Disrupting the Traditional Primary Care Business Model- Direct Primary Care


Oct 31, 2013

Waiting RoomIt is exciting to see numerous new primary care delivery business models bursting onto the scene, including concierge medicine, retail clinics, mobile health vans, and direct primary care. While each model has its own merits, direct primary care has some really unique disruptive potential that we’d like to highlight.


Direct Primary Care Defined

Direct primary care business models usually involve the following key ingredients (see Iora Health as an example):

  1. Patients or employers pay the doctor an annual, fixed fee with no (or very nominal) per visit charges. No insurance reimbursement is involved in this model.
  2. Doctors are usually salaried
  3. Patients go to the doctor for all of their primary care needs, as often as they need it.

Doctors tend to like direct primary care because it relieves them of the administrative burden of dealing with insurance, accelerates the cash cycle of their business, and allows them to focus more purely on delivering great patient care. Some even claim the doctors’ profitability is better under this model.

Patients tend to like primary care because they are relieved of the complexity of dealing with insurance and the uncertainly of what things will cost. They also often cite higher service and satisfaction levels in these models.

Whether clinical outcomes are better in direct primary care is an open question. However, a new start-up, Amplify Health, is creating elegant technology that will allow large employers to easily understand and analyze whether using a direct primary care model in its employee benefit plan reduces costs and improves clinical outcomes. We applaud Amplify and other novel health tech start-ups that are finally giving large employers the tools they need to effectively disrupt traditional health insurance.

When products or services that were previously expensive and complex to use become accessible, cheaper, and easier to use you can bet disruption is afoot.  Disruption usually comes about via a simplifying technology embedded in a business model with a lower cost structure. The way direct primary care will be disruptive to traditional primary care hits both the technology adoption and lower cost structure hallmarks.


Direct Primary Care Disruption

To make the case that direct primary care is disruptive one must understand the way traditional primary care businesses make money. Most of our doctors make money by billing the insurance company for each visit. How much they charge is defined by two factors:

  1. A menu of billing codes set by the American Medical Association called CPT codes and,
  2. Prices negotiated with insurance companies for each CPT code (usually +/- a percentage of the Medicare reimbursement rate).

CPT codes are scaled based on the complexity and severity of the patient / disease treated. Because reimbursement is only available when care is delivered, doctors have the incentive to deliver as much care as possible, and will naturally (and perhaps subconsciously) prioritize those procedures and consultations that yield the highest reimbursement rates. In short, the sicker you are, or the more frequently you need to visit, the more money the doctor makes.

Contrast this with a direct primary care model, where a single fixed fee is paid per patient, regardless of how sick the patient is or how many times they will visit the doctor. Insurance reimbursement codes (and the administrative expense of administering insurance billing and coding) are not part of the equation. Under this scenario, the doctor actually makes more money when you’re well than when you’re sick. This introduces the incentive to deliver treatment that will have the best long-term outcome, regardless of its near term cost or whether the treatment or therapy is reimbursable by insurance.

Having contrasted the two models, now let’s explore the disruptive potential of direct primary care. The disruptive magic lies in the way direct primary care can prioritize adoption of technology in the clinic. A somewhat simplified view of the criteria the two business models use when evaluating new technology acquisition is listed below.

Technology Adoption Criteria

Direct Primary CareTraditional Primary Care
- Does the technology enable better long-term clinical outcomes (long-term focus)?
- Can the technology generate enough savings from the overall patient population to justify purchase of the equipment or implementation of the new process?
- Does the technology enable better clinical outcomes (near or long term)?
- Is the technology / procedure covered by reimbursement?
- Can the office generate enough procedure volume to justify purchase of the equipment or implementation of the new process?

It is important to note that technology here means anything that transforms inputs into a higher value output. This includes processes, devices, and computing technology. Because direct primary care models will be able to adopt technology (e.g., smart phone EKGs or longer appointment times) that traditional primary care can’t prioritize, it will begin to steal away market share from the incumbents. When this begins happening, traditional primary care will have no tools at its disposal to compete on price or service. Its business model is locked in a fee-for-service reimbursement world that will never be able to respond to the lower cost structure or different profit formula employed by direct primary care.

This is not to say that direct primary care doesn’t have its own bridges to cross. Figuring out how direct primary care interfaces with the tertiary care system is an important and not insignificant task that hasn’t been nailed yet. However, I am optimistic that large employers in particular will facilitate adoption of direct primary care as a part of (rather than an alternative to) the larger health care delivery system.

We applaud all of the business model innovators in primary  care, disruptive or not, and look forward to a future where primary care does the jobs we need done in our lives AND provides a fair living to providers.

Ben Wanamaker

  • Natasha Alexeeva

    Brilliant article, Clayton. Do you guys have any data on direct primary care visits vs traditional? I agree that direct primary care is a lot more reasonable but I am wondering if it has any chance of adoption in a country that is so heavily dependent on payors. Also, is there a hybrid model where insurance companies insensitive physicians to keep their patients healthy? Kaiser has been trying to do that for a while now but with limited success.

