It appears Primary Care is becoming a hot market practice for nonhealthcare US retail and healthcare corporations to invest in today. Big corporations are chasing the Primary Care market worth about $260 billion in 2022, which is big enough to attract attention. The other factor is a shift from FFS healthcare model to a Fee For Value healthcare model. There is a potential for increasing costs in the latter.
Primary care disruptors could capture 30% of market by 2030, fiercehealthcare.com, Heather Landi
Retail giant Amazon was looking closely at One Medical as a way to expand into the Fee For Value market. In May of 2022, Amazon spent $3.9 billion to acquire One Medical. Amazon believes the new company will help it drastically lower customer acquisition cost with the One Medical’s already captive market. One Medical operates 188 offices in 29 markets. At the end of March, One Medical had 767,000 members.
CVS paid out $39 per share or approximately $10.6 billion to acquire Oak Street Health. CVS took a loan of $5 billion and added cash and other liquid resources to acquire the business. By primary care disrupters, we are discussing Amazon, CVS, and other companies entering the Primary Care Market.
What we are seeing is corporate America’s retailers, becoming more involved in healthcare. In particular Primary Care. And why? Because of a shift from Fee for Service to a Fee for Value and potential profits. The primary care market is estimated to be worth around $260 billion.
New care and reimbursement models resulting from Fee For Value coupled with a focus on virtual care, the nontraditional players are gaining traction. They have the potential to grab as much as a third of the U.S. primary care market by 2030. This according to a new report from Bain and Company.
Primary care today is dominated by traditional Fee For Service providers. Coupled with rising costs, demographic shifts, aging population, digital disruption and other factors, primary care will continue to change. These changes to the market opens up opportunities for new players to utilize different approaches such as Fee For Value.
Some explanation . . .The “Value-Based” alternative to FFS involves prepaying for care or capitation. In short, capitation involves a single fee, paid upfront yearly for all the medical care provided to a defined population of patients for one year based on their age and health status. Medicare Advantage plan uses Fee for Value. Each year, they code the patients and submit the codes to CMS.
To explain how the payment to Fee for Value in Medicare Advantage is accomplished, I am pulling from a USC-Brooking paper by Ginsburg and Liberman. Some detail . . .
CMS pays Medicare Advantage (MA) plans more for beneficiaries in MA plans than in traditional Medicare. MA plans submit bids each June to CMS indicating the dollar amount it would take to provide Medicare Part A and B benefits in the coming calendar year, including administrative costs, and profit margins, for a member of “average” health status.
Within the nation, CMS establishes a “benchmark” for each county reflecting Medicare spending for those beneficiaries not enrolled in Medicare Advantage. Benchmarks are adjusted according to a complex, legislatively mandated quartile system classifying each county’s per beneficiary Medicare spending into four categories, ranging from counties with low to high Medicare spending. Benchmark rates are lowered relative to actual FFS Medicare spending for plans in counties with relatively high spending and are raised for plans in low spending counties.
Additionally, CMS increases payments by 5 percent to any MA plan with a quality rating at four or five stars. (If you look, there are few plans with low ratings). This increases MA costs to CMS, relative to what MA spending would be without the quality bonus and relative to the costs of serving the same beneficiaries in traditional Medicare. The bonus payments for plans with higher star ratings are also not offset by reductions in payments for plans with lower ratings.
Medicare’s monthly base payment (the amount before incorporating a star ratings bonus) is the benchmark if a plan bid equals or exceeds a county benchmark. However, for the overwhelming majority of plans that bid below county benchmarks, the base payment is the plan’s bid. Plans bidding below benchmarks receive a “rebate” payment from CMS that increases their base payment (over and above any star ratings bonus). Rebates range from 50 percent to 70 percent of the difference, with higher star ratings entitling the plan to the higher percentages. Plans receiving rebates must “return” them to enrollees in the form of either premium reductions or additional benefits, which can be either lower cost sharing or services not covered by traditional Medicare.
In theory Traditional Medicare pays for Medicare Advantage with bonuses and bidding under the benchmark. What causes the cost issues is the over coding of MA participants, denial of care, etc. On its own MA plans can not compete with Traditional Medicare.
Although plans submit bids to CMS for a standard beneficiary, the actual monthly payments for each plan member increase or decrease based on the risk scores of those who have enrolled. Generating higher risk scores for MA members increases MA plan revenues. The patient diagnoses reported by physicians determine risk scores, and MA plans can directly or indirectly create incentives to affect physician coding, as detailed in a recent Department of Justice complaint against Kaiser Permanente.
As you can guess, an MA plan can increase the codes for the enrollees.
Under MA, capitulation payments go to the insurance companies and they payout to Doctors on a Fee For Service methodology. This occurs for all MA plans with the exception of Kaiser Permanente which pays out to Doctor groups first. The results of over payment can be seen in the recent 2022 MedPac report for 2020 (page 439). It states there were over payments of ~$12 Billion to MA Plans. The payments going to the companies first is what is making Primary Care Disrupters (Amazon, CVS, etc.) excited about taking on Primary Care Fee For Value and paying out to doctors, etc. Fees For Service. They get to decide what to pay doctors.
A big threat to Fee For Value provider companies is over coding which has already been experienced and reported in the MedPac report for years now. While CMS MedPac has called out MA plans on this abuse, it has not come down very hard on the various plans such as United Healthcare. It should have the commercial healthcare companies are draining Medicare funds with their practices.
I discussed Amazon and CVS having plans to enter the Primary Care market by buying up Primary Care healthcare such as One Medical and Oak Street. Other players include Walgreens Boots Alliance and VillageMD and the launch of UnitedHealth Group’s OptumCare causing the Primary Care market to shift and becoming more competitive for the traditional providers.
Complicating this in the future is a pending physician shortage which will be a major driving force for change in care models. One can envision Fee For Value companies offering doctors more until such time as FFS is extinct and then lowering payouts to staff.
The U.S. is expected to be short 45,000 physicians by 2030. More than 70% of physicians don’t work alongside other specialists, and more than 45% don’t work alongside advanced practice providers (APPs). The claim is such a practice will not be sustainable by 2030. The commercialization plan is there. It just remains to be seen whether CMS Traditional Medicare will finally push back on the MA Plans practices which is driving up healthcare costs,
More on this later with further examination.
The Debate on Overpayment In Medicare Advantage, USC Schaeffer, Paul Ginsberg and Steve Liberman.
Chapter 12 MedPAC, March 2022 Report to the Congress
Fee For Service versus Fee For Value Healthcare, Angry Bear, Angry Bear