Direct Primary Care: Financial Analysis and Potential to Reshape the U.S. Healthcare Landscape

Abstract

As the United States faces a looming shortage of primary care physicians and escalating rates of clinician burnout, there is a pressing need to explore alternative models of primary care delivery. Direct Primary Care (DPC) is an emerging primary care model in which patients enroll in a membership plan and make direct monthly or yearly payments to a DPC practice for specific primary care services. Although DPC holds the potential to enhance patient care and mitigate clinician burnout, no published studies provide a financial analysis of DPC practices or compare them to traditional fee-for-service (FFS) primary care models. In this article, we present an evidence-based analysis of theoretical DPC and FFS primary care practices. We demonstrate that the DPC practice can yield upwards of $25,000 in annual cost savings over the FFS practice while also providing more personalized patient care. Thus, we argue that the cost-effectiveness and value-based approach of DPC positions the model as a transformative force in reshaping the American healthcare landscape towards a more patient-centric, accessible, and resilient future.

INTRODUCTION

In the modern primary care system, clinicians grapple with soaring rates of burnout attributed to heavy patient loads, extended shifts, and administrative tasks that overshadow patient care. As fewer medical students opt for primary care specialties annually, the United States is poised to face a deficit exceeding 55,000 primary care physicians (PCPs) by 2034.¹ This shortfall threatens to exacerbate the strain on primary care access for over 100 million Americans, intensifying the workload burden on current PCPs.²

Beyond PCP burnout, the traditional primary care model suffers from several financial challenges. Investment in primary care as a share of total national healthcare spending has dropped significantly over the past decade.³ In addition, primary care practices, which predominantly operate based on fee-for-service (FFS) payment schemes,⁴ are burdened by low reimbursement rates from insurance companies and Medicare/Medicaid when compared to other healthcare specialties.^5,6 Insurance companies also siphon off significant portions of revenue generated by primary care practices while limiting the range of services PCPs can provide and incentivizing patient volume over comprehensive care.^7,8 The COVID-19 pandemic unveiled the financial instability of this current primary care model, with over 34% of practices reducing patient services and nearly 1 in 20 closing down or declaring bankruptcy in 2020.⁹

Direct primary care (DPC) is an innovative primary care business model that has the potential to address challenges within the modern system, empower clinicians, and better serve patients. In DPC, patients pay periodic payments to their physician or practice for a defined set of primary care services. Expanding from just 100 DPC practices in 2009 to over 2100 nationwide in 2023,¹⁰ DPC may hold the potential to alleviate clinician burnout as DPC physicians and staff focus on tangible patient care over coding, charting, and administrative duties, therefore reducing workload and improving work-life balance.¹¹ The ability of physicians to establish longer and more personalized relationships with their patients, as opposed to focusing solely on patient volume, can also contribute greatly to alleviating fatigue and curbing rates of burnout.¹¹ For patients, evidence suggests that DPC can improve clinical care and health outcomes by prioritizing patients’ needs, fostering stronger patient-provider relationships, and offering comprehensive care that spans prevention, wellness, and chronic care services.¹²

Despite the potential benefits of the DPC model for clinicians and patients, little is known about the financial viability of this model compared with the status quo. To our knowledge, no published studies provide a financial analysis of DPC practices or compare them to traditional FFS models. In this article, we aim to showcase the finances of a hypothetical DPC practice and provide a comparative analysis to determine whether this primary care model can generate cost savings and increased revenue over FFS models.

