As insurance rates continue to rise, some turn to a new model for care

To anyone looking at Laura Campbell’s life from the outside, it might be hard to see any sign of strain. She lives in a nice neighborhood in Huntington Beach and works for a small publishing company. She took an end-of-summer road trip with her kids.

But for the widowed mom of teenage twins, health coverage is just out of reach. The company she works for is not obligated to provide health benefits and doesn’t do so, and she thinks the cost of insurance would be overwhelming if she enrolled on her own through the state’s health insurance marketplace, Covered California.

So, Campbell has opted for what she considers the next best thing: a “direct primary care membership” at Elevated Health in Huntington Beach.

Direct primary care, or DPC, is a growing family medicine business model that has gained popularity in the past decade. It is like a subscription service for basic care. Patients pay physicians a monthly or annual fee that covers most primary care services, including clinical visits and lab tests. The doctors opt out of dealing with insurance carriers. But it does not cover major, complicated medical situations, such as cancer treatments, emergency room visits, surgeries, and specialty care.

Proponents say DPC fills a gap in current insurance offerings. And, unlike typical insurance-based models where medical services are billed for separately, DPC physicians have no financial incentive to provide more treatments and tests than necessary. On the flip side, this also gives little incentive to provide robust, thorough care.

“You have no idea sometimes what you will actually be paying for care at the hospital,” Campbell said. “I love the fact that there is full disclosure of costs upfront, and the membership is so much more affordable for me. … I also have a real relationship with my doctor, so I feel like I am receiving better care since they know much more about me.”

An option for the uninsured

If Campbell signed up for health coverage through Covered California, the state’s health insurance marketplace, she would pay from $580 to $1,728 a month for her family of three, depending on the level of coverage. She makes about $90,000 annually, which qualifies her for income-based state subsidies for her family. The least-expensive plan would be considered a "catastrophic" insurance option with higher out-of-pocket costs. 

At Elevated Health, she pays $135 a month for herself and two children. That membership covers typical annual exams in addition to a list of other routine services like EKGs, urinalysis, glucose checks and mononucleosis tests, among other things. Physicians are typically accessible after hours via phone or email, and some offer telemedicine services.

The membership also lets patients access care like one would order food off a menu. The prescription and lab costs are transparent and offered at wholesale price. A pap smear is $60, an STD panel is $41, an ultrasound is $85, a mammogram is $85, an X-ray is $40 to $60, and a flu shot is $20.

The savings on prescriptions range from 5% to 98%, depending on the retail price.

Elevated Health has three family physicians, one ultrasound technician, two nurses, a psychologist, a chiropractor and a physician assistant. It serves about 1,000 patients.

The practice also offers counseling with its psychologist, at wholesale prices. The cost is $80 an hour, compared with about $180 for other counselors in the Huntington Beach area.

Patients have used funds from their pre-tax health savings accounts to pay for membership fees and services, though the tax code here has been unclear for some time. But in June, President Donald Trump signed a health care executive order designed to make health care prices more transparent, and it lets patients use their HSA accounts for direct primary care services.

But a direct primary care membership does not replace health insurance. In California, if people opt out of insurance coverage, they will have to pay a tax penalty under the state’s individual mandate, which goes into effect Jan. 1. Campbell will have to pay this penalty if she continues to forgo insurance. For her, the penalty would be just under $2,000.

DPC physicians still recommend their patients enroll in an insurance plan that at least covers catastrophic emergencies, specialists or other large medical expenses such as cancer treatment. For Campbell, that would have cost an additional $580 a month to have catastrophic coverage for her family of three.

But direct primary care can be an option for people who can’t afford or don’t qualify for employer-based plans or coverage through Medicaid or Covered California.

Matthew Abinante, the physician who founded Elevated Health in 2016, said about 40% of its 1,000 patients are uninsured. Some are undocumented immigrants, and a handful like Campbell are employees at small businesses. Some businesses contract with Elevated Health and pay the membership fee for their employees instead of offering insurance, which is often much more expensive.

