By Tom Blue, June 2013
As the field of private medicine rapidly expands and diversifies, an important yet confusing distinction among private physician practices has caught the attention of the media and other industry stakeholders. A growing number of practices are aggressively defying the widespread misperception of “concierge” medicine by pricing their services at levels easily affordable to almost anyone who values a primary care relationship.
Affordable pricing of private medicine began more than a decade ago with the dawn of what is referred to today as the “direct care” practice movement. One of the fathers of this movement, Dr. Garrison Bliss, founder of Qliance, made two important observations as he embarked on his journey to transform primary care.
First, he calculated that roughly forty cents of every dollar spent on primary care are consumed by reimbursement costs (insurance claims processing costs at the practice, claims processing at the carrier, and the insurance carrier’s profits).
Second, he observed that insurance should not be used to pay for primary care. The purpose of insurance is to protect individuals and businesses from financial ruin in the event of an unlikely event such as a house fire, a car accident, or cancer. A person’s need for primary care is in no way unlikely. To the contrary, it is a certainty. Everyone needs primary care and should be encouraged to access it in order to mitigate the risk of the more catastrophic health events that insurance is intended to cover.
Furthermore, the cost of primary care poses no threat to the financial stability of a household or business. Few people utilize primary care services over the course of a year that equal the cost of a health insurance premium for a single month. The use of third party payers for primary care adds no value to the patient or the medical practice and contributes only cost and friction to the delivery of this vital service to the population.
The direct care innovation is simple and rational. By eliminating the unnecessary financial burden imposed by third party payers (roughly 40% of the cost of primary care), practices are able to offer greater access to primary care at a price that is easily affordable – even to people who cannot afford health insurance.
This simple change to the economics of the medical practice simultaneously produces a better service for patients and greater profitability for the physician.
Now, years after Dr. Bliss conceived of direct care in the mid 1990s, private physicians offer direct care to patients on a membership basis for a monthly fee, on a transactional basis using transparent cash pricing for services, and on other terms combining these two approaches.
A Confusing Distinction
As direct care practices have grown substantially in numbers and in popularity among patients, politicians, and the media, there is a clear tendency to observe the field of private medicine as bifurcated. One camp consists of direct care practices inventively serving the medical needs of the masses. The other camp consists of “concierge” physicians charging handsome sums to cater to the medical needs of the wealthy.
Is the distinction really a matter of price?
To the media and other casual observers, the distinction appears to be a matter of price. At some point a direct care practice membership is sufficiently expensive for the offering to be deemed “concierge medicine.” If this is the case, what is the magic price that separates direct care from concierge medicine? Is the tipping point the same in San Francisco or Manhattan as it is in Omaha or Little Rock?
Unfortunately, direct care memberships range in price from less than $50 per month to more than $25,000 per year. So who decides what the price tipping point is? Does it change with inflation or cost of living? Is it a function of the average household income in a given market?
The fact is that while low price points for private medicine has caught the attention and met with the approval of the media and politicians, price alone fails to sufficiently clarify this issue.
Is it the business model?
A clear understanding of the innovation behind the direct care movement suggests that the distinction between direct care and concierge medicine lies in the practice’s relationship to third party payers. Direct care creates value for patients and the practice by eliminating the non-productive cost burden (roughly 40% of the cost of primary care) of the payer system. Therefore, by definition, direct care practices do not contract with third party payers.
In 2013, the majority of private physicians contract with third party payers, so in this regard, a clear distinction does exist between the business models in private medicine. The problem with this distinction is that to the public, it is the price point, not the relationship to third party payers that is most remarkable.
The private medical venture that best proves this point is One Medical. The best capitalized private medical venture to date, One Medical has discovered that without divorcing the third party payer system, the economics of primary care can be profitably transformed by charging an annual fee of only $200 to patients in exchange for better access to primary care enabled by technology and an enhanced office environment.
Firms like One Medical have demonstrated yet again that even in the highly regulated, seemingly baron American primary care system, innovation, coupled with a partially free market, can conspire to create new value and opportunity for patients and their doctors.
