Primary Care Accounts for Less Than 5% of Medicare Spending

April 17, 2019 - Healthcare industry leaders are emphasizing the benefits of primary care, but a surprisingly low percentage of Medicare spending goes to providing primary care services, a new RAND Corporation study published in JAMA Internal Medicine revealed.

Primary care expenditures represented from 2.12 percent to 4.88 percent of total medical and prescription spending by Medicare Parts A, B, and D in 2015 depending on the definition of primary care used, researchers found.

The study’s narrow definition of primary care included services performed by providers specializing in family medicine, internal medicine, pediatrics, and general practice. The broad definition added the services conducted by nurse practitioners and physician assistants, as well as providers specializing in geriatric medicine and gynecology.

“There is no consensus about the optimal share of medical spending that should be devoted to primary care,” Rachel O. Reid, MD, the study's lead author and a physician scientist at RAND, stated in a press release. “However, a current estimate of such spending can be a reference point for policy debates about investment in primary care.”

Value-based care, population health management, and other recent healthcare reforms have put primary care at the center of medical care. Primary care providers (PCPs) are acting as the quarterbacks of patient care in efforts to lower healthcare spending and unnecessary utilization while improving care quality.

Research suggests that primary care is associated with higher care quality, better outcomes, and lower costs. States such as Rhode Island and Oregon have also implemented minimum primary care spending percentages for health plans, researchers pointed out.

But the percentage of Medicare spending going to primary care calls into question how much the industry should be dedicating to primary care to achieve healthcare reform goals.

The RAND study analyzed the medical care provided to more than 16 million Medicare fee-for-service beneficiaries in 2015, including outpatient care, hospital services, and prescription medications.

Researchers found that not only is Medicare spending less than five percent on primary care, but primary care spending percentages were lower among Medicare beneficiaries who were older, black, native American, dually eligible for Medicare and Medicaid, and who had chronic medical conditions. Spending was lower regardless of the definition of primary care used, researchers noted.

Primary care spending also varied by state, the study uncovered. Under the narrow definition of primary care, spending on the services ranged from 1.59 percent of medical spending in North Dakota to 3.18 percent of medical spending in Hawaii.

Under the broad definition, the range spanned from 2.92 percent in the District of Columbia to 4.74 percent in Iowa.

Primary care spending percentages by state also did not relate to the number of primary care providers per capita, researchers pointed out.

Researchers admit that they do not know what the optimal level of primary care spending should be to achieve lower costs and better care quality. But an underinvestment in primary care is one of the reasons why the US healthcare system has worse population health outcomes compared to similar countries, the Milbank Memorial Fund reports. The foundation supported the RAND study along with the Agency for Healthcare Research and Quality.

A 2017 study by the Milbank Memorial Fund found that commercial payers are also spending a small fraction on primary care services. About 7.1 percent of fee-for-service dollars from preferred provider organizations (PPOs) went to primary care in 2014. Similarly, primary care accounted for 7.6 percent of fee-for-service dollars from health maintenance organizations (HMOs).

Both studies highlight the importance of developing primary care spending benchmarks, researchers agree. Rhode Island and Oregon have already instituted primary care spending minimums, and federal and state officials looking to implement similar reforms should have benchmarks to understand roughly how much money should be devoted to primary care to improve quality and reduce costs.