The other 60% of its patient portfolio consists of insured patients who want a better relationship with their physician, and some are even Medi-Cal patients who had a hard time getting in to see a doctor and opted to pay for a DPC plan. Medi-Cal is California’s version of Medicaid, the free or low-cost federal insurance program for low-income residents.

“A lot of my uninsured patients are expressing their frustrations with the new (insurance) mandate because they can’t afford a $300 insurance premium each month that doesn’t cover anything,” Abinante said.

According to a 2013 report by the California Health Care Foundation, a high percentage of DPC consumers are uninsured or have a high-deductible insurance plan. And DPC remains an option for individuals, such as undocumented immigrants, who are not eligible for insurance programs created under the Affordable Care Act.

For Linda Ramos, 66, of Westminster, direct primary care was a viable option following her divorce when she lost the health insurance she had through her husband. “I was on certain medication that was costing me hundreds of dollars a month, and a friend referred me to Elevated Health,” Ramos said. “I was paying $200 a month for medication for restless leg syndrome, and now I am paying $10.”

Ramos did apply for Medicare but was quoted $135 per month for a plan, so she opted out of that because Elevated Health was more affordable at $100 per month.

“I also didn’t want to go to any of the doctors that Medicare said I could go to — they were all so far away, and I appreciated the relationship I had with (Abinante),” Ramos said.

Campbell, who hasn’t had health insurance for many years, plans to sign up her family for a minimal “catastrophic” plan to avoid the state penalty that takes effect next year. Nonetheless, she plans to continue seeking care at Elevated Health for all primary care needs.

“I love the fact that it’s compassionate and the doctor has personal knowledge of you, and I consider my doctor there a friend,” Campbell said. “When I needed to get my kids in for their vaccines before school, they fit me in at the last minute.”

But what Campbell really loves is the way the business is run – she thinks the pricing is much more transparent than how health insurance companies bill patients.

And as far as quality and accountability, Gary LeRoy, president of the American Academy of Family Physicians, said DPC practices are still subject to state medical board requirements.

“It is not some voodoo medicine that is independent of state, federal or local regulations,” LeRoy said. “It is just relieving the practice of the administrative burden of insurance. It’s not relieving them of medical liability or of the Hippocratic oath.”

The business model

With enough patients, direct primary care can be a sustainable business model without having to contract with insurance.

The average annual salary for a family physician in California is about $220,000, Abinante said. The 35-year-old is paying himself less than half of that but hopes that physician salaries will grow along with his practice.

Abinante spent his residency at an insurance-based family medicine practice and then worked for one year at an urgent care clinic after residency before deciding to launch his DPC practice. He saw about 60 patients a day at the urgent care practice but left because he wanted to develop deeper relationships with patients.

“I took an oath to do no harm, though, so I think that also means to do no financial harm to patients, either,” Abinante said. “I take a lower-than-average salary because I believe in this model so much.”

Of the American Academy of Family Physicians’ 134,600 members nationwide, 3% practice in direct primary care models, said LeRoy, whose group focuses on providing continued training to physicians and policy advocacy.

There are currently about 1,000 DPC practices across 48 states, serving around 300,000 patients, according to the Direct Primary Care Coalition, which lobbies for legislation and policies that support the model. The coalition also tracks DPC locations throughout the country.

Of the DPC practices in operation, 72% have been open less than three years and 11% have been open less than one year. Fewer than 10% have been open for four or more years, according to the AAFP.

Paul Thomas, who in 2016 launched Plum Health, a direct primary care office, said it has been exciting to be part of the growth. When he first opened, he was one of about 400 practices in the country. That number has more than doubled since, and he expects it to keep growing.

The business model comes with a 60% savings on overhead and administrative costs, compared with fee-for-service models, because much of that cost is typically accrued from the administrative tasks of billing insurance companies, according to the AAFP.

Standard primary care physicians spend two-thirds of their time on non-clinical tasks and just one-third with patients, according to the American Medical Association. Non-clinical tasks include things like typing up patient notes.

Physicians also typically spend an average of 86 minutes at home each night typing up electronic records. Thomas said the DPC model gives him much more flexibility with his time in and out of the office.

