Primary Care is a Loser

The perennial “loss leader” mentality for primary care is an absolutely LOSER framework, strategy, and concept for a service that is so fundamental to the health of our society.  

Blake Madden is a great follow on X as he regularly surfaces good insights into care delivery as part of his Hospitology Newsletter. He recently highlighted an interesting Health Affairs article on the Misadventures of Private Equity in Primary Care. It’s an informative overview of the state of primary care, but I  have a slightly different diagnosis and don’t agree with the proposed treatment. 

Platitudes and Pontifications

The healthcare industry has long undervalued and peripheralized primary care. Viewed as a transactional service with limited profit potential, it has been treated primarily as a means to secondary care ends within the healthcare ecosystem. As a result of its perceived lack of value , the reimbursement for primary care remains low and getting lower while at the same time expectations (around care teams, hitting population health benchmarks, the use of technology, accountability for outcomes etc) are high and getting higher. 

We need to remind ourselves that primary care is not a secondary service of diminishing importance. In fact, primary care is not a single thing at all. It is a continuum of services unlike any other part of healthcare, one that addresses a wide variety of foundational health issues and requires a strong coordination of care and relationships over a long period of time to be effective. This implies a care team approach, with multiple functions being part of a “baseline” service that helps guide individuals, families, and communities toward “good health.” 

This framework reorients the definition of what “good health” actually is – shifting the perspective away from a biomedical focus (let’s solve today’s problem) toward a biopsychosocial orientation (what is the context in which the problem is being experienced?). This reorientation then leads you (ideally although not generally in practice) into wellness, prevention, social determinants of health, behavioral changes, coordination of care resources, connectivity to the care team, navigation to the right services, and personal accountability. All of these latter features are effectively the components of what most people define as High Quality Primary Care or Advanced Primary Health, the absolute epicenter of a high performance health system.

Everything mentioned above seems obvious and non-controversial and forms the basis of the standard rally cry narrative for why primary care is so fundamental and so valuable. However, the quote from Winston Churchill, “I no longer listen to what people say, I just watch what they do” resonates with me. For all the platitudes about paying primary care “more and better”, about redirecting the spending from inappropriate specialist care to primary care, and all the other payment alchemy we hear about, the real rate of reimbursement for primary care has decreased over time. As a result, primary care remains deeply in trouble. 

My “treatment” for this well-described and frequently diagnosed problem is for primary care to create a care model that is actually valued, and the only way we can determine if it is “valued” is if market participants are willing to pay a PRICE that allows advanced primary care practice to be a PROFITABLE enterprise. To have vibrant, effective and sustainable primary care, individuals and institutions must freely value it in a competitive market and be willing to pay enough money to generate a profit. It cannot be subsidized, it cannot be mandated, and it cannot be manipulated.

While many shy away from the idea of a healthcare “market,” the pricing concept is relevant here in that the price paid for a service rendered is a signal that incents market participants to engage in the entrepreneurial and capitalistic process to deliver a service that is actually valued. In a properly functioning market, the price paid fits the value received. From my perspective, the root cause of primary care’s ailment as a specialty is that it is a service that has NOT found “product-market fit”. 

Value Creation is not Value Extraction

I realize the non-sequitur of equating our current health system to a normally functioning market. Frankly, the challenge with fixing primary care’s product-market fit is that healthcare is not really a market at all. The price signaling required for efficient markets barely exists in healthcare due to all the non-market influences from governmental mandates, regulatory requirements, inefficiencies, system inertia  and political interference.

In spite of this intractability, however, I disagree with the kinds of non-market mandates or governmental administrative fixes for primary care that the Health Affairs article outlines  (effectively the rent control concepts which further distort markets). Primary care must succeed as a for-profit enterprise, but only if the model can command a price that actually compensates providers for the long-term relationships and the continuum of preventive care they deliver.

This value is not measured through short-term financial returns.  In the early 2020s, corporate giants such as Amazon, CVS, and Walgreens rushed to acquire primary care practices.  Primary care was seen as a key driver of profitability extraneous to the service itself, whether in the Medicare Advantage space, where managing primary care patients would steer them into lucrative managed care plans or as a loss leader, a service that would bring customers into their broader ecosystems.

However, the results were disappointing and many of these ventures have been shuttered, restructured, or just relegated from the spotlight. The financial struggles of the initial forays of corporate or private equity-backed (PE) primary care are not indictments of the sector but of the flawed investment strategies applied to flawed business models. PE investors–accustomed to high growth, high margins, and quick returns–failed to grasp the long-term, relationship-based nature of primary care and the associated timelines which might require slower growth, more time for results to be seen, and the confounding influences that impact the results. Even when funded and resourced adequately, advanced primary care  doesn’t yield immediate profits but instead generates value over time by improving population health and reducing costly, downstream healthcare needs​​. 

Ironically, by not embracing this longer term view, we continually encounter a misalignment of incentives in both the care model as well as the business model. From a care model perspective, when primary care is not compensated for its broad, preventative impact, we remain stuck in the fee-for-service model that prioritizes high-volume, episodic care over quality and continuity​​. From a business model perspective, we remain stuck in a quarterly or short-termist mindset where pricing, margin, or profits unfortunately run headlong into the imprudence and impatience of traditional capital allocation approaches. 

Reimagining Primary Care: From Zero to Hero

Primary care can thrive as a for-profit model, but it demands a different approach to funding. The current funding model pushes medical groups to overextend their capital commitments in too short a window to actually build from a solid operating foundation. A business model that properly prices in the value, and a market that actually pays a market price for the service (which has an actuarially provable return on investment) and is given a reasonable operating window to demonstrate value (3-5 years) is what is needed. Capital allocators, in turn, must share this long term view to get to scale where their investments accrete and dividend. 

Value-based care (which has dismal participation rates from primary care providers) needs to be thought less as a care model concept and more of as a business model concept to take off. Providers will readily embrace new care models when they are financially incentivized to do so and have the operational ability to execute and genuinely demonstrate their value (which is a great place where funding innovation can have high returns). However, until we see a broader set of market participants signaling a willingness to pay for the type of care and outcomes we all hope for, primary care will remain a perennially loser business (and investment) strategy.  

At Crossover, we continue to bet big on primary care; and we see it for what it is: the ultimate winning strategy. The clients and members we serve through Advanced Primary Care are living proof that primary care isn’t just necessary—it’s a game-changer (literally!). While we think our care model is pretty cool, we will continue to focus on our business model so that it is backed by both hard evidence and hard dollars from paying clients. This is the only way to create a profitable, and therefore sustainable, service that ensures that our members and clients will continue to be the real WINNERS!