Demand for primary care services in the U.S. is growing. The supply of service providers, however, is not. And, though the supply of advanced practice nurses is on the rise, the overall shortage of providers is likely to continue for the foreseeable future.
Data about the current primary care market—including pediatricians, general and family practitioners, internal medicine physicians and gynecologists—in the U.S. reflect both its attractiveness and challenges. Consider the following:
- Per the Centers for Disease Control and Prevention, 50.3% of all visits to physicians in 2023 were to primary care providers; 88% of adults and 98% of children say they have a primary care relationship, but one-third did not see their primary care providers last year.
- According to Grandview Research, primary care providers represented a $271.3 billion market in 2023, and it is forecast to increase 3.36% annually through 2030 versus a 5.5% annual increase in overall healthcare spending in the same period.
- Per University of Chicago research, PCPs earn 55% of what specialists earn.
- According to the Association of American Medical Colleges, the shortage of PCPs will be nearly 55,000 by 2033.
Policymakers, medical educators and public health experts widely recognize that primary care is a key to bending the healthcare cost curve and improving the population’s health. Many of Medicare’s alternative payment models, including the Medicare Shared Savings Program, are structured to engage primary care organizations as gatekeepers to lower costs and improve outcomes. Though each pilot program varies, CMS results have shown a consistent correlation between primary care engagement and shared savings in Medicare.
The landscape for primary care services is defined by three major models. Their business objectives, resources and critical success factors vary significantly.
1. Hospital Sponsored Primary Care (50-55% of the primary care services market)
Business objective: The majority of community hospitals and health systems directly employ primary care clinicians. They function as part of their ambulatory services strategy and anticipation of future value-based contracting opportunities with payers. The primary objective is to protect referrals to the hospital’s acute programs and specialists. It’s a defensive strategy for most since at-risk contracting with payers represents only 7% of total health spending today.
Resource considerations: Due to interest rates and thin operating margins, most hospitals face capital constraints. Operating losses in primary care practices from suboptimal payer reimbursement and regulatory limits on financial relationships mean employment agreements are based primarily (70-90%) on traditional productivity measures (relative value units) versus bonuses and shared savings (10-20%).
Critical success factors: PCP network effectiveness under hospital sponsors involves:
- the composition and structure of the entire care team—inclusive of nutrition, dental, behavioral services and advanced practice providers/nurse practitioners;
- the infrastructure (technology, data) enabling monitoring of patient activities and their interactions across the system; and
- the convenience of patient access through digital portals, self-care services and insurance coverage conducive to primary care gatekeeping and risk sharing with care teams.
Payer-Sponsored Primary Care (15-20% of the primary care services market.)
Business objective: Payer-sponsored primary care is focused on lowering total care costs for enrolled populations. Multi-disciplinary primary care is the centerpiece for aggressive referral management to in-network specialists and hospitals, adherence to formulary design and engagement with enrollees.
Resource considerations: Payers like Humana, Optum (United), Elevance, Blue Cross of FL and others operate primary care services through subsidiaries and under brands that enable enrollee awareness and use. Most are built on private practice acquisitions to which capital is directed for expansion. Some operate through contracts with private equity backed multi-market operators (Oak Street and Iora). Each plan’s capital strategy is unique, but publicly traded national and regional insurers have unique latitude to expand profitably, vis-à-vis provider recruitment, new services and locations, digital capabilities and value-based contracting with employers, Medicare Advantage, Medicaid and state marketplaces for individual/small company plans.
Critical success factors: The regulatory environment for national insurers is favorable, but investigations about business practices in Medicare Advantage, prior authorizations, marketing practices and others are increasing. In addition, mixed results in Medicare’s alternative payment programs have pushed some employers to alternative models (direct primary care, on-site/near-site primary care) to reduce their costs more effectively. Ultimately, primary care physician satisfaction is critical: Non-disparagement and noncompete provisions in contracts are being challenged by clinicians who cite insurer encroachment in their clinical decisions.
2. Retail Health (15-25% of the primary care services market.)
Business objective: Walgreens, Best Buy, Amazon, CVS, Walmart and others view healthcare as a market ripe for consumerization and financial opportunity. The objective for each is to increase sales per square foot for their facilities by offering on-site/virtual primary care products and services for conditions conducive to self-care. The proximity of convenient locations, over-the-counter remedies, pharmacies and self-care devices—alongside “front store” products like cosmetics and groceries—enhance store revenues.
Resource considerations: The business fortunes and sustainability for retailers vary widely depending on their business models, locations and value propositions to consumers. Some, such as Walmart and Walgreens, have stumbled in primary care execution. Others, such as Amazon-One Med and CVS-Oak Street, are doubling down on on-site primary care. Still others are creating hybrid models leveraging their unique locations and their core consumer base.
Critical success factors: Retail primary care is a bet that convenience, transparent pricing and information technologies, which enable evidence-based treatments and consumer relationship management, are the future. It is risky for drugstore retailers already facing margin pressure from insurer-controlled pharmacy benefits managers and online purchasing by consumers. Adoption by employers, insurers and consumers is vital to retail primary care’s growth and sustainability.
All three models are set up around certain assumptions about primary care providers:
- They will be employed in bigger organizations long term.
- They will play a central role in increased risk-sharing arrangements with payers—both insurers and employers.
- They will face increased regulatory scrutiny of their business practices around equitable access, price transparency and clinical effectiveness, workforce diversity and more.
In addition, each model is integrating social determinants and behavioral health in their clinical strategy and will face business risks in their core businesses. For hospitals, that means inpatient and specialty programs. For insurers, it’s group insurance coverage. And for retailers, it’s prescription drug fulfillment through technology-enabled alternatives.
For healthcare leaders, there are four things to consider:
- Program design: Team-based, whole-person-oriented primary care inclusive of physical, mental and social support is the future. An office-only, physical-medicine-only orientation is becoming obsolete.
- Primary care sponsor analysis: Routine monitoring of the investments, program offerings, economics and market acceptance for each emerging model is paramount.
- Market surveillance: Analysis of social and economic factors that drive demand to and away from primary care services is critical.
- Employment agreement review: Contracts with primary care physicians, nurse practitioners, dentists and psychologists/counselors should be revisited to assure continuity of care by a competent, accessible multidisciplinary team that’s rewarded for results.
Primary care services’ future is likely not a repeat of the past. Though not without risk, it is safe to say it’s importance will increase.
Paul H. Keckley, PhD, is managing editor of The Keckley Report (pkeckley@paulkeckley.com).