Capital is moving into the concierge medicine space

March 05, 2013 | Dow Jones Newswires | Capital is moving into the concierge medicine space, where two acquisitions (by Procter & Gamble in 2007/09 and DaVita HealthCare Partners in 2012) have signaled big-acquirer interest. Some of the early-mover entrepreneurs have had to change their business models in the face of cold market realities, but the sector does not seem likely to labor under a capital constraint. Among the big-payoff possibilities: regulations governing new insurance exchanges to be set up under the Affordable Care and Patient Protection Act, aka Obamacare, may make room for concierge medicine-catastrophic insurance combination packages.

In concierge medicine, a doctor receives a monthly fee paid by patients–or on their behalf by an employer. The recent shift to employer-sponsorship instead of self-pay is one of the more important changes in the concierge model.

Seattle-based Qliance Medical Management Inc. was founded in 2006 with a business model based on three principles: it would not accept insurance, it would not charge fees for services, and it would offer services including seven-day a week hours, access to doctors by phone or electronic media, and as much time with the doctor as a patient needed to spend, instead of the rushed appointments typical of conventional primary care practices. Qliance includes Michael Dell and Jeff Bezos among its investors, and completed a roughly $10 million private placement in December. The company had raised a previous $10 million in three earlier rounds.

But Qliance has had to adapt its model. “The pure model of this is ‘I work for patients, they pay directly,’ like any business,” says Qliance’s CEO, Dr. Erika Bliss. However, Qliance found that proposition hard to sell. Says Bliss, “People are so separated from the cost of care they don’t think about the payment mechanism. They go to see the doctor and someone else pays bill.” So Qliance has turned its marketing focus to employers, who pay the monthly fee on behalf of employees. Patients pay no additional fees, and have more access to the doctor than in the conventional insurance-reimbursed, fee-for-service model. Bliss says the data shows its model reduces emergency room use, specialist visits and hospitalizations sharply, so employers benefit from lower employee health care expenses. Some are signing on–Qliance recently opened a clinic on the campus of online travel company Expedia Inc.

The phrase “concierge medicine” is a controversial term for this model of primary care delivery, because it implies that the product is only for the rich. Sometimes that’s true. Dr. Samir Qamar, founder of MedLion Direct Primary Care, previously operated a concierge service in Monterey, CA., and says, “My fees were as high as $500 per month.” Such fees bought 24/7 access to the doctor, house calls and other “luxury amenities,” Qamar says. He started MedLion Direct Primary Care for lower income patients. It also charges a monthly fee–but only $59 monthly. He has invested “over a million dollars” growing the company, which claims locations in California and Nevada, with others set to open in Florida, Washington, Indiana and Pennsylvania. Qamar says he is now talking to private equity and venture capital firms about capital for further expansion. Variations on the “direct” rather than the “concierge” name are common among more mass-market oriented enterprises.

One big divide in the space is between business models in which the doctors are employees and those in which the doctors continue to own their own practices. Qliance employs its doctors; but the biggest concierge practice in the country, MDVIP, Inc., operates on a partnership basis with doctors who continue to own practices after working with MDVIP to convert them to the new model, reducing their patient load from the national average of about 2500 to an MDVIP maximum of 600 and average of about 400. As in other similar concierge or direct practices, the lower patient count allows doctors to spend more time with patients, engage in deeper conversations, and do more counseling and preventive health than in a conventional practice. But this comes at a monthly cost of about $1500 per month per patient, and not all patients are willing to pay. The conversion process includes finding other physicians to take care of those patients who opt not to subscribe, and transferring the records. After converting their practices, doctor-partners subsequently pay MDVIP a franchise-like royalty of around a third of membership fees. Acquired by Procter & Gamble in two transactions in 2007 and 2009, the first a minority stake on undisclosed terms, the second a $65 million deal for the remaining 52% of the company, MDVIP claims a patient count of about two hundred thousand, with five hundred physicians nationwide, so total subscription revenues amount to roughly $300 million, two-thirds of which are retained by the doctors.

n1 Health Inc. comes in somewhere between the two models. It has raised about $4 million in early-stage friends-and-family capital to date with the help of BB&T Capital Markets co-head William Tyson, who says he worked pro bono. Like MDVIP, n1 works to help physicians convert their conventional practices to the direct-pay model. But n1 also provides financing to aid the transition, taking an ownership stake in the practice. The physician also receives a stake in n1, and so shares the upside of the overall business growth, unlike other models where the physician is either an employee or relies upon own-practice revenues. n1 president Tom Blue says, “We will embark on a much more aggressive capital raise in 2013.”

Some in the industry see the big potential for growth in a little-noted provision of the health reform legislation known as Obamacare. Section 1301 says, admittedly rather obscurely, “The Secretary of Health and Human Services shall permit a qualified health plan to provide coverage through a qualified direct primary care medical home plan that meets criteria established by the Secretary…” Regulations are still to be drafted, but the legislation opens the door for insurance companies to develop joint offerings with concierge, or direct primary care, medical service providers and sell them on the new health care exchanges.

A recent study of MDVIP’s patients published in the American Journal of Managed Care found one-year savings of $300 million on lower hospitalization admissions than typical privately insured or Medicare patients. No wonder capital has been taking the opportunity to move into the space.

(Gregory J. Millman is a senior columnist with Dow Jones Banking Intelligence. He holds an MBA and has worked in banking and as a business analyst in the U.S. and Asia, and has more than 20 years of experience as a financial writer. He is the author of The Vandals’ Crown: How Rebel Currency Traders Overthrew the World’s Central Banks and several other books. He can be reached at +1 (212) 416-2352 or by email at

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2 replies »

  1. “Section 1301 says, admittedly rather obscurely, “The Secretary of Health and Human Services shall permit a qualified health plan to provide coverage through a qualified direct primary care medical home plan that meets criteria established by the Secretary…”
    This is very vague. Has anyone else have more insight into this statement?

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