DPC advocates talk about lemonade stands. Strangely!

When an opinion piece in JAMA suggested that direct primary care might resemble primary care capitation plans sometimes tried by insurers in raising issues of allocating resources between primary care and other medical care, Kenneth Qiu, M.D. gathered enthusiastic approval from many supporters of direct primary for the following response.

DPC looks like capitation but is not. Capitation incentivizes less visits and more referrals while DPC does the opposite. To illustrate the difference in underlying psychology and motivation between DPC and capitation, imagine I make and sell lemonade. If I set a price for the lemonade and a customer pays for my lemonade, I’m going to ensure the customer gets the best lemonade possible and will do everything in my power to ensure quality so the customer keeps coming back. This is DPC. Now, if a big company puts me in a network of lemonade sellers and says they will pay me a certain amount per customer and will assure customers come by putting my name on the in-network list, I’m likely going to create a watered down product that just barely counts as lemonade in order to maximize my payment from the big company since customers are coming anyways and, at the end of the day, its the company that pays me, not the customer. This is capitation. As it relates to primary care, better lemonade means more access and better, more comprehensive treatment, both medical and personal.

Commentary by Kenneth Qiu

I’ve sold lemonade on the streets, and I don’t get it.

Of course I made the best possible lemonade to keep my “fee-for-cup” drinkers coming back, as well as to gain new “fee-for cup” drinkers from referrals. But I don’t see why my lemonade would be any different if those fee-for-cup payments came from the Lemonade Club (LC) rather than from drinkers directly. I will be under pressure to perfect the mix of lemonade quality, lemonade dilution, and lemonade production costs that will keep my drinkers satisfied and myself in business, no matter who makes the payments.

Suppose, however, LC puts me on a capitation system that parallels primary care capitation by insurers, and continued participation requires that I provide all-you-can-drink lemonade. The quality, dilution, and production cost mix may need adjustment. I may well have to make a more dilute lemonade to make the business work. But, while the Lemonade Club can perhaps lead a drinker toward this potentially watered-down lemonade (by putting you on its “Lemonade Near You” app), it can’t make him drink and it can’t make him remain on my panel of drinkers. Because I’ll still need drinkers walking up to the stand, I will continue to make the best lemonade possible given the restraints of all-you-can-drink, fixed-fee lemonade.

Dr Qiu is simply wrong to assume that lemonade customers would keep coming simply because I am on the Lemonade Club list. By the very defintion of list, there are actually other lemonade makers on the same LC list.

How are things different for the lemonade entrepreneur outside the LC network who decides for herself to seek customers for a fixed-fee all-you-can-drink plan that parallels direct primary care?

Yes, she may not like working with “Big Lemonade” of the LC. But I might like being on the LC app that finds “nearest lemonade”. Yes, she might not like spending the time filling out LC paperwork; but maybe it would take me less effort to work out a single contract with LC than it does to negotiate price and credit terms with individual drinkers.

And consider this, if Dr Qiu has opened his own Direct Lemonade stand, and has a panel that have prepaid a season’s worth of lemonade in advance, what incentive does he have to keep his quality up all season long.

Note, too, that Dr Qiu might be at risk of adverse selection by those heavy drinkers who are disproportionately attracted to all-you can-drink fixed-fee lemonade. Who would blame him if he targeted connaisseurs de limonade who sipped rather than gulped?

Yes, direct primary care has virtues. But, it in terms of incentivizing fewer visits and more referrals, or an alternative strategy of cherry-picking low-utilizers, a practice that turns on a fixed-fee for potentially unlimited visits resembles capitation in important ways.

$938,824,142. How fair adjustments to the $70 DPC assumption reduce the billion dollar savings claimed in the AEG/WP report by 85%.

A billion here, a billion there, and pretty soon you’re talking real money.

Attributed to Senate Everett Dirkson (R-IL, deceased)

This spreadsheet recomputes net five year savings from direct primary care if AEG/WP’s assumptions of (a) a $70 per month DPC fee that (b) stays constant for the next ten years are replaced with the assumptions of (a) $101 per month DPC for the year 2020 that (b) trends upward at the same rate as other medical costs.