    • Ben Wanamaker


      Thanks for your comment. Unfortunately we do not have any primary data sources on direct primary care visits vs. visits to traditional primary care venues. The payor component is, as you note, an important and complex one. One example of what’s happening in insurance plans to incorporate direct primary care is cited by Dave Chase in a recent article in Forbes.

      The model mentioned in that article may prove to be an example of a payment mechanism that encourages docs to keep their patient population healthy with economic incentives. It will be fun to see it play out!

    • Justin Tomberlin

      I was not aware of Amplify Health and I will be contacting them.

      There are currently no large scale studies on the effect of direct primary care vs traditional primary care but last year I presented a unique study to the Employers Health Coalition in Arkansas that you should see. I did this while the Director of Business Development for a company who develops employer-sponsored direct primary care clinics (IMWell Health). In the past several years I help this company grow from supporting 16 organizations in 2 small markets to supporting over 50 in six larger markets.

      The study was preformed by the Third Party Administrator or TPA of 8 diverse organizations with approximately 7,500 covered lives. In particular they compared the utilization, disease burden, compliance and costs or members who chose to utilize the no cost direct primary care to members from the same organizations who chose to use a traditional primary care model.

      All providers were salaried but the company was paid either a flat fee or a fee for service depending on the contract with the employer. Either way there were no co-pays or other expenses to the patients in the direct primary care model and the primary care vendor was paid directly without filing claims. This study also included all direct primary care costs but did not include pharmacy costs for any of the members.

      There is much more to the study than I can mention here but you will get the idea. The study is still on the EHC’s website at…

      Justin Tomberlin
      Strategic and Tenacious Business Development

  • Matt Covington

    Also think about the Accountable Care Organization (ACO) model as an alternative to traditional fee-for-service medicine. Under the ACO system payers give lump some payments to a connected organization of providers to take care of populations of people. (20,000+). Financial rewards are offered if the group can demonstrate measures of improved health in their population such as reduced cholesterol levels. On the other hand, the ACO provider network must pay for expensive tests and procedures from their lump sum payment, thereby incentivizing providers against ordering excessive tests or performing unnecessary procedures. Several parallels may be drawn between the ACO model and direct primary care, although direct primary care offers the distinct and significant advantage of freeing patients and providers from the administrative burden of working with insurance companies. Of note, both systems incentivize providers to provide less expensive care which may lead to unintended consequences such as delayed diagnosis when diagnostic testing is deferred for cost considerations.

  • Thank you for bringing Direct Primary Care (DPC) to the forefront. One of this promising new industry’s biggest obstacles is educating society that insurance is not needed for primary care.
    One correction, please. The vast majority of DPC doctors are not salaried, and they don’t have to be. Many doctors are finding the joy in private practice again by removing third-party payers, red tape, and claims-related overhead. Companies, like MedLion Direct Primary Care, actually help doctors practice DPC on their own terms in their own independent practices.

  • Cape Cod Paulie

    This is fine for healthy people unless they need to be admitted to a hospital or surgical center. Then, they have to pay out of pocket thousands, tens of thousands of dollars, or even hundreds of thousands of dollars for care. This may be good for doctors and healthy patients, but is unlikely good for patients when they get sick.

  • Disrupting only primary care is not enough to fix the US healthcare ‘system’.

    I certainly agree that it’s very important to restore medical homes/primary care in the US. Most people need the continuity of care and basic care that primary care doctors provide, not specialist care.

    But as long as large healthcare systems, insurers, and the large EHR and HIT vendors have the power to control the nation’s health data, they will use our data and technology to prevent innovation and to control market share, so we will never get innovation.

    Disruption will come when technology serves individuals, ie patients, not large enterprises.

    We (patients) are the actual ‘customers’ of healthcare and we pay for it directly, many of us get health insurance in lieu of increased salaries, and all of us pay for this disastrous ‘system’ with our taxes.

    In return, we are treated as sources of income for institutions and large enterprises, not as valued customers to be offered great products and services.

    As Clay Christensen has pointed out about other industries, the health IT companies are making fancier and more expensive products for their large customers, not for the little guys, patients and small medical practices.

    We (patients) are the only ones truly interested in using health data to find out where to get the best treatment at the lowest cost. The healthcare and health IT industries never want head-to-head comparisons of the quality or cost of the services/products they provide. That’s why there is no “interoperability” of data or EHR/Health IT systems—corporations act as if our sensitive personal health data are their proprietary corporate assets. And they refuse to share it, claiming it’s too expensive and difficult to exchange health data.

    Current health IT systems prevent patients from controlling their most sensitive personal information: data about their minds and bodies. This is both illegal and unethical, but the public is not aware of their rights to obtain electronic copies of their own data or that their rights to control the use of their health information are prevented by current technology–because both government and industry want unfettered access to our data.

