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Market Segmentation and Barbell Physician Supply
– A Scenario and Forecast
(Cliff Frank, July 2021)

Market dynamics are moving physician supply in new and dynamic ways that will affect patient access in certain populations in unexpected ways.   The Cliff’s Confab sub-group's TD3 deliberations have highlighted that there are differences in primary care consumption patterns among younger and older populations, Medicaid and commercial insured patients, and other demographic descriptors of people.   Similarly, we have identified that certain configurations of PCP delivery work better for some populations than others – intensive PCP and team visits for Medicare and Medicaid patients, quick convenient care for younger adult patients, telehealth visits and regular visits for chronic care patients.   We described the process for PCP optimization as a matching problem fitting the patient characteristics with the most appropriate PCP care delivery model.   Well... Looks like the market is tackling this matching problem right before our eyes.

Private Equity-backed entrants to the PCP marketplace are making a big push into Primary Care for Medicare Advantage patients.   VillageMD, ChenMed, P3, Iora and others are aggressively expanding into these market segments, city by city.   These PCP companies pay their physicians well and offer them huge bonus potential from savings from downstream utilization management.    Physicians with these companies can make double the income that they could make as hospital-employed or private practice physicians.    

Walmart, Walgreens, CVS, and others are pursuing the younger adult patients with convenience care and front-of-store shopping offerings.   They are contemplating expanding chronic care services but mostly for commercial insurance aged patients.   

And now One Medical is purchasing Iora signaling a shift in their commercial strategy to emphasize Medicare Advantage.  Iora made that pivot 3-4 years previously because the savings opportunities in a well-managed Medicare Advantage population are much larger than in commercial insured populations.

So, what does this mean if these trends continue?   Trouble for the Middle.

Medicare Advantage is hugely profitable when managed well.   Managed Medicaid can be very profitable for PCPs using team care as well.  Dual eligible can be likewise profitable and all these populations are better served in these arrangements as measured by health outcomes, care gap closures and patient satisfaction.    

Entities serving these populations can pay their physicians very well through a combination of salary, bonus, pay for quality, pay for outcome, and shared savings from downstream utilization management.  Double the pay of hospital employed physicians.

How big is the need and demand for physicians in these MA/Managed Medicaid private equity supported models?  HUGE.
Where will they pull their additional physicians from?  Disgruntled hospital employed physicians and new graduates are prime targets, along with independent physicians looking for a landing pad (a rapidly diminishing pool).    Hospitals cannot continue to pay top wages in the face of declining referrals for specialist procedures at hospital facilities.   As payers continue to push mandatory outpatient services, non-hospital outpatient services, and stiffer approval criteria for any hospital service, the math associated with the downstream revenue offset to PCP costs no longer works.

So, ten years from now, we have a wave of productive physicians retiring, new graduates pulled into private equity backed MA/Managed Medicaid practice corporations, and a few hospitals still paying top dollar for PCP talent.   Walgreens, CVS, and others are still grabbing other PCPs looking for a transaction practice without much stress or afterhours call.   For the rest of hospitals, employed primary care physicians are scarce, APNs are common and provider burnout unavoidable.   A destructive cycle started inside the current Covid-19 cycle highlighting the misery and vulnerability of hospital-employed PCPs, and as more physicians retired, and were unable to be replaced, the remaining physicians’ burdens got heavier and heavier.   The appeal of the lifestyle, wages, and relief from the daily grind of the hospital employed physician model led more to migrate to other models, which made filling PCP slots even more difficult for hospital medical groups.

Hospitals’ ability to subsidize PCP salaries will be limited as payers drive patients away from outpatient hospital services, as technology enables patients to receive more care in free-standing non-hospital facilities, and PCPs are less able to deliver downstream revenues to their hospital employer.    

Commercially insured populations do have utilization problems, but not near on a scale that is present in Medicare populations.  Taking a Medicare population from 260 admissions/1000 to 180 admissions per 1000 generates a huge savings pools for PCPs.   Taking a commercial population from 80 admissions per 1000 to 60 admissions per 1000 does not have near the same lift opportunity for PCP incomes.   

The emergence of non-physician providers giving services to patients independently, or at-home, or under physician supervision may stretch the providers’ reach within a given patient population segment, but such dynamics will further enhance the “team care” approach and exacerbate the dearth of available providers for commercially insured patients.   Team care makes economic sense in a provider risk-bearing system.   In a fee for service model, it’s just more mouths to feed and more fights over the leftover table scraps of the health insurance premiums not going to prescription drugs, hospitals, and specialists.    

Ten years from now we end up with adequate PCP supply for Medicare Advantage practices, Managed Medicaid practices, and very inadequate supply and access for commercial insured patients – THE BARBELL of PCP supply.   What a strange outcome compared to today!   So long as risk adjustment for high-risk patients remains within Medicare Advantage and Managed Medicaid, the funds to pay primary care physicians for curbing downstream utilization and managing the health of their patients, PCP wages and bonuses will far exceed pay that is available in today’s traditional hospital employed model.

*Thanks to Cliff’s Confab
for their reviews, challenges, and suggestions.
Special thanks to David Kibbe for his comments and encouragement.


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