The case for replacing the $70 fee with a $101 fee is set out in this prior post.

The case for replacing the assumption that DPC fees will stay flat for a decade with the assumption that fees will trend upward at the same rate as other medical costs is set out in this prior post.

The same spreadsheet also includes calculators used to determine the expected annual per policy premium savings given different values for the monthly fixed direct primary care fee. The spreadsheet replicates AEG/WP’s computation methodology with precision; cell formulae are readily viewed.

These computations show how the proposed adjustments reduce the computed savings from direct primary care by over 85% from nearly $1.1 billion dollars claimed by AEG/WP reports authors to less than $140 million dollars.

Importantly, the calculations discussed here actually assume the validity of AEG/WP’s major assumption about the ability of direct primary care to reduce the cost of claims for downstream care. This post only addresses the inflation of claimed savings that result from the AEG/WP’s authors being unrealistic about the cost of direct primary care.

Whether these authors were accurate about the effectiveness of direct primary care in reducing claims costs for downstream services is left for other posts. If DPC is as effective as the AEG/WP report assumes, then every direct primary care at realistic prices might still offer $140,000,000 in savings. On the other hand, if direct primary care is only two-thirds as effective as AEG/AP claims, then not a penny of savings would materialize.

AEG/WP left a small “wellness” thumbprint on the scale measuring the impact of their DPC package

In “Healthcare Innovations in Georgia:Two Recommendations”, the report it prepared for the Georgia Public Policy Foundation, the Anderson Economic Group and Wilson Partners (AEG/WP) for the Georgia Public Policy Foundation, clearly explained their computations and made clear the assumptions underlying their report. This facilitates the public discussion that the Georgia Public Policy Foundation sought to foster in publishing the report. I have addressed various aspects of their explanation and assumption in previous blog entries, and more are on the way. Right now I wish to address AEG/WP’s inclusion of a “wellness” program in its direct primary care proposal.

AEG/WP recommended that each large insurer provide a “wellness-demand management program” to each participant who elected direct primary care. This type of voluntary program “uses the results of health risk assessments and claims data to determine a personalized health and well-being curriculum that “would include education, health coaching support, and activity goal-setting and tracking.” It also envisioned “a reward vehicle in the form of a Health Reimbursement Arrangement for members enrolled through employer or group coverage, or a Georgia Healthcare Premium Account for members enrolled through individual coverage” and even a “modest cash incentive could be substituted to encourage particularly reluctant individuals to enter into a wellness plan”.

Naturally, AEG/WP included the positive effects of their wellness plan in computing cost savings from their direct primary care plan. Their estimates of low but gradually growing wellness plan participation and its benefits in improved health in the following years resulted in a set of claims cost reductions that amounted to about 0.5 per cent of claims costs in the second year, 1.0 per cent in the third year, 1.50 percent in the fourth year, and so on. Their computation assumes that by year five over 60,000 members will be enrolled in the wellness program and claim cost reductions would reach 2%.

It is important to note these more modest numbers were then added to the predicted 15% reduction of downstream care costs attributed to direct primary care. So, that in the fifth year, for example, AEG/WP savings computation reflects 17% lower claims costs for DPC participants, but 2% of the 17% is due to the wellness program.

What is concerning is that, while the additional 2% savings in year five is scored as a computed as a positive effect of the AEG/WP direct primary care plan, AEG/WP failed to include in their computation any costs associated with a 60,000 person wellness program; there’s not a penny for the study of the personal claims data, the personalized curricula, the coaching, the rewards. They credited their program with the financial benefits from a wellness program, but did not bother to debit it with the financial costs of a wellness program.

