What you need to know about the forces reshaping our industry.


February 24, 2022

Why investors are pouring billions into primary care

Daily Briefing

    Although primary care is typically less lucrative than other specialties, growing investments from large private equity and corporate health companies are driving a surge in primary care ventures, Angelica Peebles writes for Bloomberg.

    Slide deck: The physician landscape, redefined

    The growth of primary care businesses

    While primary care once largely consisted of solo offices and small partnerships, it is now dominated by hospital-owned clinics and corporate practices, Peebles writes. According to an analysis by the Physicians Advocacy Institute, around 70% of U.S. doctors worked for health systems or corporate owners at the start of 2021, an increase from about 62% at the start of 2019.

    Investors are also pouring billions into primary care companies, amounting to approximately $16 billion in 2021 alone. This is more than four times what was invested in 2020 and is a major leap from the $15 million invested in 2010, according to researchers from Harvard University.

    Several large companies are also making a push towards primary care in an effort to control access to more expensive specialists and influence patients' treatments over time, Peebles writes.

    For example, CVS Health plans to put doctors in up to 350 of its retail pharmacies. "What we're trying to really do now is primary care and wield significant influence across the continuum of health care," said CVS CEO Karen Lynch. Similarly, Walgreens Boots Alliance last year purchased a controlling stake in the primary care clinic chain VillageMD, which it previously partnered with to open new primary care clinics across the United States.

    In addition, health insurers are expanding their primary care capacities. For example, UnitedHealth Group's Optum unit now has more than 60,000 physicians, around half of whom are in primary care (Daily Briefing is published by Advisory Board, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group). In addition, Humana plans to open 26 new primary clinics under its CenterWell brand this year and will add between 30 to 50 more annually.

    "It really is about moving the center of gravity, from patients being managed by hospital systems to really being managed by primary care doctors," said Annie Lamont, co-founder of the venture firm Oak HC/FT, which has invested in primary care startups like One Medical and VillageMD.

    A shift towards value-based payments

    According to Peebles, this interest in primary care is partly motivated by a shift in how medical care is paid for. Private health plans, as well as government programs like Medicare, are increasingly turning towards value-based payment, which links doctors' pay to patients' health outcomes, rather than volume-based payment.

    This means medical practices will have to change how they function, focusing on how manage chronic conditions and reduce preventable hospital visits. "If you're going to ultimately solve the cost crisis, we have to do a better job of taking care of people with chronic disease," said Tim Barry, CEO of VillageMD.

    Separately, Zirui Song, an associate professor of health care policy at Harvard Medical School and a primary care physician at Massachusetts General Hospital, said moving away from a system of volume-based payments for providers could help reduce rising health care costs in the United States.

    However, Song also noted that the flood of private investment into primary care may increase the risk that profit motives could eventually outweigh patients' best interests.

    "The trust between a patient and a primary-care clinician is especially important for the patient’s care trajectory through the health-care system," he said. "If private equity somehow infringes on that relationship of trust between a patient and their health care providers, especially their primary care provider, then society should be more concerned about the current influx of private equity acquisitions within health care." (Peebles, Bloomberg, 2/10)


    Advisory Board's take

    Primary care investment is not a monolith—exploring different options

    By Sarah Hostetter

    Investment in physician practices is not new. Private practices have long faced challenges in raising the capital required to succeed in an ever-changing health care market from their physicians alone. What is newer is the steady influx of investment in primary care practices—and the goal of these investments.

    Two key investment options

    We should be wary of talking about investment in primary care as a monolith. I see two theories of the case for these types of investments. One is a fee-for-service play to drive referrals and downstream revenue. The other is a bet on value-based care. On the surface, these two approaches may look the same: both come with an aggregation of practices and cost controls. However, these two models bring with them both different investors and nuance in how investors partner with physicians and practices.

    For investors betting on fee-for-service revenue, aggregation itself is often enough of an endgame. After all, pure aggregation can go a long way in increasing revenue, especially when paired with enhanced scrutiny around compliance, reduced operational spend, and controlled purchasing. This is the model we've been tracking for a while in the specialty care space. I also see it as the driving force behind legacy retail models, like Walmart or Walgreens, where primary care acts as the front door to prescription refills or other consumer spend. Interestingly, this play is not dissimilar from how health systems aggregate primary care physicians to act as the front door to downstream referrals.

    This is in juxtaposition to many of the newer investments in primary care that bet on the transition to value-based care. Regardless of whether you're talking about a health plan or private equity investor, when the goal is to drive the transition to value, the methods to get there look similar—and the demands on both the investor and the practice to be successful are higher. For example, we see private equity firms who are running at value-based care anchor around a high-performing practice with a scalable care delivery model, aggregate more primary care practices to increase the total number of covered lives, and make targeted investments in technology and infrastructure for data tracking and outcomes.

    Both types of investments do what Annie Lamont says in the Bloomberg article—"[move] the center of gravity from patients being managed by hospital systems to really being managed by primary-care doctors. But that shift in locus of control could look a lot different for patients, physicians, and the industry if it's driven by value-based care vs. fee-for-service spend.

    Parting thoughts

    The outstanding question for me is whether this influx of capital bets on value-based care meaningfully shifts the industry's needle on value. My hesitation is that, as we've seen play out in some of the early primary care IPOs, returns on value-based care investments may not be immediate when we're still in a predominantly fee-for-service world. Will investors be willing to wait for a more industry-wide transition to value to see ROI? Or will they get wary and back out sooner than needed for true care transformation?

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