The pandemic is forcing physician practices to switch business models

The Covid-19 pandemic hit every aspect of healthcare, and primary care practices were no exception.

Most physician practices make money through the fee-for-service business model, which pays physicians based on the number of services they provide. But with Covid, “suddenly that fee-for-service care dropped off substantially, so many practices were in threat of closing,” Russ Phillips, director of Harvard Medical School’s Center for Primary Care, told Healthcare Brew.

Primary care—which was a $260 billion industry in 2022—lost about $15 billion in 2020, according to an article from Phillips and other Harvard researchers. In the same period, approximately 16,000 physician practices closed, according to a survey from the Physicians Foundation.

Now, the financial pressures the pandemic exacerbated are forcing many practices to switch business models to stay viable—and two are emerging as the favorites: concierge and direct primary care (DPC) models. “I feel like almost every care-delivery-oriented client or organization that we work with is fundamentally rethinking their business,” Abby Johnson, leader of EY Americas’ health consulting practice, told Healthcare Brew.

Concierge vs. direct primary care

Under a concierge business model, practices charge an annual fee for patients to become members (not accounting for the cost of care often covered by insurance). Those fees could cost as much as $10,000 per year, according to Phillips, though membership comes with benefits like being able to reach a physician via phone at any time and same-day appointments.

Under the DPC model, practices don’t accept insurance and patients pay a lower monthly fee, ranging from around $50 to a few hundred dollars per month, for direct access to their doctor and unlimited office visits, as well as the option to sidestep high insurance deductibles. But patients would likely still need to keep their insurance to cover healthcare services that fall outside the scope of primary care.

Electronic health record company Elation Health told Fast Company that the number of concierge and DPC practices on its platform grew 38% YoY in 2020. EY has also seen “consistent double digit growth” for the concierge and DPC models, Johnson said.

The downsides

The disadvantages that come with both the concierge and DPC models are stark, and often involve physicians seeing fewer patients.

“What usually happens when you move to either direct or concierge primary care is you’re also cutting down on the number of patients because, often, what you’re offering patients in return for that payment is better access,” Phillips said. “You can’t provide better access unless you cut down on the number of patients.”

But there’s already a severe shortage of physicians in the US.

By 2026, 21% of family medicine, pediatric, and obstetrics and gynecology physicians—or about 32,000 doctors—will be 65 or older, and consulting firm Mercer anticipates about 23,000 physicians will leave the profession permanently.

Some concierge practices only treat around 400 patients so they can ensure physician access, Phillips said. The average physician treats about 2,000 patients, so cutting that roster down to 400 will “leave 1,600 patients looking for a primary care doctor at a time when there’s a primary care shortage in almost every area of the country. It’s really disadvantaging those with fewer resources,” he added.

Also, if a lot of commercially insured patients leave traditional practices—i.e., those operating under a fee-for-service business model—to join a concierge or DPC practice, that leaves the traditional practices with a higher percentage of Medicare and Medicaid patients, whose insurance covers a lower portion of the practice’s costs.

“It makes it harder to offer the services that we would like to be offering our patients, because we’re losing the patients who are potentially paying the most and sometimes enabling us to provide services to all,” Phillips said.

The brighter side

On the other side of the coin, there could be real benefits to the concierge and DPC models for both providers and patients, Johnson said.

The models could bring a “better experience for both the doctor and the patient,” she said. Since patients get longer appointments and more access to their physician, that could translate to better health outcomes.

Plus, providers would have a more manageable workload, since they’d see fewer patients.

“I like to think there’s also an optimistic future here, where it’s a more attractive career for providers, and therefore, more providers choose to go into this space,” Johnson said. “Over the really long term, the leap of faith is that these relationships are actually keeping consumers healthier.”

Payers may also be willing to subsidize the monthly or annual fees down the line if the models prove to be cost-effective, which could make these business models more accessible, Johnson added.

But right now, we just have to wait and see if the benefits of these business models will outweigh the downsides.

“We’re gonna see different parts of the health ecosystem trying this with different models,” she said. “It’ll be interesting to see which are the most impactful.”