    Large US healthcare institutions, enterprises, and HIT vendors are acting just like Christensen points out mainframe computer makers acted–they sell only to large customers that can pay millions for technology. And they refuse to give us (ie patients, the real customers, the little guys) what we want:
    1) control over personal records
    2) effective data security
    3) electronic access to our data and our doctors
    4) transparency and accountability
    4) no secondary use of PHI for research, “analytics”, or any purpose w/o consent
    5) no selling or trading our health data with data brokers
    5) in short, we want systems and HIT that treat us with respect and that are trustworthy.

    When we (US citizens) can easily get and use our own health data, technology companies will design products for us–that’s what will disrupt the healthcare ‘system’. There is no other way to change US healthcare and health IT markets, which are dominated by large corporations that control the markets.

    Deborah C. Peel, MD
    Founder and Chair, Patient Privacy Rights

  • Bobbi weber

    I can see a path to this working for more than just healthy people. I could buy a direct primary care service and buy a high deductible policy that excluded primary care. Even healthy people need to be covered for unexpected health events. I am for trying anything that can change the focus to health and discourage FFS office visit driven care.

  • When Clayton first anticipated that retail clinics would be disruptive to the established healthcare industry, their business model was potentially disruptive.

    What has subsequently happened, however, is a prime example of how potentially disruptive movements can be sidetracked.

    After acquiring MinuteClinic and laying the foundation for taking retail clinics national, CVS Caremark chose to make deals with hospitals, which could easily afford to rent, open and operate such clinics without making money on the front end or facing real disruption. Retail clinics were a loss leader to hospitals in exchange for large, downstream revenues, and slightly-enhanced market share for the retailer’s pharmacy.

    After CVS shocked Walgreens with one-two punches involving MinuteClinic and Caremark acquisitions, Walgreens came back with three, counter punches of its own.

    1. They doubled the number of their clinics (to 700) in less than two years, thwarted AMA opposition, leapfrogged ahead of CVS in clinic count and totally changed the retail clinic model by setting up politically-invisible, broader service, make your profit up front, employer-based clinics.

    2. They began upgrading the design, product mix and customer experience in their stores, becoming more professional and moving closer to becoming a regular consumer destination, although still lacking what supermarket-based clinics could offer—if they chose.

    3. Walgreens went global with the Alliance Boots acquisition, laying the groundwork– and beating Walmart–in developing a potential, global supply and service chain.

    In the U.S., however, WAG made peace with hospitals, in exchange for permission to pick up medication management before inpatients ever left the hospital.

    Walmart, Target, Kroger and Safeway have all stumbled with retail clinics, despite having a core business (with food) that sits at the fulcrum of managing, preventing and treating the three, biggest, chronic diseases in the world.

    So, who is left as potential disruptors? “StealthCare” companies, like Google, Amazon, Apple and less than a handful of telehealth players.

    Ron Hammerle
    Chairman and CEO
    Health Resources, Ltd.
    Tampa, Florida

  • Having practiced in this model for our thirteenth year, I can tell you that the direct primary care model is ideal for patients and physicians. Most DPC physicians are not salaried, in fact that only represents a small minority of corporate DPC. Of all of the practices we have helped transition in 15 states, none of them are salaried. They are all independently owned. An NCSU MBA program study of providers in our DPC network showed a 65% reduction in hospitalizations and top 5% performance for chronic disease management like hypertension when compared to that of traditional practices. That data was presented at the last DPC Summit in St. Louis in 2013. This model truly allows patient-centeredness and provides much more “face time” with the physician (700% more per year based on NCSU study)

  • C. Cooper, M.D.

    The insurers and the ACA represent the problem with health care delivery in the U.S.. My medical office (and I am specialist) offers a monthly fee option to patients. Anything within the scope of my practice is covered. All physics and even hospitals could use this model. It’s cost effective, affordable and allows the doctor to focus on the patient. No longer is the physician made to act as the De facto agent of the government or the insurance industry. I encourage those interested in “taking back medicine” for the principals involved i.e. The patients and physicians to read Concierge Medical Journal (available at no charge on line).

  • Mark McDonald

    It seems more innovative than disruptive. Innovative because it reduces the urge to send patients into hospitals by restructuring physician reimbursement and making managed treatment accessible. The big problem with the model mentioned is that it waits for folks to get sick then uses diversion, management and fee restructuring to reduce costs. Noteworthy but not disruptive. Disruptive would be to recognize proactive methods to reduce sickness by changing lifestyles. Lifestyle choices create more than 25% of healthcare expenditures.

    “Alcohol abuse cost the U.S. health care system $85.8 billion in 1988. The tab for cigarette smoking totals over $65 billion annually. Costs related to obesity now surpass $27 billion per year.”