Bupkes. Nextera reported a claims cost reduction of $72 PMPM; subtracting a $70 fee, and AEG/WP's billion dollar promises fall nearly 95%.

Asked for sources supporting their assumption of 15% downstream care claims cost reduction, the authors of Healthcare Innovations in Georgia — Anderson Economic Group and Wilson Partners (AEG/WP) — point to Nextera’s contract with DigitalGlobe, as reported in Nextera’s self-published study here.

And here’s the exact table from that study showing claims cost reductions for DPC members.

https://nexterahealthcare.com/wp-content/uploads/2016/08/NH-Digital-Globe-Study-2016.pdf

That’s a overall claims cost reduction of $71.98 per month.

The AEG/WP report assumes a $70 PMPM direct primary care fee (which seems to be unrealistically low). Even at $70 a month, the Nextera experience suggests that we should expect net cost reductions of $2 PMPM.

That’s less than 4% of the net cost reductions of $53 developed in AEG/WP’s analysis. A conservative approximation, based on Nextera’s reported experience, indicates that AEG/WP’s prediction of $21.5 million dollar first year savings in the individual market is off by $20.8 million dollars.

Nextera's marketing presentation establishes huge selection bias, while revealing modest evidence that Nextera cuts cost for some of its patients. But the data set is tiny, old, and contaminated by results for fee for service patients!

The basic premise of AEG/WP’s advocacy for direct primary care is succinctly stated in “Healthcare Innovations in Georgia: Two Recommendations” at page 24.

“Establishing a relationship with a doctor for a fixed monthly fee can induce and empower many patients to see their primary care physician regularly, which results in decreased healthcare expenses and reduced health insurance premiums for Georgia residents.” Accordingly, the report notes, “The direct primary care model requires members to establish a relationship with a primary care doctor that would cost a fixed monthly fee.”

So why did AEG/WP source their claim that direct primary care reduces downstream care costs to a Nextera sales brochure touting its experience with DigitalGlobe, a document that reports on downstream claims costs of a small group of Nextera members, a large number of whom paid per visit charges rather than a fixed monthly fee?

Because of certain complexities in the tax treatment of payments for medical care, Nextera had good reasons for this admitted departure from the “ideal” of direct primary care. In any case, Nextera’s own account reveals that many members of the group for which cost reductions were claimed, were not direct primary care patients as defined by the AEG/WP recommendations.

Because the group had significant numbers of both fixed fee members and fee for service members, it is logically impossible to say from the given data whether the fixed fee Nextera members experienced downstream cost reduction that were greater than, the same as, or worse than the fee for service Nextera members. So, while the study does suggest that Nextera clinics foster downstream care savings, it can not demonstrate that fixed-fee direct primary care has any benefit.


Here are the core data from the Nextera report.

Nextera Healthcare + DigitalGlobe: A Case Study

205 selected Nextera; they had prior claim costs PMPM of $283.11; the others had prior claim costs PMPM of $408.31. This a huge selection effect. The group that selected Nextera had pre-Nextera claims that were over 30% lower than those declining Nextera.

Rather than award itself credit for that selection bias, Nextera relied on a “difference in differences” ( DiD) analysis. It credited itself, instead, for Nextera patients having claims costs decline during seven months of Nextera enrollment by a larger percentage basis (25.4%) than claim cost for their non-Nextera peers (5.0%), which works out to a difference in differences (DiD) of 20.4%.

What the data does not show is whether those who picked Nextera doctors and paid a fixed fee had any better downstream claims experience than those who picked Nextera doctors and paid on a fee for service basis.

The data presented in the Nextera brochure, in other words, do not isolate direct primary care status as the cause of the improvement. What the data show instead is the apparent effect, not of the “directness” of care but, of the “Nexterity” of care.


The principal conclusions of Nextera’s sales brochure, which the company styled a “case study”, are also tainted by errors of arithmetic.

Here’s an image of a table clipped directly from their piece.

Do the arithmetic. The reduction rounds off to 5.0%, the number I used in the larger table above. Nextera’s ability to handle numbers is plainly suspect.


