The slow, painful death of fee-for-service primary care


August 14, 2014 Over the last several years, there have been countless attempts to create new models for primary care, with ongoing efforts including the expansion of patient-centered medical homes, the emergence of the direct primary care model, the increasing availability of retail clinics and virtual primary care via smart phones, tablets and the web. But right now, despite the amount of work that has been put into these emerging models, they still represent a tiny amount of primary care volume when compared with the overall U.S. primary care base.

The truth is, while primary care models may be thriving, the finances of primary care providers are not.  Untold numbers of PCPs are joining ACO partnerships or selling out entirely because the margin for running fee-for-service primary care practices is hitting bottom. Payer reimbursement continues to drop while expenses remain the same or even rise.

In the era of high health IT investments and increasing demand for new, costly patient engagement strategies, it’s not going to take much to push primary care practices out of business entirely. EMRs, in particular, are proving costly for unprepared PCPs. A University of Michigan study done last year concluded that the average physician practice will lose nearly $44,000 over five years implementing an EMR system because of failure to leverage its benefits in ways that build revenue and create efficiencies.

Sure, some PCPs seem to have cracked the code to continued profitability despite these pressures. But even these practices may struggle as the amount of their compensation based on measures of quality climbs. And it’s climbing fast. According to research by the Medical Group Management Association, PCPs saw the amount of the compensation based on measures of quality rise to an average of 5.96% of total compensation. Given how serious health plans are about value-based payment, that number is likely to rise dramatically over the next few years.

A permanent shift

Independent, fee-for-service-based primary care practices are up against a long-term and seemingly permanent shift in the way payers, employers and regulators think about their relationship to PCPs. In particular, you’re seeing payers and employers focus increasingly on value-based payment contracts with ACO organizations. As I noted in a previous story, UnitedHealthcare announced last summer that it would double its number of ACO contracts over the next five years, which would represent more than $50 billion in reimbursements by 2017, while its peers are making similar arrangements to shift steadily larger amounts of their compensation to value-based payment. And big employers such as Boeing are contracting directly with ACOs, striking their own value-based payment deals.

At one point, perhaps, PCPs could fend all of this off by adding services that plumped the bottom line, such as medical spa options. And some have been able to keep their expenses somewhat under control by adding a larger number of nurse practitioners and physician assistants to their practice, researchers point out.

The bottom line, however, is that traditional fee-for-service relationships between payers and PCPs are going away. That’s not necessarily a bad thing, as PCPs have been struggling to survive for years on the crumbs fee-for-service payers toss them, but it is going to be a shock to the system when PCPs recognize that they can’t go back to the way things were. While a significant number of PCPs are in denial about this, it’s long overdue that they accept the inevitable.

Want to read more? You may enjoy this story about whether or not ACOs are good for providers. 


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