Professional Shortage Areas and Medically Underserved Areas/Populations, as designated by the U.S. Department of Health and Human Services.” See more here.

• Scaling a pilot into a robust expansion plan: In 2017, Paul’s longtime friend, Brad Fluegel (former Chief Strategy Officer at Walgreens), shared with Paul that he was planning to retire from Walgreens at the end of the 2017. Paul had never asked him for a favor in their professional and personal history. But, in that moment, Paul asked, “I’d love to meet the Walgreens team overseeing your retail clinics. No offense, but I think we could probably do a better job of running them than you.” That led to the original Walgreens-VillageMD pilot partnership scoped for five clinics in Houston, TX. Those first five clinic concepts — full-functioning primary care co-located with a pharmacy — opened in November 2019.
• Clinic vision: Each VillageMD clinic is co-located with a Walgreens U.S. drugstore and receives about 3,000 square feet. The clinic has its own separate professional entrance, and contains seven exam rooms, two telehealth rooms, and a lab out the key padded back door. Going out this backdoor, you can go through the over-the-counter drug aisle to the Walgreens pharmacy. VillageMD prioritizes the prescriptions so that by the time the patient gets dressed, leaves the exam room, checks out, then walks to the pharmacy, their prescriptions are ready for them. If PCPs at VillageMD need pharmacist support, the Walgreens clinical pharmacists can come into the clinic through the keypad entrance and do medication reconciliation or patient counseling on medication therapy management before the patient ever leaves the exam room.

“Retail pharmacies generally have about a 25% no-fill rate, so by co-locating primary care physicians, VillageMD can help Walgreens drive that no-fill rate down into the single digit percentages.”

• Paul’s vision is to build an integrated ambulatory patient experience tethered to the home: complete with pharmacy, telehealth, a lab, flat panel imaging (i.e., X-rays) with certain subspecialties co-located because VillageMD will maintain enough exam room space to serve them. VillageMD would facilitate same-day consults with specialists as needed by maintaining referrals relationships with local health systems, like an Advocate Health Care in Chicago. This way, patients don’t have to wait two months for a cardiologist appointment. Every patient deserves this kind of experience.
• On COVID-19 tailwinds: The pandemic is a wake up call for the world, but this has happened before under different names (SARS, MERS, H1N1, etc). So this time, Paul encourages national leaders to manage this crisis well without letting it ruin the economy. Paul believes telehealth is here to stay — the reason they didn’t before was lack of reimbursement parity ($20/televisit versus $90 in-office), and more services can be performed in person, boosting in-person per-visit revenue in a FFS world.