In the time since the report, Nextera has been actively claiming that its DigitalGlobe experience demonstrates that it can reduce claim costs by 25%. Nextera should certainly amend that number to the reflect the smaller difference in differences that its report actually shows. But even the substituted claim of 20% cost reduction would require significant qualification before that figure could be extended to other instances.

Even before they were Nextera members, those who were eventually enrolled seem to have been markedly low risk, lower I believe than any cohort previously identified in any of the literature addressing direct primary care. Difference in differences analysis relies on a “parallel trend assumption“. The Nextera population may be so much different from those who declined that the trend observed for the one DigitalGlobe population can not be assumed even for the other DigitalGlobe population, let alone for a large, unselected population like the entire insured population of Georgia.

Consider, for example, an important pair of clues from the Nextera report itself: first, Nextera noted that signup were lower than expected, in part because of many employees “hesitancy to move away from an existing physicians they were actively engaged with”; second, “A surprising number of participants did not have a primary care doctor at the time the DPC program was introduced”.

As further noted in the report, the latter group “began to receive the health-related care and attention they had avoided up until then.”

A glance at Medicare, reminds us that routine screening at the primary care level is uniquely cost-effective for beneficiaries who may previously avoided attending to their health. Medicare’s failure to cover regular routine physical examinations is notorious. But there is one reasonably complete physical examination that Medicare does cover: its “Welcome to Medicare” exam.

First attention to a population of “primary care naives” is a way to pick the lowest hanging fruit available to primary care. Far more of that fruit can be harvested from a population enriched with people who are receiving attention they have avoided than from a populations enriched with those who are already actively engaged with their existing physician.

Accordingly, a “parallel trend” can not be assumed; and the 20% difference in differences savings can not be directly extended to the non-Nextera group.

Relatedly, the comparative pre-Nextera claim cost figure may reflect that the Nextera population had a disproportionately high percentage of children, of whom a large number will be “primary care naive” and similarly present a one-time only opportunity for significant returns to such preventative measures as a routine physical. But a disproportionately high number of children in the Nextera group means a diminished number of children in the remainder — and two groups that could not be expected to respond identically to Nextera’s particular brand of medicine.

A similar factor might have arisen from the unusual way in which Nextera recruited its enrollees. A group of DigitalGlobe employees with a prior relationship with some Nextera physicians first brought Nextera to DigitalGlobe’s attention and then apparently became part of the enrollee recruiting team. Because of their personalized relationship with particular co-workers and their families, the co-employee recruiters would have been able to identify good matches between the needs of specific potential enrollee needs and the capabilities of specific Nextera physicians. But this process would result in a population of non-Nextera enrollees that was less amenable to whatever was unique about Nextera. Again, no parallel trend could be assumed.

I am uncertain whether the results of these kinds of considerations would be deemed “selection bias” by a trained econometrician; I suspect they might be characterized instead as instances of “omitted variable bias”. However designated, these kinds of possibilities should be accounted for in any attempt to use the Nextera results to predict downstream cost reductions outcomes for a general, unselected population as envisioned by the AEG/WP authors.


Whether or not Nextera inadvertently recruited a population that made Nextera look good, that population was tiny.

Another basis for caution before taking Nextera’s 20% claim into any broader context is the limited amount of total experience reflected in the Nextera data. The report covered seven months experience for 205 Nextera patients. In fact, Nextera’s own report explains that before turning to Nextera, DigitalGlobe approached several large direct primary care companies (almost certainly including Qliance and Paladina Health); these larger companies declined to participate in a study so short for a group so small.

Total claims for the short period of the experiment were barely over $300,000, the 20% difference in difference claimed savings about $60,000. That’s a pittance.

Consider the two or three members who did not join Nextera in May 2015 because, no matter how many primary care visits they might want in the coming months, they knew they would hit their yearly out-of-pocket maximum and, therefore, not be any further out of pocket. Maybe one was planning a June maternity stay; another, a June scheduled knee replacement. A third was in hospital because of an automobile accident at the time for election. It is likely Nextera-abstention of these kinds contribute importantly to pre-Nextera claims cost differentials.

But the matter is raised here primarily to suggest the fragility of a purported post-Nextera savings of a mere $60,000 over seven months. An eighth month auto accident, knee replacement, or Caesarian could evaporate a huge share of such savings in a single day. The Nextera experience is too small to be reliable.


