Why Wall Street is betting on a couple of under-the-radar companies that want to transform how primary-care practices get paid

• The US is shifting to “value-based care,” in which doctors are paid to keep patients healthy.
• Newly public companies Agilon and Privia are helping doctors navigate that transformation.
• Wall Street is betting on these firms, which can expand faster than those that build clinics.
• See more stories on Insider’s business page.

A crop of under-the-radar companies wants to change up how the hundreds of thousands of primary-care practices get paid, rather than build new ones from scratch.

These companies, including newly public firms like Agilon Health and Privia Health, are putting a new spin on an old model.

Like physician practice management organizations of the past, they help out with back-office administrative tasks and technology. But instead of acquiring doctor groups, they form partnerships with them, positioning themselves to succeed only if the doctors do.

The newer players, which have rebranded as “physician-enablement” companies, are also focused on helping doctors compete in the world of value-based care as the federal government and private health insurers increasingly pressure doctors to move in that direction.

In value-based-care models, doctors are paid in nontraditional ways that reward them for how well they take care of patients and sometimes ding them for poor results, rather than getting paid based on how many patients they can get through the door or how many services they can provide.

Succeeding in these newer payment arrangements requires data, analytics, and sophisticated technology — tools independent doctors don’t always have the funds to invest in.

Analysts are betting on these physician-enablement companies because they say doctors need help navigating this shift.

“It’s not that easy. Understanding how those value-based-care model works and the administrative burden around that, it’s just too cumbersome for these physician practices,” Jailendra Singh, an analyst covering Privia at Credit Suisse, said. He gave Privia an “outperform” rating.

Analysts also say companies like Privia and Agilon can expand faster than the crop of companies that’s building brick-and-mortar primary-care clinics. They don’t need to burn as much cash or raise as much capital to stand up clinics and attract customers, Ryan Daniels, an analyst at William Blair, wrote in two separate reports on Agilon and Privia. He gave both companies an “outperform” rating.

“We believe the growth opportunity is enormous,” Daniels wrote of the companies.

Privia wants to transform healthcare across entire states

Privia equips doctors with technology so they can better manage patients. It leverages its size to help them lower costs and negotiate contracts with health insurers for patients, including those in Medicare and Medicaid, as well as those who get insurance through big commercial insurers.

The company’s shares surged 51% in its initial public offering on April 29 and have since slipped about 7% from then to $32.

When Privia enters a state or market, it sets up a new medical group. In states that allow it, Privia takes at least a 51% stake in the group, while doctors take a minority interest. In other states, the doctors own the new medical groups.

Privia makes money by charging a management fee to handle all the administrative work for the medical groups so they can focus on caring for patients. It also gets a share of any revenue from value-based arrangements that doctors collect. Insurers also pay Privia a fee to access its medical groups, Shawn Morris, the company’s CEO, said.

The company has grown rapidly. Since forming its first medical group in 2013, Privia has grown to work with 2,550 doctors at 650 locations across six states and Washington, DC. It made $817 million in revenue in 2020, and it made a profit of $31.2 million that year.  

Privia ultimately wants to transition entire markets toward value-based care over time, Morris told Insider. Working with existing medical practices and all types of patients is key to doing so, he said.

The company differs from others that focus on serving just one type of patient, and from those that build physical clinics and hire doctors to staff them. Oak Street focuses on older people in private health plans, while One Medical works with commercially insured patients. Both build clinics.

“I’m not knocking the other models, but you’re not going to move the entire market to value by building 10 clinics in ‘name the city,'” Morris said.

Still, Privia has a long way to go: Of the 3 million patients Privia doctors serve, 680,000 are in value-based-care arrangements. But according to Privia’s S-1 filing, most of its revenue — 86% — comes from fee-for-service contracts, which are the traditional way healthcare is paid for.

About 11% of its revenue was tied to some form of value-based care.

“If you’re going to go in and work with existing practices, it is not possible overnight to switch the entire practice to new contract structures,” Dan O’Neill, a healthcare consultant, said. 

Agilon is changing up how doctors get paid to care for older people

Agilon, formed in 2016, makes 20-year partnerships with primary-care practices to help them succeed in contracts with insurers in which they are paid set monthly fees to take care of older people enrolled in Medicare Advantage, the private alternative to the traditional Medicare program for people 65 and older.

In these contracts, the doctors are on the hook for the total cost of their patients’ care. Agilon and the physician groups split any savings they produce from improving care and lowering costs. If they’re unable to save costs, Agilon shoulders the losses — not the doctors.

Agilon CEO Steve Sell told Insider that the company’s physicians, who stay independent, were tripling the level of primary care that patients receive. That’s helped the practices reduce emergency-room visits and hospital use by more than 40% compared with local fee-for-service Medicare patients, according to the company. Agilon provides them with the data, time, and resources to be able to do so, he said.

“We put them in a position where they can actually take advantage of their training,” Sell said. “If they do well for their patients, they can do well financially, and they can invest more in their practice.”

The doctors on Agilon’s platform care for 210,000 Medicare Advantage patients, and its doctors also serve more than 50,000 people in original Medicare through a new federal program. It works with about 1,600 doctors in 17 markets in eight states, though not all of those markets are operational yet, its S-1 filing showed.

In comparison, Oak Street, which builds its own clinics, is responsible for the total cost of care for 75,500 patients.

Agilon hasn’t yet turned a profit, but its losses are narrowing. It reported a net loss of $60.1 million in 2020, compared with a loss of $282.7 million the year before, according to its S-1. Its revenue, meanwhile, jumped 53% to $1.2 billion over the same period.

Agilon’s shares are up about 10% since its initial public offering in April.

Wall Street is betting big on physician enablement as the pandemic speeds the shift to value-based care

Beyond Agilon and Privia, a number of private companies are also making moves in the space.

Aledade, a startup that’s raised more than $300 million in funding, also helps independent primary-care doctors enter into and succeed in contracts in which they are responsible for the cost of their patients’ care.

The health insurer Bright Health, which just filed paperwork to go public, said in its S-1 filing that it built a business called NeueHealth, which helps clinics enter value-based-care arrangements.

Some experts and analysts, including Credit Suisse’s Singh, say the shift toward paying doctors to keep patients healthy is likely to speed up in the wake of the COVID-19 pandemic, and that would provide physician-enablement companies with more opportunity.

But even doctors in fee-for-service arrangements — the traditional way healthcare is paid for — need help handling the ever-increasing administrative requirements to run a practice so they don’t get burned out, Singh said.

Plus, doctors are going to need help offering telehealth and other digital-health tools that patients are increasingly demanding, he said. He said he expected to see more players entering the market to help doctors run their practices.

“Physicians want to spend time taking care of patients,” he said.

“They don’t want to really deal with administrative burden and compliance. That’s why the whole physician-enablement industry even exist,” he added. “And we’re seeing big growth because more and more physicians really need help.”

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