It may be a relatively small amount of money as these things go, about four million dollars in year five. But this instance of inclusion of benefits and the exclusion of their costs seems similar to other, more financially consequential failures of analysis addressed in my other recent posts; one in which the AEG/WP team also looked at one group of DPC practices to determine what the benefits of paying monthly DPC fees are and then at a different group to determine the cost of DPC fees; and another in which the same team determined that downstream cost savings will rise exponentially with rising medical care costs, but assumed that the monthly fees of DPC practices would remain flat.

Origins and future of the report “Healthcare Innovations in Georgia”

The Medicaid goal of the political right in Georgia has always been careful stewardship of tax-payer funds. Three years ago, the Georgia Public Policy Foundation began to flog a bargain basement Medicaid waiver plan priced at $2500 per capita.

The core rationale for this seemingly meager amount was that $60-$70 a month direct primary care makes almost all other care unnecessary except in rare “true catastrophic” cases.

Everything from the political right claiming vast advantages for direct primary care needs to be seen in connection with Medicaid cost control efforts.

At the same time, direct primary care advocacy from the right, at least in Georgia right now, also needs to be viewed as intended to support Section 1332 waiver authority for an ACA-market-segmenting limited benefit plan built around direct primary care.

Healthcare Innovations in Georgia: Two Recommendations, the report prepared for the Georgia Public Policy Foundation by the Anderson Economic Group and Wilson Partners, praised the cost-savings benefits of direct primary care. Ostensibly, it did so in support of requiring large insurers to offer direct primary care as a primary care option within comprehensive, full benefit, ACA compliant plans. But the Georgia Public Foundation has ordinarily advocated for direct primary care in a context limited to either (a) controlling public cost for Medicaid and state employee coverage, or (b) opposing the Affordable Care Act itself. The Foundation has, as well, been generally antagonistic toward ACA full benefit plans.

Accordingly, I am not persuaded that GPPF was ever seriously in favor of, or even interested in, expanding choice within the ACA by including direct primary care within full benefit plans. There even appear to be signs within the AEG/WP report itself that earlier drafts may have included specific recommendations for channeling Medicaid and state employees into direct primary care plans with limited benefits.

In any case, there is no sign that the State is moving toward direct primary care within ACA compliant full benefit plans. Instead, with enthusiastic support from GPPF, the State is seeking a waiver to allow and support limited benefit plans. And this enables the AEG/WP to be offered for what I believe more realistically reflects the reasons for which the Georgia Public Policy Foundation commissioned it.

Specifically, in the advocacy from the political right yet to come, I am quite certain the AEG/WP report will be represented as a massive, quantitative study that confirms the cost-effectiveness of direct primary care. Yet, despite its many tables of numbers, its imposing appearance, and its astonishing 75 pages, there is good reason to question whether the AEG/WP report demonstrates that direct primary care has billion dollar value or any value at. Blog posts just prior to this one and a number of subsequent posts address these questions.

Ironically, the best way to test the cost-effectiveness of direct primary care might very well be to create options within comprehensive, full benefit, ACA compliant plans where direct primary care can compete on an even basis in an actual market directly with traditional fee for service primary care. So, kudos to the Georgia Public Policy Foundation for commissioning and publishing the AEG/WP report that presented that idea. Actually getting behind that market-based idea would be even better, and might actually help Georgia blaze a trail for the nation.

Monthly direct primary care fees will not hold steady at $70 for a decade.

That alone makes the AEG/WP report off by about $500,000,000.

In “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, the authors clearly explained their computations and made clear the assumptions underlying their report. One of the assumptions was that the fixed monthly fee for direct primary care would be $70 a month. I examined that assumption here, and I firmly believe $70 underestimates the fixed monthly fee that would actually be for direct primary care that is actually cost-effective at reducing the costs of downstream care. For this post, however, I will assume that the monthly fee is correctly priced at $70 a month.

In its computation purporting to show a billion dollar savings over the next five years from implementation of direct primary care with more to come in the five years after that, however, AEG/WP made the additional assumption that the $70 monthly fee would remain flat for a decade. That assumption accounts for hundreds of thousands of dollars of the computed savings.

