Health Care Cost Trends Direct Primary Care: Evaluating a New Model of Delivery and Financing May 2020 2 Direct Primary Care: Evaluating a New Model of Delivery and Financing AUTHORS Fritz Busch, FSA, MAAA SPONSORS Society of Actuaries Consulting Actuary Research Expanding Boundaries (REX) Milliman, Inc. Pool Dustin Grzeskowiak, FSA, MAAA Consulting Actuary Milliman, Inc. Erik Huth, FSA, MAAA Principal and Consulting Actuary Milliman, Inc. Caveat and Disclaimer The opinions expressed and conclusions reached by the authors are their own and do not represent any official position or opinion of the Society of Actuaries or its members. The Society of Actuaries makes no representation or warranty to the accuracy of the information. This report was prepared by Milliman exclusively for the use or benefit of the Society of Actuaries for a specific and limited purpose. The report used data from various sources, which Milliman has not audited. Any third party recipient of this report who desires professional guidance should not rely upon Milliman’s report, but should engage qualified professionals for advice appropriate to its own specific needs. Copyright © 2020 by the Society of Actuaries. All rights reserved. Copyright © 2020 Society of Actuaries 3 CONTENTS 1. Executive Summary ............................................................................................................................................... 5 Literature Review ........................................................................................................................................................... 6 Market Survey ................................................................................................................................................................ 7 Case Study ...................................................................................................................................................................... 7 2. Background ........................................................................................................................................................... 9 Current State of Primary Care ....................................................................................................................................... 9 Milliman DPC Research ................................................................................................................................................ 10 3. Overview of DPC ................................................................................................................................................. 12 Definition and Common Features ............................................................................................................................... 12 Key Findings from Market Survey ............................................................................................................................... 14 4. Summary of DPC Literature Review ..................................................................................................................... 17 Overview ....................................................................................................................................................................... 17 Selection Criteria .......................................................................................................................................................... 17 Summary of Existing Literature ................................................................................................................................... 17 Overview of DPC.............................................................................................................................................. 18 Cost Outcomes ................................................................................................................................................ 19 Gaps in Existing DPC Research .................................................................................................................................... 22 5. Overview of Case Study....................................................................................................................................... 23 Study Structure ............................................................................................................................................................ 23 Study Goals ................................................................................................................................................................... 23 Data Description .......................................................................................................................................................... 24 Exposure Measures ......................................................................................................................................... 24 Cost Measures ................................................................................................................................................. 25 Benefit Coverages............................................................................................................................................ 25 6. Case Study Findings ............................................................................................................................................. 27 Population Differences ................................................................................................................................................ 27 Demographics .................................................................................................................................................. 27 Risk Selection and Morbidity ....................................................................................................................................... 28 Overall Demand for Health Care Services .................................................................................................................. 28 Emergency Department Visits ..................................................................................................................................... 31 Inpatient Hospital Admissions ..................................................................................................................................... 32 Total Employer Costs (DPC ROI) .................................................................................................................................. 32 7. Case Study Generalized Actuarial Framework for Funding Employer DPC Options .............................................. 36 Development of Estimated DPC FFS Claim Cost Savings ........................................................................................... 36 Overall DPC FFS Claim Cost Savings ............................................................................................................................ 41 Development of DPC Membership Fee Schedule ...................................................................................................... 41 Other Considerations for Employers Considering a DPC Option............................................................................... 43 8. Case Study Discussion and Limitations ................................................................................................................ 46 Discussion ..................................................................................................................................................................... 46 Limitations .................................................................................................................................................................... 47 Sample Size ...................................................................................................................................................... 47 Lack of Quality Measures ................................................................................................................................ 47 Variability in DPC ............................................................................................................................................. 48 Data Quality ..................................................................................................................................................... 48 DPC Practice Structure .................................................................................................................................... 49 Reliance 49 Copyright © 2020 Society of Actuaries 4 9. Case Study Data Sources ..................................................................................................................................... 50 Administrative Medical Claims .................................................................................................................................... 50 Administrative Prescription Drug Claims .................................................................................................................... 50 Health Plan Enrollment ................................................................................................................................................ 50 Benefit Plan Design ...................................................................................................................................................... 50 10. Case