The UpTake: There’s a growing cadre of medical practices selling on-demand services as the industry adjusts to the Affordable Care Act and a dysfunctional healthcare system typified by long waits, confounding red tape, high costs and impersonal care.
By Lauren Hepler, Economic Development Reporter, Silicon Valley Business Journal
October 5, 2014 – Dr. Caesar Djavaherian spends his days crisscrossing the Bay Area, stitching up lacerations and attending to his patients’ other urgent-care needs. It’s a far cry from a few years ago, when he was a disillusioned emergency room resident in New York City.
“They’re average people who do average things and have an accident,” Djavaherian recalled of the sprained ankles, sliced fingers and other common ailments he saw in the emergency room. “Should you really be burdened by costs akin to a mortgage?”
Seeking to work around the absurdities of an overburdened healthcare system, Djahaverian built ER Direct, which makes house calls for $275 during business hours or $375 on nights and weekends, plus extra for diagnostics and advanced treatments.
The Oakland-based company is part of a growing cadre of medical practices selling on-demand services as the industry adjusts to the Affordable Care Act and a dysfunctional healthcare system typified by long waits, confounding red tape, high costs and impersonal care.
“There’s this huge movement in every other industry where people want and expect on-demand services,” Djavaherian said. “You can get a cab with your iPhone. You can get food with your iPhone. You couldn’t get a doctor with your iPhone.”
The growing number of hard-to-categorize Bay Area direct care medical practices range from high-end concierge doctors operating on retainer to retail models like ER Direct. The question now is whether these models can be scaled — maybe with the help of traditional providers — to serve mass-market consumers.
Beyond that, direct care practices raise questions about the layers of administrative workers currently employed by hospitals. How insurers might respond to these forces is another matter.
“California and New York serve as incubators and beta test sites for the success of businesses, programs and services for the rest of the country,” said Michael Tetreault, editor of industry publication Concierge Medicine Today. “As you bring in competition, prices are going to fall. Supply and demand.”
At the moment, it’s difficult to tally the number of Silicon Valley direct care providers, since the companies operate independently. At least a dozen advertise their services here, and industry analysts estimate the number is north of 300 physicians, pediatricians, dentists, midwives or specialists statewide.
Medical market opening
It’s easy to see what the new breed of on-demand doctor is after: A massively lucrative, and obviously dysfunctional, market. U.S. healthcare expenditures hit $2.9 trillion in 2013 and are expected to reach $3.4 trillion by 2016, accounting for as much as 4 percent of the country’s GDP.
What’s much less clear is whether these doctors — particularly in the concierge niche that critics denounce as “two-tier medicine” — can deliver for everyone.
Djavaherian has made low costs and open access a priority, attracting clients ranging from students to executives to prostitutes. He said the two-year-old company was profitable within its first few months. ER Direct has handled upward of 1,500 cases.
Higher-end concierge providers, like the Village Doctor in Woodside, offer elite services like “hospital service oversight” for unavoidable trips to busy facilities or 24/7 cellphone access to a physician.
Concierge practices are usually limited to 400-700 patients per year, compared to more like 1,000 per year at direct care practices, Tetreault said. Though much of the distinction lies in branding, Djavaherian insists there are philosophical differences as well.
“I very much dislike the term ‘concierge medicine’ when it’s applied to our practice,” he said. “The idea is you’re exclusive. People will say, ‘We’re available to you at a price.’”
The Village Doctor’s website, in contrast, advertises its services “to a limited number of discerning clients who value family, wellness, peace of mind, and time.” Clients including venture capitalist Bill Davidow have left glowing reviews.
Within this fragmented field, however, comes the question of how traditional providers fit in.
Hospitals and large medical practices face extreme pressure to improve outcomes and reduce costs.
Richard Slavin, CEO of Palo Alto Medical Foundation, is preparing for an influx of new patients under the Affordable Care Act by evaluating new partnerships and technology. He sees videoconferencing and community centers as two key strategies.