AMG/WP have offered no justification for that assumption. It is hard to imagine how that assumption could possibly be justified. It is even hard to image how a responsible analyst could make such an assumption.

The report reasonably suggests that as medical claim costs rise in compound fashion (by as much as 9.9% per year in the individual market), the amount that might be saved by DPC-attributable cost reductions would also in compound fashion. These potential savings are accounted for in AEG/WP’s computations. Also, an identical upward, and compounding, trend is built in to their computations for the claims costs of traditional primary care.

The AWG/WP report assumes, however, the cost of a DPC membership will hold steady at $70 for an entire decade. Accordingly, in AEG/WP’s computations the medical claim savings from DPC grow exponentially, the costs of traditional primary care grow exponentially, the medical costs of downstream (non-priamry) care services grow exponential but the costs of DPC remain perfectly flat.

Since direct primary care clinics must recruit staff, rent space, and buy goods in the same marketplace as other medical providers, including traditional primary care providers, AEG/WP’s choice to assume a stable $70 clinic fee is problematic.

If the $70 monthly fee is trended up for a decade by the same 9.9% per year AGE/WP selected for its calculation of all other future medical prices, including the cost of traditional primary care, the monthly fee reaches $180 a month, and the annual fee increases by more than $1200. Had AEG/WP chosen to perform their DPC savings computation to reflect such seemingly predictable increases, the computed savings would been lowered by hundreds of thousands of dollars.

Interestingly, the AEG/WP report was published in May 2019. At the time, $70 was exactly the monthly DPC fee being charged by SALTA, a direct primary care company co-founded by David Wilson, one of the AEG/WP authors. By December 2019, however, SALTA announced that its fixed monthly fee was going up by almost 29%, to $90 a month.

Apparently DPC practices are not immune to medical cost inflation — at least if you own one.

Note: This Link will access the Google spreadsheet I used to calculate the effect on premiums of different values for the monthly fixed fee; it follows AEG/WP methodology. It also explores the difference in the individual market for 2025 between assuming that the $70 fee remains flat and assuming that it trends upward in parallel to rate used by AEG/WP to compute all other health care costs.

$70 lowballs the monthly direct primary care fee.

On that score alone, the AEG/WP report is off by $750,000,000.

In “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, the authors clearly explained their computations and made clear the assumptions underlying their report. One of the assumptions was that the fixed monthly fee for direct primary care would be $70 a month.

The report itself did not identify the source of the $70 figure. AEG/WP responded by email to an inquiry by stating only that the number was based on a study by Wilson Partners, apparently unpublished, of 16 direct primary care practices.

The experience of now-bankrupt Qliance, discussed elsewhere, further suggests that $70 fees cannot sustain a direct primary care experience that delivers effective cost reduction.

Why did AEG/WP ignore an academic study on point?

But why rely on a tiny unpublished study, when there is a published quantitative study of far greater scope in The Journal of the American Board of Family Medicine, with data directly on point, and a complete description of the methodology used. And might such a study be given special attention when the lead author of that academic journal article is one of the leaders of the direct primary care movement — Dr. Philip Eskew, a member of the advisory board of the Direct Primary Care Alliance and its general counsel.

In their piece prepared in 2014, Direct Primary Care: Practice Distribution and Cost Across the Nation, Dr. Eskew and his colleague reported that 116 practices they had identified as direct primary care practices had an average monthly cost of $93.26

Did AEG/WP ignore Georgia’s largest DPC group?

HIPnation has 40 direct primary care doctors in Georgia, one of seven states in which it operates. HIPnation would likely be a principal beneficiary if the AEG/WP recommendation were implemented. Dr. Hal Scherz, one of HIPnation’s founders, has deeply involved in Georgia Public Policy Foundation advocacy on health care in general and direct primary care in particular. In fact, Scherz’s advocacy is all but certainly part of the story of how AEG/WP came to prepare a report about direct primary care for GPPF.

Dr Scherz’s HIPnation has monthly fixed direct primary care fee of $100 a month. If a monthly fixed fee of $100 is substituted for $70 in AEG/WP’s computation, over half of the calculated savings for the individual market evaporates, along with every penny of savings in the large group and small group markets.