Perhaps it’s the re-introduction of the free market into American health care.
It would appear that what observers are really celebrating as they applaud the proliferation of “concierge medicine for the masses” is neither direct care nor low-cost concierge medicine (both of which have been present since the dawn of the private medical movement).
Rather, what people are beginning to witness is that by reluctantly allowing free market forces to seep back into America’s largest industry, even primary care can be transformed for the better by entrepreneurship.
As the field continues to expand and mature, Americans can expect to see the suppliers of private medical services conform to the consumer demand for those services. And as in all other areas of the economy, the marketplace will force the optimization of pricing and ensure the alignment of price and value.
A Word of Caution to “Concierge” Physicians
As the real payers in the American health care system (individuals and employers) now recognize the value of private medicine, the field is quickly becoming more competitive. Many private physicians whose services are offered at the higher end of the pricing continuum must, possibly for the first time, objectively assess their value proposition relative to that of lower priced competitors.
Those that provide little more than enhanced access to basic primary care will struggle to compete in the advancing marketplace for private medicine. The private physicians who enjoy rapid growth at premium price points will be the continuous innovators who recognize and respect the responsibility and privilege of their position. They are the stewards of the most precious commodity in health care today – time.
The investment made by their patients in this new form of health care delivery provides these private physicians the time and liberty to advance the field of medicine with their vision, creativity, and experimentation. Those who rise to the occasion will prosper. Those who do not should prepare to re-price their services
The Danger of Polarization
Journalists, politicians, physician organizations, and other key stakeholders in the American health care system who find themselves inclined to applaud the democratization of concierge medicine have the potential to inadvertently harm the movement by vilifying private physicians who price their services on the higher end of the continuum.
As with almost all markets in which innovation drives productive transformation, creativity and successful experimentation at the high end of the market finds its way to efficient mass production for the benefit of the broader population.
Witness the majority of the breakthroughs in automobile safety, user experience, and performance. Most were introduced and perfected in high-end vehicles at the expense of consumers willing to pay a premium for what began as luxury innovation. Those enhancements that prove most valuable gradually find their way into more affordable cars.
Such is the case with private medicine. Wealthier consumers of concierge medicine as early adopters of state-of-the-art preventive medical technologies and services have paved the way for their wider availability to others. Genetic screening, imaging for preventive cardiovascular screening such as coronary calcium scoring and CIMT, adult stem cell banking, and a host of advanced lab tests are advancing mainstream medicine partly as a result of the catalytic role of concierge physicians and their clients.
Aspects of the affordable private medicine we celebrate five years from now will have been heavily influenced by the higher priced concierge practices of today. Those who value in any way this evolution in American healthcare must respect the necessity of the diverse spectrum of private physicians and their service offerings. The duality of “direct care” and “concierge medicine” forms the crucible for accelerated innovation in this vibrant, emerging sector
The physicians who comprise the private medical movement should recognize the significance of their roles as agents of change in a broken system and the commonality of their interests in fortifying the foundation of this new marketplace for their services. They must also respect the magnitude and temper of the system they are disrupting, and be vigilant to ensure their ranks are not divided.
About the Author
Tom Blue is a veteran and pioneer in the field private (“concierge”) medicine. As a builder of private physician practices since 2002, he has a unique perspective on the history and evolution of the industry and the ingredients for success at the practice level.
In 2009, Tom accepted the role of Executive Director of the American Academy of Private Physicians, the national professional association for private physicians. Under his
direction, the Academy has re-branded itself, found its voice in the national media, and grown significantly to serve the ever-expanding ranks of physicians who are reinventing themselves and their practices across the United States.
A strong believer in the need to redefine the relationship and incentive structures between private physicians and the firms that assist them in converting their practices from insurance- based models, Tom co-founded n1Health in 2011. n1Health is the first enterprise of its kind to make active capital investments in partnerships with aspiring private physicians to launch their practices, equip them for long-term success, and grow them to their potential after they open.
Tom can be reached by email at tblue@n1Health.com.