There are three main steps to get from a 19.6% savings claim by Qliance to a plausible number: (1) examining the validity of Qliance’s claim that it collected $251 more per employee than the employers were spending for fees for service primary; (2) including the drug costs which Qliance chose to omit from the data set; and (3) borrowing a generic DPC risk adjustment per Milliman, which brings the number down to 6.8%. Still, I probably wouldn’t bet that DPC can reduce net costs.
STEP ONE — Address the credibility of Qliance’s core claim
In early 2015, Qliance issued a press release that included a table of internal data, a package purporting to show that engagement of Qliance as a direct primary care provider for a subgroup of employees the employers resulted having “19.6 percent less than the total claims” when compared to those employees of the same employers who obtained primary care through traditional fee for service primary care practice. In dollar terms, the reported savings was $679 per person per year. No attempt was made to examine the degree to which the apparent savings might be due to differences in medical risk between the two populations. Some ambiguous wording in the text of the release was clarified by the table itself making clear that the 19.6% savings was intended to be net of Qliance’s monthly direct primary fee. And, a footnote to the table also mentioned that the claims costs analyzed included all claims data except for prescription drug claims.
Here’s the table as presented by Qliance.
The press release and table did not mention the amount of Qliance’s monthly direct primary care fees. These fees do appear, however, in contemporaneous publications such as this article about the Qliance clinic at Expedia. Qliance’s fees to employers were age-dependent, ranging from $49 to $89 per month. Assuming those 65 and older have a top bracket all to themselves, and at least roughly linear age-based pricing for the remaining employees, $64 per month ($768 per year) corresponds to a mid-point and a reasonable estimate of Qliance’s average per employee receipts.
Qliance’s table indicates that the employers’ primary care annual outlay for non-Qliance patients is $251 less Qliance’s annual fee. That would mean these employers were paying $547 per year primary care per employee.
Qliance’s table equates $679 and 19.6% of claims costs, excluding prescription drug costs. Dividing $679 by 19.6% yields $3464 as the total claim costs, excluding the cost of prescription drugs, for non-Qliance patients. The Health Care Cost Institute indicates that in 2014 the average annual prescription drug costs in the West Region where Qliance operates were $684 per person. Adding that amount to their $3464 of other claims costs, brings the total annual employer cost of care for non-Qliance member employees to $4148.
For non-Qliance employees, then, the $547 primary care spend corresponds to over 11.3% of total health care spend. This is a remarkable number. The American Association of Family Physicians expresses horror when it tells us that primary spending falls in the 5-8% range; a recent outgoing AAFP president took great pride for his role in two state intiaitives that pulled the primary care spending percentage into 12-13%. Family Medicine for America’s Health, an alliance of the American Academy of Family Physicians and seven other family medicine leadership organizations.
Presumably, we are to believe that, even though the non-Qliance employees were already approaching the pearly gates of primary care heaven with 11.3 % invested, Qliance’s swooped in and brought them a further 19.6% cost reduction.
Committing $251 more dollars to primary care while netting down $ 679 on total would mean that primary care for the Qliance patients reached 22% of total spend, a fifty per cent increase above the 14% seen in European countries thought to be top performers. A level of primary care spending unknown anywhere other than in Qliance clinics!
All this strongly suggests that Qliance’s math or method is just wrong. But Qliance has not disclosed how the calculation was done. Indeed, as already noted, the Qliance news release proudly claiming large saving Qliance did not even disclosed the monthly fees being paid by employers, an amount that is central to that calculation.
The Qliance table also presents some puzzling details about downstream care. Qliance patients are noted as having 14% fewer ER visits than their FFS counterparts. But the next cell in the same table reports that the average cost of ER claims for Qliance patients was higher, by $5 per annum, than the average cost of ER claims for non-Qliance patients. In percentage terms, an average Qlaince patient incurred ER costs that were slightly more than 14% higher than those of non-Qliance patients.
It is certainly plausible that Qliance patients visiting ERs might present a somewhat different case mix than their counterparts. But Qliance patients having greater average ER costs than their fee for service counterparts stands in sharp contrast to one of the most stressed talking points advanced by advocates for direct primary care.
The Direct Primary Care Coalition is lobbyist for direct primary care. Its current chairman was one of the founders of Qliance. In its advocacy to Congress and others, the Coalition often relies on the 2015 Qliance press release. DPC Coalition has addressed the apparent anomalyregarding ER in an interesting way. In a letter to members of the Senate Committee on Finance, the DPC Coalition produced a modified version of the 2015 table that solved the apparent problem — by simply deleting the data on ER visits!
In the wake of Qliance’s nondisclosure of details and subsequent closure of operations through bankruptcy, I have done a computation based on assumptions which I believe would have been made in the course of due diligence by a potential investor from whom Qlaince sought capital. The assumptions are:
- that Qliance received, on average, the mid-point fee of $64 per member per month;
- that $684 in prescription drug costs, being an average annual expenditure in the US West Region, should be included in total health care spend;
- that non-Qliance patients incurred primary care claims at a rate of 6.7% of total health care spend, which corresponds to the mid-point of AAFP estimates.
Computed in this way, the non-risk adjusted percentage net savings for Qliance patients is 10.7%.