This seems a good juncture to note that Nextera has not chosen to present any downstream claims reduction experience more recent that 2015 — whether for DigitalGlobe or or any other group of Nextera patients. Perhaps Wilson Partners should have asked Nextera for data showing results for some of the forty-one months that intervened between the end of the initial seven month period and the time at which Wilson Partners addressed Nextera’s seemingly self-serving report .

Nextera now has over fifty doctors, a presence in seven different states, and patient numbers likely in thousands by now; it should have no problem generating newer, more complete, and more revealing data.


Because of its short duration and limited number of participants, because it has not been carried forward in time, because of the sharp and unexplained pre-Nextera claims rate differences between the Nextera group and the non-Nextera group, because the Nextera team makes patent errors of arithmetic, and because its cost reduction figures are contaminated by the inclusion of a significant number of fee for service patients, the Nextera study cannot be relied on as giving a reasonable account of the overall effectiveness of direct primary care in reducing care costs.

The two largest and most current AEG/WP examples of downstream cost reduction failed to adequately address selection bias.

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, makes 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 facilitates the public discussion that the Georgia Public Policy Foundation sought to foster in publishing the report. I have been examining those assumptions in prior posts and there are more to come. In this post, I continue a multi-post evaluation of AEG/WP’s claims regarding the effectiveness of direct primary care in reducing downstream care costs.

Although the AEG/WP report does not support its key claim with data or citation, the report’s authors responded to my request for information by indicating their sources. One of them was an e-zine article about the CHI clinic. The other two were promotional brochures, denominated case studies used, by the DPC companies Paladina and Nextera, to solicit business from self-insuring employers.

CHI’s direct primary care enrollment (1130) was more than three times that of the enrollment in a second source consulted by Wilson Partners, Paladina/Arvada (350), and more than five and one-half times larger than the remaining source, Nextera/Globe (205). Of the source clinics, the information from CHI is from 2018; that from Paladina is from 2016; and that from Nextera is from 2015. Both age and population numbers suggest a sequence for addressing the reports from the three clinics.

I begin with CHI and continue to Paladina in this post. I will conclude with Nextera — which represents not more than 10% of the populations addressed in AEG/WP’s sources — but this will be in a separate post, largely because the information from Nextera presents certain distinctive and complex issues as will be seen.


As recounted in a “Health Leaders” e-zine article, CHI Health offered a direct primary care option to its roughly 20,000 members in Nebraska; about 1130 enrolled; the rest remained in a traditional PPO arrangement. CHI reported data for the first three months of 2018 that showed those who opted for direct primary care that showed a $387 PMPM for specialist and facility charge versus a $488 PMPM, a difference of about 20%.

But the article cautioned that the CHI data was not risk-adjusted.


Note too that the claimed 20% reduction by CHI included only specialist and facility costs. But there are other medical costs, like prescription medications, that help keep other downstream care costs low. Any assessment of the effect of direct primary care in reducing other care costs should address all relevant care costs.


Wilson Partners also sourced a brochure produced by Paladina Health which presented its bottom line claim of 22% claims cost reduction in the year 2016 for those 350 or so employees of the City of Arvada, Colorado, who elected to use a Paladina direct primary care clinic rather than receive primary care elsewhere. There is no indication that the reported total claims cost reduction data for Paladina/Arvada has been adjusted for risk. (After having invited further questions, AEG/WP did not respond to a specific inquiry on this point.)

Unlike the case of Paladina’s clinic in Union County, North Carolina, we do not have data that compares the ages of Paladina members in the Arvada clinic versus those in traditional primary care. At the same time, there appears no significant operational difference between these two Paladina clinics, no significant operational difference in how Paladina relates to the local government entities who sponsor the two clinic, and no systemic difference between the employee populations served in the two places. Accordingly, it is wise to assume that the selection bias seen in Union County plays a similar role in Arvada.

Without analysis that seriously engages the question of selection bias, neither the CHI experience nor that at Paladina/Arvada is meaningful evidence that direct primary care is a potent tool for reducing downstream care costs.