“So much of care has moved from the hospital or an in-patient setting to an outpatient or ambulatory setting,” he said. “We’re going to need a lot less space for new buildings.”
Djavaherian also wants his company to be an option for hospitals looking to partner. ER Direct recently signed a deal with NorthBay Healthcare to provide house calls to more remote areas in Solano County.
But it wasn’t easy for Djavaherian to get to that point. Aside from convincing hospital systems to embark on experimental partnerships, it was initially a struggle for the practice to buy its own insurance. That’s on top of the ongoing struggle to enlist the support of consumer insurance companies concerned about profit margins.
The concierge conundrum
Despite concerns about accessibility, high-end concierge providers have no shortage of local potential clients in Silicon Valley.
Take Sally Pera, CEO of the Silicon Valley Association for Corporate Growth, who had just returned from a vacation in South America and needed to see a dentist before she returned to work.
To fit in an appointment, she invited him to her living room on a recent Tuesday at 8 a.m.
Outfitted in Chanel pumps and a streamlined suit, Pera settled into an impromptu dental chair — a plush leather recliner in her own downtown San Jose townhouse, where concierge dentist David Blende sat ready to fix a crown.
“I called him last night,” Pera said. “He really is the best at what he does.”
Like other concierge medical professionals, Blende has carved out a niche providing house calls for well-to-do executives and celebrities in the Bay Area, New York City and Beverly Hills.
He sees about five concierge patients a week — on top of the six dental surgeries he usually logs. His schedule is rounded out by appointments with home bound seniors or people with dental phobias, as well as other patients at his offices.
“There’s something about dentistry that had a sort of subliminal arrogance that people had to come to them,” said Blende, whose father was a house call physician in Canada. “That arrogance also goes for people who are just too damn busy.”
The “too damn busy” sentiment helped concierge medicine establish a niche as far back as the 1990s with celebrity and Fortune 500 executive clientele.
While Tetreault said the price point for concierge medicine has fallen, in 2013, a survey by the research arm of his organization revealed that the customer base still skews toward the top 5 percent of earners. 73 percent of concierge patients make $200,000 per year or less, but the numbers don’t reveal how many of the clients are on the lower end of the income spectrum.
Still, much bigger demographic shifts present new potential customers for the direct care providers and established players who can adapt to offer new services. Newly insured individuals (who are likely lower-to-middle-income), aging baby boomers, and adults ready to have children are all potential customers.
So far, that equation is paying off. When it comes to the providers themselves, about 69 percent of concierge physicians made $100,000-$400,000 per year, skewing higher than Silicon Valley’s average pay for physicians around $100,000, according to research by Concierge Medicine Today.
Amid the growth in the concierge medicine field — which Tetreault said now accounts for more than 4,000 medical practitioners nationwide — one major variable is health insurance reimbursement.
Many concierge providers take the insurance companies out of the equation, listing out-of-pocket prices or flat retainer fees. Some PPO insurance plans offer patient reimbursements, but few (if any) practices accept patients through Medicare or Medicaid.
That leaves less-affluent patients stuck in the traditional medical care system, with all its failures. Report after report by think tanks and government agencies show lower-income patients tend to seek care for minor ailments like ear infections at the emergency room, adding exorbitant costs to a burdened system.
In dentistry and other specialties not governed by primary health insurance, the landscape is even more skewed to favor those with cash on hand.
“Dental insurance does not exist,” Blende said. “There are only dental benefit plans that will pay $1,000 or $1,500 per year. That’s a crown.”
Djavaherian said ER Direct has found some success keeping costs down — charging $425 for a stitching up a laceration as opposed to $1,000-$2,000 in an emergency room, for example. He achieves those lower prices by cutting out layers of nurses, staffers to handle paperwork, and expensive machinery.
Whether that model can be applied at scale, or with buy-in from incumbent hospitals, insurers and other medical providers, is a question with big implications for providers and patients.
“The medical industry is finally realizing that the rest of the world is sick and tired of how it is run,” Djavaherian said. “I hope that in five years we’re laughing at the thought of this all being very innovative.”