Wall Street Billions Chasing Primary Care Mother Load

”Private investors, retailers and health insurers are pumping billions of dollars into primary-care ventures in a reversal that’s turned one of American medicine’s least-lucrative practice areas into a hot spot.”

Medicine’s Worst-Paying Specialty Is Luring Billions From Wall Street

Private equity, pharmacy chains and health insurers are vying for the doctors at the gates of the health-care system

By Angelica Peebles

February 10, 2022, 8:00 AM CST

Private investors, retailers and health insurers are pumping billions of dollars into primary-care ventures in a reversal that’s turned one of American medicine’s least-lucrative practice areas into a hot spot.

U.S. companies focused on primary care raised about $16 billion from investors in 2021, according to unpublished research by Harvard scholars. That’s more than four times the amount invested in 2020 and up from just $15 million reported in 2010, they said. The researchers tallied private investment, strategic acquisitions and public-market debuts of primary-care companies in a recent New England Journal of Medicine article.

Hospitals have long sought to fold in physician practices to drive referrals for specialty care. Now, they face more competition from health insurers, drug-store chains, investment firms and tech-focused upstarts.

Those buyers say consolidation can make the notoriously fragmented U.S. health-care system work better for patients at lower costs. They aim to control the gateway to more expensive specialists and influence decisions that affect patients’ later treatment.

It’s why CVS Health Corp., parent of insurer Aetna, plans to put doctors in up to 350 of its retail stores. “What we’re trying to really do now is primary care and wield significant influence across the continuum of health care,” CVS Chief Executive Officer Karen Lynch said in February in an interview with Bloomberg Television.

The boom accelerated during the pandemic, as independent practices faced financial stress and some doctors sought early retirement. Primary-care revenue plunged 7% in 2020, according to market researcher IBISWorld, and deals involving medical groups spiked last year.

As a result, a medical profession once defined by solo offices and small partnerships is now dominated by corporate practices and hospital-owned clinics. About 7 in 10 American doctors worked for health systems or corporate owners at the start of 2021, according to an analysis by the nonprofit Physicians Advocacy Institute.

The competition to control physicians is intensifying with CVS and its rivals increasingly vying for doctors. UnitedHealth Group Inc. added about 10,000 last year. Walgreens Boots Alliance Inc. agreed to pay $5.2 billion for a controlling stake in upstart clinic chain VillageMD in October.

Corporate Care

The shift is changing how Americans get health care. Moving doctors from medical towers to corner drug stores may ease access for patients. Some clinicians are drawn to corporate practices by the promise of spending more time on care and less time on administrative work. Health-care investors and executives see a chance to profit by wringing waste from the $4 trillion U.S. health-care system, even as some worry that pressure to profit could compromise care.

Big Money

Primary-care doctors like family- or internal-medicine physicians typically make less moneythan specialists like cardiologists, dermatologists or surgeons. To appreciate why they’re now attracting investment from private equity and corporate health giants, you have to understand the shift underway in how medical care is paid for.

Private health plans and government programs like Medicare increasingly want to make physicians accountable for some or all of the cost of their patients’ care. They’re trying to link doctors’ pay to patients’ health, rather than the number of treatments or tests they perform.

Where the Money Isn’t

Primary care specialties including pediatrics, family medicine and internal medicine are among the lowest-paying medical

That often means reconfiguring how medical practices operate to focus on managing chronic conditions and reducing preventable hospital visits. Insurers are willing to pay more for this type of care, and doctors who can provide it can capture a piece of the savings.

“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. The venture-backed company serves 1.6 million patients in more than 250 locations. About a quarter of VillageMD’s Medicare patients take 10 or more medications, Barry said.

VillageMD is part of a crop of primary-care companies with big money behind them. Many have gone public in the last two years, including One Medical parent 1Life Healthcare, Oak Street Health, Agilon Health, Privia Health Group and Cano Health.

“The world has changed in the last few years,” said Jefferies analyst Brian Tanquilut. “Two years ago, we were not talking about Oak, Agilon, all the value-based primary-care providers and now there are like eight of them that are public.” Wall Street’s early enthusiasm for the strategy has dimmed: Many of the newcomers have yet to show profits, and most are trading near or below their initial listing prices.

Adding to the rapidly growing competition are health insurers seeking their own piece of the market. They see delivering care directly as a way to grow since the 2010 Affordable Care Act capped the share of premium revenue insurers could put toward administrative costs and profits.

Many insurers have lucrative businesses managing older or disabled patients on private Medicare Advantage plans where they assume the full risk of patients’ cost of care. Working with physician groups gives insurers a way to offload risk, especially for patients with chronic diseases and complex medical conditions, Tanquilut said.

“It really is about moving the center of gravity from patients being managed by hospital systems to really being managed by primary-care doctors.”

The biggest sellers of private Medicare Advantage plans—UnitedHealth, Humana and CVS’s Aetna unit—are expanding their primary-care capacities. UnitedHealth’s Optum unit now has more than 60,000 employed or “aligned” physicians, about half of them in primary care. Humana plans to open 26 new clinics under its CenterWell brand this year, bringing the company’s total primary-care footprint to about 250 locations, and expects to add 30 to 50 more annually.

At CVS, Lynch envisions a future where customers can see a doctor inside one of the company’s stores, pick up prescriptions and buy health and wellness products in the same place.

The company’s retail rivals have similar designs: Walmart Inc. started opening Walmart Health clinics with nurse practitioners in 2019 and now has about 20 locations, mostly in Georgia, according to the company’s website. Walgreens plans to install physician clinics in 1,000 of its stores by 2027 through its partnership with VillageMD. Meanwhile, Amazon.com Inc. said in February that it will expand Amazon Care, which offers online and in-home visits, to 20 more cities this year.

Shifting Incentives

Companies say shifting incentives to make doctors accountable for patients’ costs will encourage them to deliver better care. At the JPMorgan conference, Walgreens’ CEO Rosalind Brewer touted the savings she said VillageMD delivers: $2,300 a year for Medicare Advantage patients; $1,000 for Medicare patients; $720 for commercially insured patients.

Moving away from a system where doctors are paid for every service they provide could help temper ballooning health-care costs in the U.S., said Zirui Song, an associate professor of health care policy at Harvard Medical School and a co-author of the November paper on investment in primary care in the journal NEJM Catalyst Innovations in Care Delivery. At the same time, encouraging providers to spend less introduces the risk of undertreating patients.

Song, who’s also a primary-care physician at Massachusetts General Hospital, said the flood of private capital into the field raises the risk that profit motives could eclipse the best interest of patients.

“The trust between a patient and a primary-care clinician is especially important for the patient’s care trajectory through the health-care system,” Song 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.”

Still, investors betting on the shift see it as a needed correction for a health system that steers resources to the most intensive settings, says Annie Lamont, co-founder of venture firm Oak HC/FT, which has invested in startups such as One Medical and VillageMD.

“It really is about moving the center of gravity,” Lamont said, “from patients being managed by hospital systems to really being managed by primary-care

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