Policy shift puts direct primary care on investors’ radar

Americans can now use pre-tax health care dollars for cash-only care. In this model, known as direct primary care, or DPC, physicians charge a flat monthly fee for unlimited appointments, calls and in-office care.

Dr. Jeff Davenport is a family physician who runs One Focus Medical, north of Oklahoma City. He was an early adopter of the model. “I have been in this direct primary care practice since April 2014,” Davenport said.

He likes the slower pace of work, seeing six patients a day instead of 25. And the flexibility of being able to text with patients for help with a sprained ankle. Or having them stop by the office for a sinus infection the same day.

Davenport charges a flat monthly fee of between $70 and $100 depending on a patient's age and only takes cash. He doesn’t bill insurance. Concierge doctors often do both, charging a retainer and billing insurance.

Davenport has been advocating for the government to get rid of an old rule that blocked consumers from using pre-tax dollars for his monthly fees, which they considered insurance. And last year Congress finally changed it.

“We've been fighting this fight for 15 years,” he said. “It was really dumb, but it was not fixed a decade ago, but the wheels of government moved slowly.”

Consumers can now use health savings accounts for these direct primary care fees. And that’s opening a big new market. Forty million people had HSAs last year and could grow by another 4 million, according to Morningstar.

Rebecca Springer, director of market development at health care-focused investment bank Bailey & Company, said employers are hungry for solutions to the massive problem of runaway health care costs.

“There's probably no hotter investment category in the private equity ecosystem right now than employer health care,” she said.

Two of the largest companies that offer direct primary care for businesses — Premise Health and Crossover Health — just announced plans to merge on Wednesday.

Direct primary care is appealing to investors too because the subscription-based model is predictable, cutting out the insurer can save money, and the regulatory change means millions of potential new patients.

Right now, the market is still made up of mostly small independent practices with fewer than five clinicians, making it an attractive play for investors, said Springer.

“Because there are established business models and sort of a long tail of emerging providers,” she said, “It is a space that has a fair amount of greenfield opportunity for investors.”

Health economist Dan Polsky at Johns Hopkins University cautioned against interpreting the increase in direct primary care as a panacea for the problems plaguing the nation's primary care system.

“There just aren't enough primary care providers for direct primary care to be a national solution,” he said.

And because people with HSAs tend to have higher incomes, with the majority being people who make over $100,000 a year, this change does little for those who already are struggling the most to afford care.

“I just don’t want it to be a distraction,” Polsky said the larger problem is still that primary care is expensive and hard to find, for many people with insurance.

In Oklahoma, Dr. Davenport said he’s concerned the influx of money could change the model itself.

“There's probably going to be some venture capital trying to reach out there and tap into that market and create what some of us term ‘DPC in name only’ clinics,” he said.

Davenport and other physicians were drawn to the model because of the independence and more time with patients. He fears that investor money, with its focus on growth and returns, could undermine that.