Fixing primary care, part 2

Why we need dramatic changes in the physician reimbursement system

You can read Part 1 of Fixing Primary Care here.

Writing in 2007, the late Dr. Arnold Relman, the former editor of The New England Journal of Medicine, laid out his vision for the future of medical practice in the U.S. Relman, a single-payer advocate, recognized that controlling costs would also require transformation of the health care delivery system. He wanted to pay nonprofit, multi-specialty practices made up of salaried physicians a monthly, per capita fee for every person in their charge. This system is called “capitation.”

Capitation, Relman wrote, would put those practices on a budget and give their physician-leaders the freedom to allocate resources to hire support staff like nurse practitioners, dieticians, and social workers. It would likely increase the relative compensation of primary care doctors themselves. And by organizing preventive care and promoting better health habits, these reorganized practices would reduce the number of patients needing hospital and specialty services, the most expensive parts of the system. 

A few years after Relman published his proposal, Congress passed the Affordable Care Act. The architects of the law also understood the need for delivery system reform, and the ACA included multiple pilot projects designed to incentivize less costly and more effective primary care. But none included full capitation, and they have had little success at controlling private health care costs. 

Given the ACA’s limited gains in promoting delivery system reform, some employers began looking for ways to bypass our foundering primary care structure by establishing on-site health clinics, a strategy now employed by a third of all organizations with more than 5,000 workers. Hospital systems and insurers countered by cutting deals with major pharmacy chains like CVS and Walgreens as well as large retailers like Walmart and Target to operate “minute clinics” inside their stores. There are now more than 3,000 across the U.S. But these initiatives have also been duds. A 2016 Rand study found that nearly 60 percent of visits to retail clinics added to total health care costs by failing to replace traditional office visits or trips to the emergency room.

Yet there are primary care practices springing up across the country that are replicating Relman’s ideal for some of the most challenging patients in America: people with disabilities and seniors on Medicare who have multiple chronic conditions. Ironically, a small corner of the private equity world helped launch the movement, and insurer-run Medicare Advantage plans are funding it.

Most of the Wall Street–oriented financiers in primary care have a three- to five-year exit strategy for getting a hefty return on their investments. That leads many to pursue cost-cutting and revenue-enhancing tactics, like eliminating support staff or stepping up offices’ appointment pace.

These start-up firms operate with the recognition that in a typical group health plan, about 5 percent of patients will account for half of all health care spending. The start-ups take on full financial risk via capitated payments for these hard-to-treat patients. But instead of waiting for patients to come to them, they encourage people to come in for as many visits as necessary. This enables the primary care physician to identify not only medical conditions but also the patient’s mental health and substance abuse issues, housing and nutrition status, and family and social circumstances. The practices then pull together internal care teams that can include community outreach workers, care coordinators, social workers, nutritionists, pharmacists, and behavioral health specialists to deal with problems that, if left unaddressed, can drive patients into the ER—sometimes multiple times a year.

A compelling proposition

Just prior to the pandemic’s onset, I visited one such practice, run by Chicago-based Oak Street Health. Founded in 2012, Oak Street Health recently sold stock to the public and now serves nearly 110,000 patients at more than a hundred centers across 15 states. Its care teams focus on prevention and helping patients meet their housing, food, and transportation needs. They offer emotional support to people who are under the constant stress of living in isolation or poverty. Its clinics sometimes double as drop-in social spaces where clients can play bingo, attend cooking classes, or simply grab a cup of coffee. 

For the entities that pay for health care—be they independent insurers, the government, or companies—the business proposition can be compelling. In the short term, it makes financial sense for payers to skimp on preventive care, and many insurance companies do. But take only a slightly longer view, and the incentive becomes the opposite. The average ER visit costs $2,200. A single three-day hospitalization averages about $30,000. Preventing a single hospitalization ultimately more than pays for the primary care physician time and care team deployments. This is especially true in markets where there is little competition between insurers. In that case, if a plan spends money today to prevent a patient from developing a condition that would require hospitalization in the future, the insurer realizes a financial return because the patient will likely still be on the same plan. 

 “This is a really, really big economic opportunity because if you do this well, it will pay for itself,” Dr. Griffin Myers, the chief medical officer and cofounder of Oak Street Health, told me.

There are now about a dozen firms offering variations on the intensive primary care model to nearly a million people, almost all of them enrolled in Medicare Advantage and Medicaid managed care plans. The firms have grown so quickly and made so much money that they’ve even attracted investment from a few Wall Street financiers. JPMorgan Chase, for example, recently bought a stake in Vera Health, one of the start-ups pursuing a “primary care first” strategy. The bank hired Dan Mendelson, a former Clinton administration health care official and founder of the Avalere consulting group, to run its health care program. Mendelson has made sure that it’s more than just an external investment. He found Vera’s model so compelling that he plans to offer the company’s services to the bank’s quarter-million employees, beginning with one major market starting next year.

“That intensive work-up where you bring the patient in, you figure out if they have high cholesterol or diabetes, or if there are mental health issues in their family; that is the value we want to drive,” he said. “We’re paying the highest rates. Why aren’t we getting that kind of care for our employees?”