THE DIRECT PRIMARY CARE MODEL

In the DPC model, patients subscribe to a primary care membership, making monthly or annual payments directly to a primary care practice for a defined set of services.¹³ The median monthly membership price for a single individual to access a specified set of healthcare services within DPC practices ranges from $75 to $88, with variations spanning from $55 to $150 per month.¹⁴ These DPC fees serve to replace the traditional system of third-party insurance coverage for primary care services. However, DPC patients still have insurance coverage for subspecialty care, hospitalizations, and separate healthcare services not included in their DPC membership.¹³

DPC models exist as both pure DPC and hybrid DPC. Pure DPC models, as described above, do not bill insurance; instead, patients receive a defined set of services based on their membership plan while using insurance or paying out-of-pocket costs for separate services.¹⁵ In hybrid DPC models, membership plans are designed to be supplemented with insurance coverage, and clinicians work with patients’ insurance companies to provide additional services. For example, Amazon’s One Medical DPC system accepts insurance to cover services not included in the $199 annual membership plan, such as chronic disease management offered both remotely and via office visits.¹⁶

Presently catering to roughly 800,000 patients nationwide,¹⁴ DPC practices maintain smaller patient panels compared to traditional primary care practices. While estimates vary, DPC practices typically manage an average of 413 patients per physician, whereas traditional primary care practices manage 1800 to 2500 patients per physician.^13,17 Due to the smaller patient load, DPC generally offers patients extended appointment times, allowing for a more thorough understanding of their medical history and fostering greater intimacy between patients and providers.¹² Thus, DPC stands in contrast to traditional primary care models, which can contribute to rushed appointments and lack of individualized attention.¹⁰

Research on DPC is still in its development. Most discourse on DPC in the medical literature consists of opinions from DPC experts and original research focused on describing demographics of DPC patients, comparing membership costs between DPC practices, and analyzing perceptions of DPC from patients and physicians.^{11,12,18–23} Across this research, the consensus is that DPC is a developing model of primary care delivery that could offer advantages such as lower administrative burdens for physicians and improved health outcomes among patients. Some experts also believe that by minimizing the involvement of intermediaries such as insurance companies and government payors, DPC may result in significant cost savings and contribute to a more financially sustainable primary care model.¹⁸ However, no studies have longitudinally assessed outcomes among DPC patients or provided an evidence-based financial analysis of DPC to showcase potential healthcare savings over traditional primary care models.

CASE STUDY: DPC VS. FFS PRIMARY CARE PRACTICE

A scenario comparing a DPC practice with a traditional primary care practice can reveal further insights into the finances of the DPC model. To approximate accurate comparisons, two hypothetical practices that each operate with two PCPs are considered: (1) a pure DPC practice servicing 1000 patients (500 patients per physician) and (2) a traditional primary care practice servicing 4000 patients (2000 patients per physician). The traditional primary care practice is hereafter referred to as the “FFS practice,” given that traditional primary care models operate on a FFS basis.⁵

First, the direct expenditures of operating each practice must be considered (Table 1). First, both the DPC and FFS practice require two PCPs at $250,000 salary each. Non-physician staff are compensated at $55,000 each, but the number of staff members differs at each practice. The number of full-time staff members for each full-time PCP across all internal medicine practices nationwide in 2009 was 2.6.²⁴ Therefore, we assume that with two PCPs, there are five total non-physician staff members who work at the FFS practice. Another study found that the ratio of administrative staff to non-administrative staff at primary care clinics is roughly 2:3,²⁵ so we assume two of the staff members at the FFS practice are administrative personnel, such as billers and coders, while the other three are clinical personnel, such as medical assistants and social workers. Due to minimized administrative duties such as billing and coding, we assume that only one administrative staff member is required at the DPC practice. Thus, the DPC practice has four non-physician staff members, one administrative member, and three clinical personnel.

Table 1.

Expenditures/Year in DPC Practice vs. FFS Practice

Expenditures/year	DPC	FFS
PCP salaries	$500,000	$500,000
Non-physician clinical staff salaries	$165,000	$165,000
Non-physician administrative staff salaries	$55,000	$110,000
Office space rent	$15,000 ($1250/month)	$30,000 ($2500/month)
Vendor/technology costs (electronic health record)	$15,000	$15,000
General liability and medical malpractice insurance	$15,000	$15,000
Operating costs	$20,000	$20,000
Revenue cycle management	$0	$177,559
Total costs	$785,000	$1,032,559
Total cost per patient served	$785	$258