“I think it really takes courage for doctors to sacrifice one to two years of a full income to build a practice of their dreams to take care of their patients and deliver the highest-quality care possible,” he said. “I think DPC has saved a lot of doctors from getting burned out, allowing them to practice better and have better relationships with their patients.”

Thomas’ office serves about 550 patients between two doctors. That’s common among most DPC businesses. According to the AAFP, most DPCs serve about 345 patients, but the average target to break even in costs is 596 patients.

A handful of DPC corporations have capitalized on the model by directly contracting with employers instead of individuals. These companies have anywhere from 3,000 to 450,000 patients.

While the small, self-financed DPC offices have continued to grow over the past decade, some of the biggest DPC corporations have shuttered, including those that have tapped financing from investors and venture capitalists. 

Qliance Medical Management, based out of Seattle, served 13,000 patients before shutting down in 2017 amid financial problems. Some of its largest employer contracts were with United Food and Commercial Workers and Expedia. Qliance attracted investors such as Amazon CEO Jeff Bezos and Zillow Chairman Rich Barton, among other funders, according to a 2017 Seattle Times article.

In the past few years, White Glove Health, which served about 500,000 patients, shuttered its DPC business, and MedLion, which served about 3,000 patients, is now mostly a telemedicine service.

But other large corporations have leaned into the industry.

Colorado-based Paladina Health, which was originally funded by DaVita in 2011 before being acquired by New Enterprise Associates in 2018, now serves 170,000 patients in 18 states. In 2013, it had 7,200 patients.

“We directly contract with large and small employer groups, which is what sets us apart from the mom and pops,” said Chris Miller, Paladina Health CEO. “We build clinics directly for employer groups, sometimes on-site or near site that more than one employer can use. The employer contracts directly with us, and the employee receives free wrap-around primary care.”

Those employers typically couple that with a high-deductible health insurance plan, but that is up to the employer to decide, not Paladina.

The financing model for large DPC businesses is unique but allows them to provide more care, Miller said.

“There are a lot of health care technology companies funded by private equity and venture capitalists, but not many primary care companies are funded that way,” Miller said. “Because of that, we are able to fully (fund) our physicians’ salaries — instead of relying on an insurance company — and create incentives for better outcomes.”

At Paladina, physicians get financial bonuses for better outcomes and better patient-satisfaction scores.

Miller said he expects the model to continue to grow, especially with the Centers for Medicare and Medicaid Services set to launch a DPC pilot program in 2020 to serve the Medicare population, though what exactly that will look like isn’t yet clear.

Support from the AAFP has continued to push the growth of the smaller businesses, too.

LeRoy said his organization hosts an annual DPC summit where it provides interested physicians with DPC tool kits to help them get started.

New physicians trying to set up a DPC practice for the first time might have a rocky start as they work to gain patients and introduce communities to this new model of health care.

Anecdotally, LeRoy said he has seen DPC models with just 600 to 800 patients that are as financially successful as traditional family medicine practices that might carry 2,500 patients at a time. This is possible because the physicians are able to collect the payments directly instead of going through insurance, where reimbursement rates are lower.

At the heart of the DPC model, LeRoy said, is an urge to reconnect with the humanity of medicine.

“Physicians have this problem with burnout and loss of their joy of medicine,” LeRoy said. “The ones that have transitioned to DPC seem to be very happy and wouldn’t want to go back. It returns the joy of taking care of patients, which is why we went into medicine in the first place.”

COST COMPARISONS

Costs for popular medications purchased wholesale through Elevated Health compared with the retail price:
 

Allergy medicine Flonase
Retail: $15
Elevated Health price: $4.63

Antibiotic Levaquin
Retail: $125
Elevated Health Price: $1.21

Tamiflu
Retail: $108
Elevated Health: $92.37

Cardiac prescription Lipitor
Retail: $21.14
Elevated Health: $2.40

Viagra
Retail: $450
Elevated Health: $12.45

Ibuprofen 600mg
Retail: $16
Elevated Health: $4.80 

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