One thought on “Georgia 1332 report by AEG/Wilson Partners

  1. Kudos to the team of Anderson Economic Group (AEG) and Wilson Partners (WP) for clearly explaining their computations and for making clear the assumptions underlying their report, “Healthcare Innovations in Georgia:Two Recommendations”. This makes it so much easier to have the public discussion that the Georgia Public Policy Foundation sought to foster in publishing the report.

    Some of the assumptions about direct primary care (DPC), however, seem a more than bit shaky, casting serious doubt on the conclusion that DPC can bring cost savings that approach a billion dollars a year. These assumptions are:

    that DPC enrolled members will incur 15% lower claim costs for “downstream care” (e.g., specialists, ER visits) than those to be incurred by plan members who rely on traditional fee-for-service primary care.;

    Georgia insurers or other plan sponsors will be able to secure membership in an effective DPC practice at a fee of $70 per member per month;

    the per member per month fee charged by direct primary care practices will remain constant for ten years.

    If good DPC can reduce downstream costs by 15%, and if DPC good enough to produce that result can be had thoughout the next decade for a $70 month, that’s great.

    Before FORCING Georgia health plans, insurers, and businesses into contracting with direct primary care clinics, Georgia authorities should determine whether these assumptions are reasonable.

    THE 15% ASSUMPTION: THE RELEVANCE OF THE QLIANCE EXPERIENCE AND LESSONS FROM BUSINESS SCHOOL

    Qliance, a reputed leader of the DPC industry, certainly seemed to have muscle. It reportedly once had as many as 35,000 member patients, revenues of well over $2 million a month, and had service contracts with individuals, small and large self-insuring employers, unions, Medicaid, and even on-exchange plans.

    In January 2015, Qliance published some results of a study that essentially announced that its direct primary care model had actually produced a 20% overall cost reduction and a net benefit of nearly $700 per year for each covered employee. Qliance monthly fees for employees being in the vicinity of $70 a month, $840 a year, those employers lucky enough to have Qliance contracts were in effect receiving almost double their money back (an ROI of 83%/yr!)

    Principles taught in business school will tell you that, provided Qliance’s claims could actually demonstrate that these claims were solid and scalable, Qliance would have been awash in new health-plan partners and would have had no problem in finding lenders or investors to support its seemingly inevitable growth.

    But, when the marketplace actually executed judgment on Qliance, that judgment was to force Qliance into bankruptcy. The actual business world in which due diligence is practiced appears to concluded that Qliance could not deliver what it promised.

    The AWG/WP report proposes FORCING every Georgia health plan to enter into the kind of direct primary care contracts that market forces denied to Qliance. The report, moreover, contemplates enrollment on a vast scale, starting with first year DPC enrollment of over 100,000; at that level, the Atlanta Metro area alone would need to add the equivalent of two Qliance-sized DPC practices to the small DPC practices serving perhaps no more than a few thousand in the area currently.

    Before requiring Georgia health plans to contract with direct primary care clinics, Georgia authorities should do their own due diligence to determine whether the claims of DPC efficiency made in the AEG/WP report are solid and scalable.

    THE 15% ASSUMPTION: AEG/WP PROVIDE NO SUPPORT FOR IT

    The AEG/WP report assumes that DPC membership will reduce the cost of downstream care by 15%, which is expressly declared to be a low end estimate. The only support offered for this presumption is that, “the factor is based on research and case studies prepared by Wilson Partners”. There is no description of the research or case studies; no methodology is identified; the subjects of the case studies are not identified; there is no research data; and there are no citations of or references to sources where any support for the 15% factor, or any similar factor, can be found.

    The AEG/WP gives us no idea where its 15% factor came from.

    THE 15% ASSUMPTION: BEWARE OF SELECTION BIAS.

    Widely reported claims of DPC reducing downstream costs have been infected by selection bias.

    A uniquely powerful opportunity for quantitatively informed assessment of such claims has come from a DPC clinic serving employees of Union County. There, health plan members are able to choose between receiving primary care in a DPC clinic or through physicians under traditional model of insurance and fee for service.

