Updated: Apr 12
A look at physician incentives in direct and traditional primary care delivery
Direct Primary Care and Cash Fee for Service
Until now in this blog post series, I’ve only referred to direct payment for primary care in general terms, and I focused on it not using insurance to pay for primary care. But there are different direct approaches that physicians use to deliver primary care, and we need to better understand them in order to discuss the incentives of direct payment as they vary depending on the specific direct approach that is being used. The two common ways to pay directly for primary care services are Direct Primary Care and cash fee-for-service. Direct Primary Care (DPC) is when individuals pay a set monthly fee for unlimited primary care, akin to a gym membership which entitles members to unlimited use of the gym. The second way is to simply pay cash for each service as it is needed, which I’ll call cash fee-for-service, or Cash FFS.
DPC is growing in popularity with both patients and physicians. DPC physicians commonly limit their panel to 600-800 patients and monthly fees average about $75 per month. In the traditional system in which insurance is used for primary care, physicians’ patient panels are 2500 or more. As a result of having a much smaller panel of patients, DPC physicians have more time for patient care, more time to coordinate care and more time to research patient conditions and treatment options. DPC physicians typically offer same day or next day appointments of 30 minutes or more; they offer 24/7 access for urgent needs[2, 3]. The idea is that dramatically enhanced access to the physician will ultimately lead to better patient health and lower healthcare spending due to avoidance of downstream care (specialist visits, urgent care and emergency department visits, surgeries, and hospitalizations). In addition, the experiences of receiving care and providing care are thought to be far superior in the DPC model for the majority of patients and physicians.
In this blog post we’ll examine how incentives for physicians differ between direct care and traditional insurance-based care by considering who is the customer. Differences in the effects of incentives in DPC vs Cash FFS will be noted as well.
Who is the customer when primary care is delivered directly?
When primary care is delivered directly, the patient is obviously the customer. They are receiving the care and paying the bill. The physician works directly with the patient to render services and receive payment. The ongoing direct doctor-patient relationship is typically characterized by fiduciary trust. Fiduciary trust in a physician is the patient’s belief that the physician will act in the patient’s best interests and not take advantage of their vulnerability. A higher level of trust is associated with several outcomes, including higher patient satisfaction, increased treatment adherence, better doctor-patient communications, and better patient health.
Certainly it’s possible for a direct physician to behave in an untrustworthy manner, recommending additional unneeded tests to increase their revenue, for example. In the case of a DPC physician, however, there is little opportunity to significantly increase revenue by recommending unneeded tests as the majority of their revenue comes from the membership fees and any additional charges for tests, labs and supplies are typically set to just cover their costs. DPC physicians do not typically view additional fees for labs, supplies and tests as a way to generate revenue for their practice. Besides, when the patient figures out that the DPC physician is recommending unneeded tests to boost their revenue, the patient will likely leave the practice and tell all their friends. The DPC doctor who violates fiduciary trust by routinely recommending unnecessary tests will most likely be worse off by doing so because their panel will shrink and their reputation will be damaged. The DPC model promotes fiduciary trust by limiting what could be gained from violating fiduciary trust.
Direct physicians have an incentive to satisfy the patient so that they will continue to rely on the physician for care; that is, they will continue to be a customer. DPC physicians are motivated to provide as much value as possible with their membership to please their customers and attract new ones. With most of the revenue for the DPC practice coming from membership fees, care is more ongoing and relational, as opposed to more transactional and fragmented. The DPC physician’s livelihood is tied to current patients continuing their memberships.
The idea of DPC is that dramatically enhanced access to the physician will ultimately lead to better patient health and lower healthcare spending due to avoidance of downstream care. In addition, the experiences of receiving care and providing care are thought to be far superior in the DPC model for the majority of patients and physicians.
DPC physicians typically negotiate deep discounts with labs and imaging centers, and they dispense prescription medications at wholesale (or a small markup above wholesale) in states that allow it. Many look to offer additional services or seek out additional training on procedures that their patients value. Direct doctors are motivated to avoid unnecessary specialist referrals; they want to take care of as much as possible themselves to enhance the value patients receive from them, both financially and in terms of convenience. When help from a specialist is needed, DPC physicians often rely on eConsult services which are faster and less expensive than a specialist visit.