Beyond staff expenses, we assume the DPC practice requires office space rented at $1250 per month, totaling $15,000 annually. In contrast, the FFS practice, serving a significantly greater patient load and requiring additional office space for administration, requires at least double the office space, rented at $2500 per month or $30,000 annually. We assume that the DPC and FFS practices use similar vendors for services such as lab work and supplies, as well as similar technology tools like electronic health records (EHRs). Thus, we approximate that vendor/technology costs will amount to $15,000 for both the DPC and FFS practice. General liability and medical malpractice insurance, as well as operating costs, are also similar across both practices, estimated at $15,000 and $20,000, respectively. Finally, the FFS practice would have an additional expense of insurance revenue cycle management (RCM), which is calculated as 14.5% of $1,183,166,²⁶ the total amount paid via patient insurance plans (see Table 3). Thus, RCM will amount to an additional $177,559/year expense for the FFS practice. In sum, the total cost/year of operating the DPC practice is $785,000, whereas the cost of operating the FFS practice is $1,032,559, mainly driven by increased staffing and RCM.

Table 3.

Insurance Reimbursement/Year in DPC Practice vs. FFS Practice

Insurance reimbursement/year	DPC	FFS
wRVUs/PCP	N/A	9063
Total RVUs/PCPa	N/A	17,771
Total RVUs	N/A	35,541
Total insurance reimbursement	N/A	$1,183,166

^aAssumes that wRVUs account for 51% of total RVUs

Even though the FFS practice is more expensive to operate, the cost per patient is lower due to increased volumes. However, the comparatively higher unit cost at the DPC practice exists against a backdrop of other benefits of this model: lower provider burnout, enhanced physician services and availability, longer appointments, and freedom from corporate medicine.

Another important consideration is the costs to patients at the DPC practice versus the FFS practice (Table 2). At the DPC practice, we assume each patient (or their employer) will pay an average of $80/month or $960/year for their subscription. Therefore, across all 1000 patients in the panel, the total amount paid directly to the DPC practice is $960,000 per year. In contrast, each patient adopting a traditional, employed-sponsored insurance scheme pays an average premium of $1400/year or $117/month,²⁷ of which approximately 6% is allocated for primary care.²⁸ Thus, at the FFS practice, each member pays $84/year for primary care access, which amounts to $336,000 paid across all 4000 patients in the panel. Importantly, these funds are channeled directly to insurance companies as opposed to the FFS practice itself.

Table 2.

Patient Fees/Year in DPC Practice vs. FFS Practice

Costs for patients/year	DPC	FFSa
Total paid per member	$960 ($80/month)	$84 ($7/month)
Total paid (all members)	$960,000 (paid directly to practice)	$336,000 (paid to insurance)

^aAssumes that 6% of a $117/month total premium is allocated to primary care

Next, the revenue at each of these practices must be considered (Table 3). The DPC practice does not earn revenue from insurance but rather the $960,000 earned directly from patient memberships. However, traditional primary care practices are reimbursed by insurance based on relative value units (RVUs). The three types of RVUs include (1) work RVUs (wRVUs), which represent the relative amount of physician work to perform a service; (2) practice expense RVUs, which cover the cost of running a clinic; and (3) malpractice RVUs, which account for the relative cost of malpractice insurance.²⁹ Using data on wRVUs generated by PCPs in physician-owned outpatient practices,^29,30 we assume that a single PCP at the FFS practice can accumulate 9063 wRVUs annually. Furthermore, because wRVUs account for approximately 51% of total RVUs,³¹ the single PCP will accumulate 17,771 total RVUs/year. Across two PCPs, this amounts to 35,541 total RVUs/year at the FFS practice. Notably, this calculation is general and excludes geographic practice cost indices, which adjust RVUs to reflect regional differences in physician service costs.²⁹ According to the 2024 Physician Fee Schedule from the Centers for Medicare & Medicaid Services,³² the conversation factor for RVUs is $33.29/RVU, so we estimate that insurance reimburses the FFS practice a total of $1,183,166/year.