The monthly fees at direct primary care clinics that the Georgia Public Policy Foundation has featured in its own commentary can run $125 or more.

Unlike those Qliance, the doors are still open at the Union County employees’ direct practice clinic, an operation lauded by the Georgia Public Policy Foundation in a copyrighted article. The monthly fee paid by Union County for an employee who elects the DPC clinic run for the county by Paladina Health Services is $125. If a monthly fixed fee of $125 had been used in the calculations of the AEP/WP there would have been no net savings to report in the individual, small group, or large group markets.

In another copyrighted article, then-GPPF-president Kelley McCutcheon praised the PHS/Encounter3 direct primary care clinic in Altoona, Pennsylvania. That clinic offered free or discounted plans to persons with limited incomes. For an enrolled individual with incomes at the national median, however, the monthly fixed direct primary care fee was $130.


Consider, too, the DPC industry’s reaction to provisions addressing direct primary care in the Primary Care Enhancement Act of 2019, HR3708. That legislation would allow DPC fixed fees up to $150 a month (indexed for inflation) to become countable expenses under Health Savings Accounts. The Direct Primary Care Alliance’s Board of Directors opposes that $150 limitation.

Why did AEG/WP draw its assumption about monthly fees from a different set of clinics than those from which it drew its assumption about effective performance?

To  assess what fixed monthly charge actually makes sense, we should look at a few examples of direct primary care clinics that at least claim to have demonstrated their cost-effectiveness. Critique of such claims by AEG/WP and others, I leave for another post. For the moment, though, let us take AEG/WP’s claims of cost-effectiveness at face value. 

While AEG/WP did not identify, in the report,  the research and case studies on which based  their assumptions, AEG/WP responded to an email seeking more information by identifying three clinics as sources for its cost-effectiveness conclusion.  It seems abundantly reasonable to assign special significance to the monthly fixed fees at these same institutions in assessing the reasonableness of the $70 fixed fee. The sauce for the cost-effectiveness assumption goose is sauce for the fee assumption gander.

For two of the three AEG/AP hand-selected clinics, the basic monthly fixed fee can be determined from public sources. Nebraska’s CHI Health Centers’  basic charge is $80. The monthly fixed fee at Colorado’s Nextera clinics are $99; since, however, Nextera clinics also charge a $79 one-time registration fee the effective monthly costs at Nextera exceed $99. AEG/WP’s other choice was a clinic operated by Paladina Health Care, who specialize in employer sponsored plans and who do not quote prices to the public. As noted above, however, Paladina is known to receive $125 a month for each adult enrollee in its Union County employee program.

Averaging the monthly fixed fees of CHI, Nextera, and Paladina — the very clinics AEG/WP rely on for their claims of cost-effectiveness — suggests a monthly fixed fee of $101 a month. Note that this number in early 2020 seems very much in line with Dr. Eskew’s 2014 finding of $93 adjusted by low inflation. If $101 is substituted for $70 in AEG/WP’s computation, over half of the calculated savings for the individual market evaporates, along with every penny of savings in the large group and small group markets. Five-year computed savings across all markets would be less than a quarter of the billion dollars claimed by AEG/WP.

Note: This Link will access the Google spreadsheet I used to calculate the effect on premiums of different values for the monthly fixed fee; it follows AEG/WP methodology.

Good for you, GPPF!

  • AEG/WP accurately reported that health coverage costs real money.
    • Annual premiums are:
      • $8,829 in the individual market
      • $6,668 in the small group market
      • $5,845 in the large group market.

In the lowest priced large group, members of the vast majority of plans also are subject to at least some cost sharing (deductibles, copayments, and/or coinsurance). Accordingly, $5,845 represents a minimum annual health care cost for covered individuals without direct primary care.

Even with the savings resulting from direct primary care, AEG/WP computes large group market premiums for plan participants with direct primary care to be $5,592 per year.