Additionally, when care is provided by a DPC physician, the patient may view it as “I have already paid for care.” In a FFS arrangement, whether cash or insurance-based, the physician is owed another fee when another visit occurs. Patients may weigh the need for another visit against the additional fee. A DPC membership arrangement removes this barrier to care as no additional fee is generated by an additional visit. Worrying about cost is one of the most frequently cited barriers to getting needed care.
Proponents say DPC promotes comprehensive, longitudinal care and early treatment of a new problem or concern. This may be particularly important for patients with multiple chronic conditions. When asked about complex chronic condition patients, one DPC physician told me that she doesn’t have many complex patients because she spends time with them, they figure things out and they’re not complex anymore.
Who is the customer when primary care is delivered traditionally (using insurance)?
I contend that, for all practical purposes, the insurance company or other third party payer is the traditional physician’s customer; the patient is not truly the customer when insurance is used to pay for care. Even though the patient receives care, the physician in some cases is more responsive to the insurance company than they are to the patient, which indicates that the insurance company is the real customer rather than the patient. Physician behavior is more understandable when you consider that the insurance company is paying the bill. Physicians who do not provide all the information the insurance company wants and adhere to the required processes (such as trying less expensive medication A before prescribing more expensive medication B) risk not being paid fully and in a timely manner.
All of us have probably experienced or know someone who has experienced frustration with insurance company requirements and processes. Prior authorization and other utilization review, for example, often leads to delays or denials of benefit payment, even when the physician has carefully considered what is best for the particular patient. This is further evidence that the patient is not the traditional physician’s customer, the insurance company is.
I contend that, for all practical purposes, the third party payer is the traditional physician’s customer; the patient is not truly the customer when insurance is used to pay for care.
Traditional physicians rely on network membership with insurance plans to drive patients to their practice. In exchange for a full schedule of insured patients, traditional physicians accept reimbursement amounts and terms offered by the insurance plans, possibly with some negotiation. The vast majority (95%) of traditional physician office visits are paid on a FFS basis; even when a health plan is paid on a capitated basis, physicians are usually paid on a FFS basis. FFS payment incentivizes volume; it incentivizes physicians to require another visit when the patient has a second concern so that they can charge another fee, and to refer patients to a specialist if they cannot handle the concern quickly. With fee-for-service payment at a set rate, the easiest way for primary care physicians to maximize their revenue is to bill for more visits. The incentive is for traditional PCPs to do more visits and shorter visits. In contrast, the incentive for DPC physicians is to spend as much time as needed to take the best possible care of the patient in order to keep them as a satisfied customer.
Numerous recent studies have shown that physician burnout and dissatisfaction continue to increase as the burden of required administrative tasks increases[8-10]. As a result, PCP scope of practice shrinks and perceived time pressure increases, which causes the specialty referral rate to increase[11, 12] and many visits that could be handled just as well in primary care are being referred to specialists[13, 14].
As an example of how reimbursement affects physician behavior and views, consider a 2009 Commonwealth Fund study of traditional primary care physicians. The top reason for dissatisfaction leading to a desire to leave practice was time spent coordinating care for patients; the authors suggest that the dissatisfaction stems from the lack of reimbursement for care coordination. Traditional physicians may think about care tasks separately, promoted by fee for service reimbursement at a set rate; this is a shorter term, more transactional way of delivering primary care. In contrast, the DPC model promotes a view of primary care delivery that is ongoing and more relational than transactional.
In this blog post we saw that dramatic differences in behavior and views of primary care physicians result from the different incentives inherent in direct and traditional (insurance based) delivery of primary care services, and one way to examine the incentives is to consider who the customer is in each delivery model. It’s beyond the scope of this blog post to fully consider all of the ramifications of these differences on downstream care, patient health, patient experience, and overall healthcare expenditures. I believe that the benefits of DPC to patients and physicians can be considerable, but more research is needed to confirm and quantify them.
When the impacts of different incentives for direct and traditional PCPs are considered together with the savings of at least 50% by paying for primary care directly and avoiding costly behaviors that result from the overuse of insurance (as discussed in part 1, part 2 and part 3 of this blog post series), I don’t feel it’s overstated to say that DPC may be the key to a much “healthier” healthcare system in the future. Let’s continue to keep an eye on DPC going forward.
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