Finally, the total net income of the DPC practice and the FFS practice can be calculated (Table 4). The DPC practice earns a total gross revenue of $960,000/year, and its total expenditures are $785,000/year. Therefore, the DPC practice nets $175,000/year in income serving 1000 patients. At the FFS practice, the total gross revenue is $1,183,166 earned directly from insurance, and the total expenditures of operating the practice amount to $1,032,559. Thus, the FFS practice will net $150,607/year serving 4000 patients. Comparing the two, the DPC practice is projected to generate nearly $25,000 more in net income than the FFS practice. Additionally, it is expected to achieve a significantly higher net income per patient of $137 more per patient per year.

Table 4.

Total Costs Calculations of DPC Practice vs. FFS Practice

	DPC	FFS
Number of patients	1000	4000
Gross income	$960,000	$1,183,166
Gross income per patient	$960	$296
Total expenditures	$785,000	$1,032,559
Total expenditures per patient	$785	$258
Total net income	$175,000	$150,607
Total net income per patient	$175	$38

IMPLICATIONS AND LIMITATIONS OF DIRECT PRIMARY CARE

Our case study shows that DPC can be financially advantageous compared to traditional primary care models, with a single practice potentially generating $25,000 more in net income than its traditional counterpart. However, it is crucial to consider the cost savings achieved by DPC alongside its emphasis on comprehensive healthcare and preventive care. DPC practices prioritize value-based healthcare characterized by smaller patient panels, enhanced personalization, and extended consultation times. This approach can lead to improved patient outcomes and better management of chronic diseases such as obesity, hypertension, and diabetes within DPC patient populations.¹⁸ Consequently, DPC can yield further long-term savings in healthcare expenditures compared to traditional primary care models. Indeed, some DPC practices have reported reductions in per member per month (PMPM) spending across all major categories of total care costs.^33,34 These savings encompass decreased emergency room visits, reduced inpatient expenses, lowered specialist PMPM costs, and decreased home health and ambulance expenditures, all stemming from a primary care approach rooted in value.

However, DPC must also be evaluated in light of its limitations and challenges. One important limitation is that DPC does not replace the need for comprehensive health insurance. Despite the improved primary care services patients receive by subscribing to a DPC practice, they typically still maintain insurance coverage for services beyond the scope of their DPC membership, such as emergencies and hospitalizations. Another limitation is that, because DPC operates on membership subscriptions, there may be an incentive for practices to expand their patient panels to increase revenue. This could lead DPC providers to focus on recruiting low-risk patients, as they require fewer services and lower health expenditures, making them more financially advantageous for the DPC practice. This cherry-picking practice risks exacerbating health inequities in primary care access and delivery. To address this issue, DPC practices could implement risk adjustment mechanisms that account for the complexity and needs of their patient populations. This might involve adjusting fees based on the chronic illness burden and the time required for patient care. Ensuring equitable care for all patients, regardless of their health status, is crucial to the success and fairness of the DPC model. Further research and policy discussions are needed to explore how DPC models can incorporate these adjustments and maintain a focus on value-based care without compromising health equity.

CONCLUSION

While serving a smaller patient base, DPC presents considerable potential for cost savings, which could be accumulated over time to support broader expansion of primary care access across the United States. Moreover, DPC offers a promising solution to alleviate clinician burnout amidst the impending shortage of PCPs in the country. By relieving practitioners of administrative burdens like billing and coding, DPC enables them to focus more on patient care. Additionally, DPC’s emphasis on comprehensive healthcare and preventive measures positions it as a driving force for positive transformation within the American healthcare system. Ultimately, these facets of DPC aim not only to foster innovation and financial viability but also to reshape the healthcare landscape towards a future that is more patient-centered, accessible, and resilient.

Declarations:

Conflict of Interest:

H. T. has investments in Eden Health; S. P. is the co-founder and chief medical officer of Rebel Health Alliance.