Even if we assume that there is no selection bias in play at Arvada, the cost-effectiveness of that program seems doubtful. Assuming membership at Paladina/Arvada costs the same $125 a month as membership at Paladina of Union County, reducing overall medical costs by the 22% claimed for Paladina Arvada would imply, under the AEG/WP methodology, that use of a direct primary care clinic reduces downstream claim costs by nearly 35%. That alone is not a proposition on which to bet the health of hundreds of thousands of Georgia citizens. But it’s an even poorer bet when the monthly membership is priced at $70 a month.

Why did Wilson Partners' research into DPC cost-reduction bypass uniquely available and pointedly relevant data?

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, makes 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 facilitates the public discussion that the Georgia Public Policy Foundation sought to foster in publishing the report. I have been examining those assumptions in prior posts and there are more to come. In this post, I continue a multi-post evaluation of AEG/WP’s claims regarding the effectiveness of direct primary care in reducing downstream care costs.

As noted in a prior post, the report by the Anderson Economic Group and Wilson Partners supported the assumption that direct primary care reduces downstream care cost by 15% with nothing more than a cryptic reference to “research and case studies prepared by Wilson Partners”, presented with neither data nor citation. Initially, I thought this secreted research effort might focus on the experience drawn from the SALTA direct care clinics in Michigan.

Let me explain.

David Wilson, the principal of Wilson Partners, co-founded SALTA Direct. At the time of the report, SALTA charged self-insuring self-insuring employers and individual members $70 a month. Wilson’s direct primary care company also boasted that, “The SALTA Direct Primary Care solution has been shown to reduce overall healthcare costs by 20%.”

Wilson’s own company, in other words, both operated at the Qliance-like prices and touted the Qliance-like results needed to support the cost-effectiveness claims assumed by Wilson and his AEG/WP report colleagues. Because of David Wilson’s unique proximity to the SALTA experience, I somehow assumed that data from SALTA formed the backbone of the “research and case studies prepared by Wilson Partners” on which the conclusions of the AEG/WP report so heavily rest.

Well, silly me! The research performed by Wilson Partners for the AEG/WP study apparently did not include any of the cost and performance data of which David Wilson’s SALTA proudly boasts.

Instead, the AEG/WP report authors responded to my request for information by indicating that the “research and case studies prepared by Wilson Partners” comprised the harvesting of three items off the web. One of them was an e-zine article about the CHI clinic. The other two were promotional brochures, denominated as case studies, by the DPC companies Paladina and Nextera and to solicit business from self-insuring employers.

In two upcoming posts, I will examine these items. If they provide sound evidence that direct primary care reduces the costs of downstream care, no one need bother to ask why Wilson’s partnership eschewed data from Wilson’s company.

Selection bias infected the best documented argument that direct primary care reduced downstream costs.

An update appears at the bottom of the page.


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, makes 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 facilitates the public discussion that the Georgia Public Policy Foundation sought to foster in publishing the report. I have been examining those assumptions in prior posts and there are more to come. In this post, I continue a multi-post evaluation of AEG/WP’s claims regarding the effectiveness of direct primary care in reducing downstream care costs.

A unique and powerful opportunity for quantitatively informed assessment of such claims has come from a DPC clinic serving employees of Union County. There, health plan members are able to choose between receiving primary care in a DPC clinic or through physicians under traditional model of insurance and fee for service.

Mark Watson is the county official responsible for this innovation. He made available some key data needed for comparing medical costs for DPC patients and those receiving primary care to the John Locke Foundation (“JLF” is NC’s version of GPPF) and others, . The most recent report about Union County by JLF claims that DPC patients experience costs that are 28% lower than those in traditional primary care.

But the very same report expressly notes that the DPC group patients have lower medical risk scores than the traditional group patients.

A large part of medical risk scoring derives from patient age. In that regard, Watson had Union County’s human resources office compile basic demographic data on the two populations. These data showed that the average participant in the DPC group was at the time of compilation about four years younger than an average participant counterpart in the traditional group.

Four years may not seem like much, but age/claim cost curves are steep. A figure of 5:1 is widely cited in comparing the medical claims experience of 64 year-olds relative to 21 year-olds. Even an age/cost curve with an average slope of 4:1 can explain every penny of the 28% cost differential between two Union County groups separated in age by four years. If the 5:1 ratio most broadly accepted is accurate, than Union County’s primary care option actually increased the county’s costs.