It’s helpful to see realistic numbers on the Georgia Public Policy Foundation’s own website, because in the recent past the Foundation has advocated a Medicaid program built around direct primary care that was budgeted at on an annual cost of $2,500 per person, for a population to whom financially significant cost-sharing would be virtually impossible.

Automobiles are fast and affordable: a parable.

Dan Wildhirt [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)%5D

Automobiles are fast.

Only a few days after finalization of the AEG/WP report in May of 2019, in a city in the Midwest Region of the United States, data was collected for a study of automobile performance.

In this study, researchers operated 39 different automobiles for a distance of ten miles one or more times, for a total of 73 “time trials”. The collected data revealed that automobiles can cover ten miles in 172 seconds or less, and in some cases in fewer than 155 seconds. This represents a substantial improvement over the reported results for fast bicycles.

Automobiles are affordable.

A second group of researchers, in the very same month, conducted their own study of automobile pricing. They determined that automobiles cost $36,718 on average, with prices ranging from less than half to more than twice that amount.

Unfortunately, although the two studies were conducted in the same month, the researchers did not coordinate with their work. This makes it difficult to determine from the available data whether there might be a relationship between the performance of particular automobiles and their price. At least a few experienced analysts have proposed that an automobile priced at or below the average may perform less ably than higher priced cars. A special study in which performance data and price data are examined conjointly has been proposed as means to determine whether there is hidden link between performance and price.

Mischievous Foundations?

Early in 2017, I became aware of a policy initiative by the Georgia Public Policy Foundation the gist of which was to expand Medicaid in Georgia to more beneficiaries while, simultaneously, reducing the total per person expenditure on Medicaid to $2500 per annum. The Foundation’s plan also purported to eliminate the burden of uncompensated care on Georgia providers, especially hospitals .

At the center of the Foundation’s proposal lay two health care finance components:  a state payment of $750 per year to provide for each Medicaid recipient an annual membership in a Direct Primary Care clinic, and a state payment of a $1750 annual premium for a insurance policy providing catastrophic coverage.

Since Medicaid expansion under the Affordable Care Act costs at the time of the Foundation’s proposal substantially exceeded $6000 annually per covered individual, since $1750 per annum can buy only coverage with a  deductible far beyond the means of any Medicaid recipient, and since the Foundation’s plan removed the burden of uncompensated care from providers, the Foundation’s proposal turned on obtaining very substantial cost savings effects of beneficiary participation in direct primary care.  Starting at articles and links on Foundation’s website, I examined the evidence that direct primary care might be able to reduce the medical costs for a Medicaid beneficiary from over $6000 to a mere $2500.

In 2017 and early 2018, I wrote a series of posts arguing that direct primary care had not been, and could not be, shown to have massive cost reduction effects. I’ve transferred those posts to this blog, some with corrections.

Around the time the Georgia Public Policy Foundation (GPPF) was floating its Medicaid DPC proposal, North Carolina’s John Locke Foundation (JLF) was advancing the position that state and local governments could similarly cut costs by putting its benefited employees into direct primary care clinics. Both GFFP and JLF are state level versions of the Heritage Foundation, and both relied on Heritage Foundation material addressing direct primary care.

All three foundations tend toward strong fiscal conservatism. Certainly, if direct primary care has real value in reducing the costs of medical care, it would make sense that all three foundations would get behind firmly behind direct primary care.  At the same time, even if direct primary care does not reduce the cost of providing care, it may nonetheless give the appearance of reducing the cost of providing care. Then, it can be used to justify lower government expenditures for the health of Medicaid recipients and government employees.

Georgia leads the nation … into what?

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, provides valuable material to deliberations about direct primary care. The AEG/WP team clearly explained their computations and made clear the assumptions underlying their report. This facilitates the public discussion that the Georgia Public Policy Foundation sought to foster in publishing the report. I will be examining those assumptions and various implications of the report in upcoming posts. I will also put the AEG/WP report into the context of other bits of an on-going discussion about direct primary care.