Attn: AEG/WP. Milliman study implies 12.6% downstream care cost reductions for DPC.

The AEG/WP plan still isn’t likely to work. A $95 PMPM fee, increasing at the same rate as other medical expenses, and coupled to a 12.6% reduction down stream would evaporate all of AEG/WP’s claimed billion savings.

“Healthcare Innovations in Georgia:Two Recommendations”, the report prepared by the Anderson Economic Group and Wilson Partners (AEG/WP) for the Georgia Public Policy Foundation, made some valuable contributions to deliberations about direct primary care. The AEG/WP team clearly explained their computations and made clear the assumptions underlying their report.

This facilitated public discussion that the Georgia Public Policy Foundation sought to foster in publishing the report. I have examined those assumptions in many prior posts. A large number of them addressed a focal assumption in the AEG/WP report’s calculations: that DPC participation could reduce the claims cost for downstream care by 15%, a number represented by AEG/WP as a low end estimate. The sole support offered in the AEG/WP report for this 15% presumption is a statement that, “the factor is based on research and case studies prepared by Wilson Partners.”

In addressing the 15% claim, I looked over all available evidence then available in support of the 15% claim. I found a lot of corporate brags, and some propaganda from partisans with their own smash-public-spending agenda, but nothing n the way of independent, actuarial sound evidence derived from risk-adjusted data from DPC clinics.

That has changed with a study by actuaries from Milliman in a May 2020 report to the Society of Actuaries concerning a thinly disguised employer (Union County, NC). Although I take issue with some of the lessons others have drawn from that report, the report implies that deploying the direct primary care model can reduce downstream care cost by 12.6%. [Maybe even 13.2%.]

Some cautions.

• Milliman’s is only one study, and so far one of a kind.
• The Milliman study confirms nearly all of what I have said about how deeply flawed all the prior studies were, largely because they did not look at issues around risk adjustment.
• In light of the Milliman indicating reductions of 12.6%, the AEG/WP suggestion that 15% figure represents a low end estimated should be rejected.
• For downstream care cost reductions, replacing AEG/WP 15% with Milliman’s 12.6% takes away 1/6th of AEG/WP claimed savings.
• My other two major criticisms of the AEG/WP report still stand, and one of them is actually reinforced
  • AEG/WP’s assumption that effective DPC can be purchased for $70 per month even more clearly lowballs the likely cost
    • the clinic Milliman studied was paid $95 per member
    • a $95 per member fee would reduce AEP/WP claimed savings in the individual market by nearly half, and would result in no net savings in the employer markets. See calculator here.
  • AEG/WPs assumption that a $70 fee for direct primary care will remain flat for a decade is still incorrect.
• A $95 PMPM fee, increasing at the same rate as other medical expenses, and coupled to a 12.6% reduction down stream will evaporate all of AEG/WP’s claimed billion savings.
• The final point.
  • There is good reason to suspect that a direct primary care clinic receiving resources of $95 PMPM will outperform a direct primary care clinic receiving resources of $70 PMPM.
    • Milliman studied a clinic had that invested $95 PMPM in direct primary care and attained a presumed 12.6% downstream cost reduction; the increase in the spend for primary care exceeded the downstream savings; the employer had a net loss for using direct primary care.
    • a $70 direct primary care clinic will need a larger patient panel than its $95 competitor; its PCPs will have less time with patients and less availability; it will be less able to deliver same day appointments; so there is strong reason to expect that AEG/WP’s proposed $70 DPC will fall well short of the 12.6% downstream cost reduction level.