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Health care strategist Dana Y. Lujan discusses her article “Why direct primary care (DPC) models fail.” Dana argues that the DPC community’s obsession with “purity” is missing the point, stating that these models don’t fail over ideology, they fail because of bad math. She uses the University of Houston’s $1 million clinic failure as a prime example of a “fundamental market mismatch,” where a DPC model was placed in a low-income area that couldn’t sustain its membership fees (a ~70 percent revenue deficit). Dana also debunks the myth that institutions can’t run successful DPC programs, citing CHI Health and Johns Hopkins as proof that financial sustainability and market fit are the true keys. This episode explores the critical difference between what’s legally permissible and what’s operationally sustainable, and why the DPC conversation must shift from philosophy to execution. Learn why you cannot “subscription-model your way out of poverty.”

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Transcript

Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast. Today we welcome Dana Y. Lujan; she’s a health care strategist. Today’s KevinMD article is “Why direct primary care models fail.” Dana, welcome to the show.

Dana Y. Lujan: All right, thank you for having me.

Kevin Pho: All right, let’s start by briefly sharing your story. Then we’ll jump right into your KevinMD article.

Dana Y. Lujan: Sure. I am Dana Lujan, and I’m a health care strategist. I’ve been in health care for slightly over 20 years across provider groups, payer networks, health systems, and amputee consulting firms leading operations, revenue cycle management, contracting, compliance, and strategy.

My career actually started in the military, where I learned the foundation of leadership, discipline, accountability, and focus. Those values still shape how I work today. Over the years, I have learned to connect the dots, take a step back, and see the bigger picture while still holding onto the details that matter.

Kevin Pho: All right, your KevinMD article is “Why direct primary care models fail.” I’ve had a lot of people on this podcast talk about direct primary care, about how great it is, but I think that we need a sense of realism as well. So this is why we’re going to talk about this. So for those who didn’t get a chance to read your article, tell us what it’s about.

Dana Y. Lujan: Great. So I have spent years transitioning providers from fee-for-service into various different types of payment models. The narrative that I continue hearing in the DPC community is the fact that the DPC clinic failed because it’s not on pure ideology. You know, it’s not a pure DPC, or there’s a technical mishap like in their planning financials and marketing.

I tend to pause and kind of take a step back. While those are valid points, I’m thinking that there has to be a deeper strategic side. When I came across the University of Houston Direct Primary Clinic article, it really interested me because one, my home state is Texas, and I have worked in the Houston market, so I’m accustomed to the community out there.

The author wrote again about the ideology, and to me, I think we do ourselves a disservice when we’re so focused on ideology and not on what really happens and where the breakdown is. So when I dug more into the university and I found the peer review, I was just like, “Oh, it is structure. It is strategic planning.” You’re asking for one model when there are actually three models trying to be one model. And I felt like this was a perfect time to write it.

Kevin Pho: When you say about DPC ideology and obsession with purity, just tell us exactly what you mean by that.

Dana Y. Lujan: So, you know, they push an all-or-nothing approach. I’ve heard it across the board with physicians that I have come across, and even on comments on some of the articles that they write. For instance, providers say, “How about capitation? While we’re transitioning, can we at least keep capitation?” They will be marked no. It is pure all-or-nothing.

I feel like you’re setting physicians up who have been in business for a few years and have their own practice. They’re trying to get into DPC. Why not have a transition plan for them? Why not have a strategic transition plan? Because there’s a big difference between being strategic versus being technical and really laying out a solid foundation. So when they are full true DPC, they’re not failing within their first two years of opening up their doors.

Kevin Pho: Do we have any data or any sense about what percentage or proportion of direct primary care DPC clinics fail?

Dana Y. Lujan: So what I’ve read, and I’ve come across a few articles, the baseline is there’s a hundred DPC clinics that open. Within the first two years, 65 to 75 will sustain, and then the rest will drop off. To me, I’m thinking to myself that what they quote is technical mishaps. They cite not planning enough financials and, again, marketing. So again, tactical mishaps. Technical is execution. Everyone can execute. But if you don’t have a deep knowledge in regards to planning on how you’re going to get from point A to point B, then what’s the point of executing?

Kevin Pho: So according to the data that you read, approximately 30 to 35 percent of direct primary care clinics fail within two years. Any commonalities in terms of why they fail? You mentioned things like tactical mishaps, so what are some examples of such tactical mishaps that led to some of their failures?

Dana Y. Lujan: Their financials. They struggle from a financial standpoint. So again, this is where I go back to financial planning from a strategic standpoint. A really quick tip is to know your numbers. Know your current panel size, what percentage of your revenue comes across from each payer, and know the true cost to serve your patients.

Do a deep dive on your payer. I’ve seen a comment that was left by a physician: “Oh, it’s easy. All you do is just look at your contracts, take your smaller contract, term it next 45 to 60 days, take your next one, and term it.” While that sounds great on execution, when you’re looking and you’re starting to model, sometimes it might be a bigger payer that’s more feasible to term prior. Why? Because you have more FTEs on that payer, and then the turnaround time on receiving your reimbursements is in the AR bucket of 90 days or more. So why would I want to keep a payer that doesn’t have a quick turnaround on revenue? I’d rather keep a payer that I know even if it might be a low density of a hundred patients, if that patient comes in, I know I get my money within 30 days.

Kevin Pho: So in this story that you wrote, you wrote about the University of Houston, about how their failure was a prime example of fundamental market mismatch. So for those, again, who didn’t read your article, tell us about that story and some of the failure points that this particular instance made.