Younger people, lower claims cost, lower premiums.

It is virtually certain that what looks like a claims cost reduction is an illusion resulting from the segmentation of Union County’s insureds by selection bias.


Likely sources of selection bias at the Union County clinic are discussed here.

Union County’s presentation of comparative claims data is available here.

Union County’s summary of comparative age data is available here.

Union County’s contract with its direct primary care clinic operator is available here.

Age-cost curves may be viewed here.

Update: See this post for some cost-adjusted data that confirms signficant selection bias, while still suggesting that direct primary care has net positive effects.

The marketplace reached a judgment about direct primary care pioneer, Qliance.

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, makes 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 facilitates the public discussion that the Georgia Public Policy Foundation sought to foster in publishing the report. I have been examining those assumptions in prior posts and there are more to come. In this post, I continue a multi-post evaluation of AEG/WP’s claims regarding the effectiveness of direct primary care in reducing downstream care costs.

Washington State is deservedly recognized as the birthplace and one of the most prominent frontiers for DPC, in large part because of Qliance. The Seattle-based DPC conglomerate is recognized as an exemplary market force in the private sector of health care. Major investors such as Amazon CEO Jeff Bezos have propelled Qliance . . .

Katherine Restrepo and Daniel McCorry, Forbes, February 6, 2017, States Prove Why Direct Primary Care Should Be A Key Component To Any Health Care Reform Plan

Qliance certainly seemed to have muscle. It had 25,000 member patients, revenues of approaching $2 million a month, and service contracts with individuals, small and large self-insuring employers, unions, Medicaid, and even on-exchange plans. And it operated in Washington, a state whose regulatory environment has been cited as ideal by advocates favoring direct primary care,

In January 2015, Qliance published some results of a study that claimed that its direct primary care model for employee groups had achieved a 20% overall cost reduction and a net benefit of just under $680 per year for each covered person when compared to those who received traditional, fee-for-service priamry care. . Qliance monthly fees being in the vicinity of $79 per person per month, those companies, unions, or other health plan partners lucky enough to have Qliance contracts were said, in effect, to have received their money back plus a dividend of at least 70% per annum.

Principles taught in business school will tell you that, provided Qliance could actually demonstrate that these claims were solid and scalable, Qliance would almost certainly have been awash in new health-plan partners and would have had no problem in finding lenders or investors to support its seemingly inevitable growth.

Yet, less than ten days after receiving high praise in Forbes in February 2017, Qliance announced that it was in such deep financial trouble that it was the beneficiary of a GoFundMe campaign. Then, three months later, the marketplace executed its final judgment on Qliance, and the company filed for bankruptcy. The actual business world in which due diligence is practiced appears to have concluded that Qliance could not deliver the value it claimed.


Here, in Qliance’s own table, are the exact promises of immense cost savings that Qliance put before insurers, investors, and lenders:

There is an oddity in first row of data, the one addressing ER visits. Qliance patients are revealed to have fewer, but more expensive, visits than the comparison group. In the aggregate, the fifth column reports, Qliance patients had higher per patient claims costs for emergency room. It seems fair to imagine that Qliance’s apparent admission that it does not reduce ER claims costs may have itself generated skepticism about the claims cost reductions for which Qliance did attempt to take credit.


Qliance’s former president and chief executive office, Erika Bliss, M.D., has expressed outrage that some insurers refused to work with her company even though she told them that Qliance could save them 20% on overall costs.

Qliance’s table points to a per employee per month {“PMPM”) savings of close to $60.

“$40 PMPM is a lot of money for an insurer. When I worked at UPMC Health Plan, [getting a] $40 PMPM from a significant chunk of the covered population would make quite a few VPs very happy as this solves a reasonable chunk of their margin generation expectations.

David Anderson, Research Associate, Duke University, “Points of Confusion

When insurers walk away from an offer of $55 PMPMs, it is almost certainly because they do not find the offer credible. And in all likelihood their skepticism turned on Qliance’s inability to demonstrate that the Qliance population and the comparison group had similar risk profiles. Risk is the lens through which insurers see, mostly, everything.