Change how doctors get paid

Turning these isolated experiments into system-wide change will require a full-court press on multiple policy fronts. It begins by changing the physician reimbursement system, which has undervalued and underpaid primary care doctors for decades. That means breaking the stranglehold the AMA has over evaluating how much insurers should pay for different treatments. The Centers for Medicare and Medicaid Services, which determines rates for America’s two main public plans, needs to ignore the AMA when it sets fee-for-service physician pay schedules. It should dramatically increase compensation for primary care—ideally by switching entirely to capitation. The CMS is already launching pilot programs that incorporate the payment system. Its Primary Care Plus initiative, started in January 2021, applies a capitation model to primary care. It has attracted participation from 822 practices in 26 regions. 

The idea of moving toward capitation recently received endorsement from the prestigious National Academies’ report mentioned above, which suggested that primary care physician reimbursement should follow a hybrid model that would add a flat per capita monthly payment for every patient under a practice’s care. Simultaneously requiring every insured person to choose a primary care doctor would then guarantee that the practice receives payments. If sufficiently large, those payments could finance creation of primary practice care teams and give doctors and team members the time to fully understand a patient’s history, coordinate their care, and provide or help them obtain social services.

Capitation isn’t without hazards. The system requires physicians’ practices to take on financial risk for patients in their care, and most primary care practices do not have the monetary or technical capacity to assume that kind of exposure. To help practices and the health care system generally move in that direction, the government needs to break down all the barriers standing in the way of greater care coordination. 

Chief among them is the failure of hospitals, insurance companies, and their electronic medical record vendors to share patient data across all care settings. Medical records should belong to patients, not to their providers or insurers. As things stand now, primary care physicians aren’t even notified when their patients are admitted or discharged from the hospital. Despite laws calling for full interoperability of medical records, the CMS has yet to issue regulations penalizing hospitals or insurers for failing to comply.

New models for reinvigorating primary care are emerging from the public and private sectors, with the potential to lower costs while improving Americans’ overall health. Yet expanding these isolated experiments into system-wide change will take major reforms at the federal level.

Preserve practice independence

The government also needs to develop a pro-competition policy for the health care sector that preserves practice independence. When primary care doctors work for themselves, they are less likely to unnecessarily refer patients to specialists than when they work for companies with a financial interest in getting patients hospitalized. When referrals are necessary, independent physicians are also more likely to send their patients to quality facilities. The Federal Trade Commission has already announced that it will study doctors’ practice acquisitions by hospitals and insurers. Both claim that vertical integration promotes care coordination. But the claim will probably prove baseless. Studies show that when hospitals merge, the prices they charge almost always go up with little impact on quality or outcomes. 

While the FTC completes its study, the Biden administration should rapidly change policies that encourage physician acquisitions. It can begin by immediately eliminating a strange quirk under which Medicare pays more for a routine office visit when the practice is owned by a hospital than when it is independent. It should give special grants to struggling rural and urban primary care practices so they aren’t driven into the arms of local hospitals or insurers. It could also fund technical assistance for physicians’ practices and federally funded health care clinics that want to make the transition to alternative payment models, like capitation. 

The administration has enough discretionary spending to take these steps without new legislation. But if Biden can get Congress to act, he can take even more powerful measures. Phillips of Fairfax Family Practice suggested that the government pass a law requiring Medicare, Medicaid, and private insurers to set a minimum primary care investment threshold at 11 to 12 percent of overall health care spending, more than double the current level. “It’s a blunt tool,” he said, “but it’s necessary, or otherwise we’ll see investment decline.” Democratic legislators interested in making health care affordable will be natural allies for such a bill. But plenty of Republicans could also sign on. Exploding medical costs are swelling the national debt, a fact that’s helped drive the GOP to support price regulations in health care before—including last year’s legislation outlawing surprise medical bills. 

Health care labor policy is also in need of an overhaul. Many states restrict the ability of nurse practitioners and physician assistants to provide routine medical services. Removing those restrictions, either through federal or state legislation, would free up primary care physicians to deal with the complex problems facing their most expensive patients. The FTC and Department of Justice also need to scrutinize the noncompete clauses in physician contracts, still allowed in many states, which prevent doctors from leaving hospital- or insurer-owned practices to start their own practices in the same community. 

“If we’re going to have a market-based system, then markets have to work,” says Dr. Farzad Mostashari, a former Obama administration official at the CMS. He is now the CEO of Aledade, which provides advice and services to physicians’ practices adapting to new payment models. Mullins’s practice in Delaware was one of Mostashari’s first clients, and she now serves as a medical director for Aledade. 

Health care reformers have long focused most of their attention on expanding access to the system through universal insurance coverage. They have waged spirited fights against the exorbitant prices charged by drug companies and hospitals, and they’ve lambasted the administrative waste and unnecessary restrictions imposed by insurers. This has all been necessary. But until delivery system reform is also on the table—beginning with expanding and empowering primary care—we’ll never achieve better outcomes for more people at a lower overall cost.

This story appeared first in the November-December edition of The Washington Monthly.