Dana Y. Lujan: Well, I’m glad that they tried it out because I always believe in trying something out to see exactly what happens. So I believe that they were putting a DPC clinic into a heavily Medicaid, uninsured, and underinsured area. So there’s a lot of factors that go into play with that.

So anyone who has worked Medicaid, even if you’re primary and you are heavy into Medicaid, you know your retention rate is 30 to 40 percent on a yearly basis. Even if you work the networks, it’s hard to get those Medicaid patients back in the door.

It never explained if they were going to partner with a payer to try out a more value-based type of incentive program. Then when you read through the article, I indicated that they were trying to get employer contracts. So my question is, if you knew you were going to go the employer route, how come you didn’t identify at least four to five? Then pivot. Try to secure at least one or two contracts prior to actually starting the pilot program to help sustain the $1 million grant.

And then, you know, it’s easy for us when you’re in that community for us to say $60 is a good model and we can subsidize it. But when you’re speaking with underinsured and uninsured, now you have behavioral economics at play. This is a question of, “Am I going to get my car fixed or am I going to pay the $60 membership? Am I going to get my car fixed or still pay a $25 membership?” It is behavioral economics.

Kevin Pho: And you mentioned a couple of examples where institutions successfully implemented DPC models, right?

Dana Y. Lujan: I have, yes. So, CHI, the Catholic Health Initiative, actually launched their DPC model, which is an independent membership. I want to say that was back in 2017, though I don’t have my notes in front of me. And then it stretched from one pilot program to I think seven or eight locations now. So that’s pure DPC.

So to me, again, it goes back to strategic planning and having your structure. Johns Hopkins has three different types of various payment models. They have the concierge, they have the employer direct DPC model, and then of course the value-based. So again, it is working because there’s been planning along with the execution.

And I think the reason why I’m kind of bringing this to the forefront more is because of what you’re seeing when I hear independent providers saying, “Hey, we’re independent providers. We’re trying to stay independent.” What happened back in 2007 and 2008 with the health systems buying the independent providers out? They have private equity coming in and they’re doing the buying out of the independent providers. We’re seeing the same wave. Whether you like to believe it or not, you’re kind of seeing that in concierge medicine and direct primary care as we speak.

Kevin Pho: In those physician-only message boards, direct primary care is often seen as a solution to a lot of the corporate physicians who are burning out and the treadmill of seeing patients every ten to 15 minutes. But obviously, it’s not as easy as that. So talk to us about some of the questions physicians need to ask themselves and the type of resources that they need to consult if they’re considering switching and opening up a direct primary care practice.

Dana Y. Lujan: So again, I always say know your numbers. That’s really doing a financial analysis of your entire business and your life because you’re upkeeping your life into another type of model. So know your current panel size. Know the percentage of revenue for each payer. Know your true cost to serve each patient. Then model out different scenarios, and when you model out, see like, “OK, if I reduce my panel by 30 percent, how would this look? Can I sustain it?”

Then do a timeline and accountability milestone. And then I would throw in a quick bonus tip. I like to call it location recon. Because you know, you’ve been in your independent practice for so long. I always ask the provider, “How married are you to your location?” They say, “I love this location. This is a great location.” Okay, well let’s go take a walk. Do a quick walk, see what you see in concierge medicine and direct primary. Then drive one mile in each direction and see what you see, because again, it goes back to market alignment. You don’t want to put your practice in where it’s very heavily saturated.

And then I get the pushback: “Well, Google doesn’t capture everyone who is DPC in concierge medicine.” So you can sit here and rely on technology all you want, but sometimes we have to take it back to the way we used to do it.

Kevin Pho: So in terms of physicians who need to look for a consultant like yourself in terms of doing this type of research, what kind of questions do they need to ask that consultant, or what kind of questions do they need to ask to find that right person to guide them in doing some of this market research before opening up a practice?

Dana Y. Lujan: I think the type of questions that you should be asking a consultant is regarding how many practices have they been able to transition or started. You need to know if they understand the market that they are currently in. Because you know, you could be a great consultant out in Texas, but then you go into the South Carolina market. Two different types of markets, and even the states have their own markets. So I might be a great consultant out in Dallas, but I just don’t know the Houston community. That’s a differentiating factor.

If they’re not asking about really sitting down with you and going through the financials and the revenue cycle, then that should be a high alert because that’s something that a consultant should be able to do. They’re supposed to be your operator. The provider is the visionary; the consultant is the operator. So I tend to listen to the visionary and I say, “OK, this is the bigger picture, but these are the details.” I should be able to sit down with that physician and discuss and go thoroughly on what they’re looking at. So then they can understand their own operations and how the transition is happening.

Kevin Pho: So from your experience, assuming the physician does everything right, does the appropriate market research, knows their numbers, and hires the right consultant. In general, how long does it take for a successful direct primary care practice to become profitable?

Dana Y. Lujan: I would say within a year. Within a year. Sometimes I probably push out to 18 months just depending on where the location is. I know where I’m currently located, I’ve seen it within a year. If they do have an issue, it depends on who they have for marketing, because sometimes they want someone different for their marketing because they know a person that knows a person, and that’s not on the consultant. You can only give so much information to them.

Kevin Pho: We’re talking to Dana Luhan; she’s a health care strategist, and today’s KevinMD article is “Why direct primary care models fail.” Dana, let’s end with some take-home messages that you want to leave with the KevinMD audience.

Dana Y. Lujan: I think what I would like to leave with is think like a CEO and not as a business owner. Thinking systems. And when you start thinking more like a CEO than a business owner, you start seeing the shift and how to shift it through.

Kevin Pho: Dana, thank you so much for sharing your perspective and insight and thanks again for coming on the show.

Dana Y. Lujan: Thank you so much.