Risk is also the lens through which careful research about fixed-fee primary care compensation systems sees the future. Consider, for example, these recommendations of Family Medicine for America’s Health, an alliance of the American Academy of Family Physicians and seven other family medicine leadership organizations, for a prospective payment system for primary care:

Based on our findings, we recommend that a comprehensive primary care payment methodology incorporate the following key components and best practices:

1. Primary Care Payment Rate: The CPCP payment rate should account for approximately 10-12% of total health care costs, in contrast to the roughly 9% supported by high performing health systems today.

2. Population Risk Adjustment: The payment should be risk adjusted using a hybrid model including the Primary Care Activity Level (PCAL) framework with a Minnesota Complexity Assessment Model (MCAM), component. . . .

. . .

FMAH Comprehensive Primary Care Payment Background Report

That FMAH report referred, with emphatic approval, both to Qliance specifically and to direct primary care in general. And the report even relied on none other than Erika Bliss herself to support the idea that patient panels should be divided by risk to assure that the payment reflects adequately the service level required for patients of varying needs; apparently, this is something that Qliance has done in one or more of its programs.


No one from Qliance and none of Qliance’s boosters has even bothered to suggest, let alone present evidence, that the two populations compared in Qliance’s cost reduction analysis had comparable risk profiles. But what was said about possible “selection bias” is far less important than what insurers thought about that possibility. It’s hard to turn one’s back on $60 PMPMs. Things are highly likely to have turned out differently, no matter Qliance said, if insurers were convinced that the purported ability of Qliance and its direct primary care model to reduce overall care costs by 20% was genuine, rather a mere artifact of selection bias.


The table above, produced by Qliance to illustrate its claim of overall costs savings, excludes prescription drug costs. Given that there are prescription drugs which if taken regularly can avert the need for expensive hospital services and given that some prescription drugs can be quite expensive, it is difficult to see how an analysis of overall care cost reductions can exclude prescription drugs.


P.S. It seem at least possible that the “($5)” in the Qliance chart was an erroneous attempt to enter “$5”. Even that, however, seems likely to undermine the credibility of the report — for the same reasons that listing “Bachelor of Arts, Yael University, New Haven” might undermine some other assertions in a resume.]

"Trust us. We did studies." AEG/WP have a special way of showing that direct primary care reduces the costs of downstream care.

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, makes 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 facilitates the public discussion that the Georgia Public Policy Foundation sought to foster in publishing the report. I have been examining those assumptions in prior posts and there are more to come. In this post, I begin a multi-post evaluation of AEG/WP’s claims regarding the effectiveness of direct primary care in reducing downstream care costs.

The focal assumption of the AEG/WP report’s calculations is that DPC membership will reduce the claims cost for downstream care by 15%, a number represented 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”. The report gives no description of the research or case studies that Wilson Partners prepared; no methodology is identified; the subjects of the case studies are not identified; the report presents no research data; and the report has no citations of, or reference to, any public source where any support of any kind for the 15% factor, or any similar factor, can be found.

The AEG/WP report does present more than four hundred data points in six tables that predict that billion dollar savings are possible, if AEG/WP’s key assumptions about direct primary care are correct. The number of data points presented in the 75 page AEG/WP report that address whether direct primary care has any gross or net cost-reduction value is precisely zero.

Of the billion dollar savings AEG/WP predicts, not a penny would be realized unless the question of whether direct primary care significantly reduces the claim costs of downstream care is answered in the affirmative.

That’s the real billion dollar question, to which AEG/WP’s apparent answer is, “Trust us, we did some studies.”


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 LC can perhaps lead a drinker toward this potentially watered-down lemonade, it can’t make him drink or remain on my panel of drinkers. I will therefore continue to make the best lemonade possible given the restraints of all-you-can-drink, fixed-fee.

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 LCNH than it does to negotiate price and credit terms with individual drinkers.

And, yes, direct primary care has virtues. But, it in terms of incentivizing a diluted product of fewer visits and more referrals, a practice that turns on a fixed-fee for potentially unlimited visits has a certain resemblance to capitation.

$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.