Here is a link to the computation in a downloadable spreadsheet showing all cell formulas. That spreadsheet is imaged here:
If there’s a better way to make this computation, or if I’ve totally blown it, let me know in the comments section.
The reader is also invited to visit the spreadsheet, get it onto their own device, and run their own variations. There is a table that notes how the “$251 assumption” and “19.6% assumption” combine to fix the relationship between putative Qliance fees and corresponding primary care spend percentages for non-Qliance employees. If, for example, you were to assume that average Qliance fee was $49 (despite the report that $49 was the minimum fee), the implicit non-Qliance primary care spend percentage would be 8.1% (a number actually over the top of the range that AAFP reported as typical of the US) and the implicit Qliance primary care spend would be 16.9% (and still well beyond AAFP’s wildest dreams) . In that scenario, the final figure, after risk adjustment and accounting for prescription meds, would still be less than half of Qliance’s initial claim of 19.6%
STEP TWO — Adjust computation to include prescription drug costs
The table above fills the gap created by Qliance’s excludion of prescription drug claims. I do not know the reason for this exclusion. We do know that inclusion of prescription drugs claims in “total claims” would have lowered the amount and percent amount and/or percentage of savings that Qliance reported.
Iora, a direct care practice leader whose work has been featured right alongside Qliance in the legislative advocacy of the Direct Primary Care Coalition, has reported data that certainly make it seem that substantial reductions in other downstream spending can, in effect, be purchased by large increases in prescription usage. In one of its clinics, a 40% increase prescription refills seem to have largely countered huge drops in hospital costs, including ER visits, so that true total spending reduction remained modest.
If Qliance was like Iora in this regard, the inclusion of prescription drug expenses would have significantly reduced what was literally the bottom line of it press-release table.
We don’t know whether Qliance was like Iora.
There appears to be only one careful study explicitly addressing the usage of prescription drugs by DPC patients relative to FFS patients. It’s not Iora’s.
Milliman’s case study for the Society of Actuaries carefully compiled DPC and FFS patient utilization data in all areas of medical care services for an employer contract similar to Qliance’s contracts. For prescription drugs, they measured a 1% greater utilization by the DPC patients.
Applying the Milliman study number to the Qliance work decreased the estimated total annual savings from using DPC by $7. But the largest inpact comes not from deducting $7 from the net savings. Figuring in drug costs increases the denominator of the % savings calculation by $648, so that overall cost savings fall to 16.2% even without any adjustment other than including drug costs.
STEP THREE — Risk adjustment
We urge readers to use caution when reviewing analyses of DPC outcomes that do not explicitly account for differences in population demographics and health status.Milliman study for the Society of Actuaries
The Milliman study for the Society of Actuaries stands alone (in June of 2020) as the only examination by independent experts of the effect on health care costs of demographic and health risk differences between employees who elect direct primary and those who elect traditional primary care. For Milliman’s employer, raw costs needed to adjusted downward by 36% to account for health factors favorable to the employee group that elected direct primary care group.
Should we assume a general similarity between the employees studied by Milliman and the employees of the employers served by Qliance to reflect the health risk characteristics of the sub-population that elected direct primary care? The Milliman study authors note that when an employer offers a direct primary care option — with its exclusive PCP relationship — employees with lower health care needs and fewer anticipated PCP encounters may, ceteris paribus, be more likely to elect DPC. Milliman connects this with the fact that, historically, narrow access plans like HMOs see favorable selection effects relative to PPOs.
The heroic equating of the employee groups from the Qliance and Milliman studies is probably the best available way to address risk issues in the Qliance data. Qliance has been out of business since 2017; it left the field without giving us risk adjusted data. Milliman is, at least for now, is the best we have to try to fill that gap.
Applying the 36% adjustment from Milliman results in a plausible estimate that Qliance adoption was associated with a total cost savings (inclusive of prescription drugs) of 6.8% all employer costs.*
An alternative way to fill the gap draws upon work that is both less sophisticated and less impartial in its analysis, Nextera/DigitalGlobe white paper addressed in this prior post. This was also a much smaller study than Milliman’s and covered a far shorter period of time. It points to a level of risk adjustment within striking range of that from Milliman. Nextera obtained employee claims data for a five month period prior to the availability of a DPC option. The DPC cohort had pre-option claims costs that were lower than the FFS cohort more than 30%. Applying an alternative Nextera-based risk adjustment to Qliance data would have resulted in an estimate that Qliance adoption was associated with a 7.4% overall cost reduction. Due to its provider-independent sourcing, its development by professional actuaries, its larger size and longer duration, I choose to rely on the Milliman adjustment for my headline.
Addendum: July 12, 2020. Benefit plan structure can have a substantial impact on costs and utilization. Although, for the foregoing analysis, I assumed that the employers involved offered employees in the two Qliance and non-Qliance cohorts effectively equivalent cost-sharing obligations, an additional layer of selection bias may well be present if these employers offered significantly different benefit structures to the different cohorts.
In all, I advise against staking anything of value on any claim that Qliance produced net cost reductions. That issue was, in effect, crowd-sourced in early 2017 when Qliance desperately searched for fresh capital before declaring bankruptcy in late Spring.
*This would imply a downstream cost care reduction of about 14%.