    Mark Watson is the county official responsible for this innovation. He made available to the John Locke Foundation ( NC’s version of GPPF) and others, some key data needed for comparing medical costs for DPC patients and those receiving primary care. The most recent public report about Union County, claims that DPC patients experience costs that as much as 28% lower than those in traditional primary care.
    But the very same report concedes that the DPC group patients have lower medical risk scores than the traditional group patients.

    A large part of medical risk scoring derives from patient age. In that regard, Watson had Union County’s human resources office compile basic demographic data on the two populations. These data showed that the average participant in the DPC group was at the time of compilation about four years younger than an average participant counterpart in the traditional group.

    Four years may not seem like much, but age/claim cost curves are steep. A figure of 5:1 is widely cited in comparing the medical claims experience of 64 year-olds relative to 21 year-olds. Even an age/cost curve with an average slope of 4:1 can explain every penny of the 28% cost differential between two Union County groups separated in age by four years.

    It seems highly likely, then, that the Union County DPC clinic resulted in no savings at all.

    If and when AEH/WP support the assumption of 15% savings by showing us their “research and case studies”, it will important to determine whether that factor might similarly be the result of selection bias.

    THE $70 FEE ASSUMPTION: DELIVERING BIG VALUE REQUIRES SERIOUS MONEY

    David Wilson, an author of the AEP/WP report, is a co-founder of the SALTA direct primary care practice. As of January 1, 2020, SALTA’s monthly fee is $90. If $90 a month is plugged into AEG/WP’s calculations, every penny of the savings computed for the large group market (over half of all covered Georgians) disappears.

    Returning to Qliance, its experience certainly suggests that $70 fees cannot sustain a direct primary care experience that delivers effective cost reduction.

    Unlike Qliance, the doors of the DPC in Union County are still open. The monthly fee paid by Union County for an employee who elects the DPC option is $125. If a monthly fixed fee of $125 had been used in the calculations of the AEP/WP there would have been no net savings to report in the individual, small group, or large group markets.

    THE ASSUMPTION THAT THE DPC FIXED FEE CAN REMAIN CONSTANT AT $70 FOR TEN YEARS:

    THE AWG/WP report notes that as medical claim costs rise in compound fashion by as much as 9.9% per year in the individual market, the amount that can be saved by DPC-attributed cost reductions also grows in compound fashion. Also, in AEG/WP’s calculations, an identical upward trend is assumed for claims costs for traditional primary care.

    The AWG/WP report assumes, however, the cost of a DPC membership will hold steady at $70 for an entire decade. Accordingly, in their computations the savings from DPC grow exponentially, the costs of traditional primary care grow exponentially, but the costs of DPC remain perfectly flat.

    Since direct primary care clinics must recruit staff, rent space, and buy goods in the same marketplace as other medical providers, including traditional primary care providers, AEG/WP’s choice to assume a stable $70 clinic fee is problematic.

    If the $70 monthly fee is trended up for a decade by the same 9.9% per year used to calculate future claim prices, including the cost of traditional primary care, the monthly fee reaches $180 a month, and the annual fee increases by more than $1200. Had AEG/WP’s chosen to perform the DPC savings computation to reflect such seemingly predictable increases, the computed savings would been lowered by about half a billion dollars.

    Interestingly, the AEG/WP report was published in May 2019. At the time, $70 was exactly the monthly DPC fee then being charged by SALTA, a direct primary care company founded by one of the AEG/WP authors. Effective January 1, 2020, SALTA’s monthly fee will be $90.

    SUMMARY:

    There is serious reason to doubt the assumption that DPC in any form can result in 15% reductions – or any reduction – in the cost of downstream care.

    Even if 15% were a reasonable factor for an effective DPC, there is serious reason to doubt that $70 a month can support an effective DPC practice.

    Even if 15% were a reasonable factor, and $70 were a reasonable fee, there is serious reason to doubt that that $70 fee can remain stable for ten years.

    Still, if good DPC does reduce downstream costs by 15%, and if DPC good enough to produce that result can be had thoughout the next decade for a $70 month, that’s great.

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