ICYMI: New MedPAC Report Highlights Value of Private Equity Investments in Health Care

This week, the Medicare Payment Advisory Commission (MedPAC) released a report, originally requested by the Chairman of the House Ways and Means Committee, examining the role private equity investments play in the health care sector. MedPAC’s report reaffirms that private equity investments play an important role providing hospitals, nursing homes, and physician practices with capital and expertise to navigate an increasingly complex health care landscape. The report also described how private equity-backed providers and companies are improving the patient experience by innovating new health care delivery methods.

Unlike many of their previous reports, MedPAC did not issue any policy recommendations for Congress to consider regarding private equity. Copied below are some key takeaways from the report about how private equity plays an important role supporting nursing homes, hospitals, and physician practices across America.

Private equity can improve the quality of patient care – “During our interviews, some physicians stated that PE firms are committed to providing patients with a positive experience so they can attract new patients. Another view is that PE acquisitions can improve quality of care because physicians no longer need to focus on running a business.” (Page 100)

Private equity improves efficiencies and provides access to needed resources:

  • “PE owners may consolidate ‘back office’ services such as scheduling, coding and billing, revenue cycle management, and payroll. Smaller independent practices may not have expertise at managing administrative services efficiently; joining with larger practices and conducting some administrative functions centrally may lower their costs. An infusion of capital from PE investors may support investment in information technology to centralize quality measurement, reporting and marketing at more favorable vendor pricing. PE capital may also allow practices to move to common electronic health records and potentially improve clinical workflow.  One consultant we interviewed pointed out that PE funds offer smaller independent practices access to capital at lower borrowing rates than they would be able to obtain through other sources such as local banks. PE acquisitions in the hospital and nursing home sectors offer many of the same opportunities to realize economies of scale.” (Page 90)
  • Rapid changes in the health care market (e.g. vertical and horizontal integration of providers, movement toward value based care, and changes in information technology) have created an environment of uncertainty and higher expenses for independent practices. PE investment offers these practices ‘shelter from the storm’ by providing them with access to capital and expertise in financial management, operations, and practice acquisition.” (Pages 98-99)

Private equity-backed providers are pioneering at-home care – “A third set of (PE-backed) companies focus on delivering primary care in beneficiaries’ homes to improve their health and avoid expensive emergency room visits and inpatient stays. These companies use their own providers (usually nurse practitioners and physician assistants) to deliver the in-home care, and often focus on serving beneficiaries with complex health conditions.” (Page 104)

Private equity-backed providers and companies are improving the patient experience by innovating new health care delivery methods:

  • PE firms have invested in companies that are using several distinct business models to revamp the delivery of primary care. One set of companies operates their own networks of primary care clinics that focus largely or entirely on serving Medicare Advantage enrollees. These companies are paid by Medicare Advantage sponsors on a capitated basis and agree to take full financial risk for the overall Medicare costs of the enrollees they serve.” (Page 104)
  • PE firms have also invested in companies, such as CareCentrix and NaviHealth, that manage the use of post-acute care on behalf of Medicare Advantage plan sponsors. These companies assess enrollees’ care needs, encourage the use of less expensive care when appropriate (such as home health instead of skilled nursing care), and try to reduce the number of hospital readmissions.” (Page 104)

Private equity supports health plans for residents in long-term care facilities – “Institutional special needs plans (I-SNPs) are specialized Medicare Advantage plans that restrict their enrollment to beneficiaries who need the level of care provided in a long-term care facility for 90 days or longer … PE firms have invested in companies that help launch and operate these new I-SNPs … Representatives for one of these companies believed that PE funding had played an important role in facilitating the company’s expansion. The company had used the funding for a variety of purposes, including developing case management software that was better suited for institutional settings and hiring more capable staff.” (Pages 102-103)

Click here to learn more about how private equity is making critical investments in America’s health care system.


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