New federal research shows that private equity investment in healthcare has little short-term effect on Medicare spending because the federal government sets its prices, but experts worry it could raise long-term program spending or lower beneficiaries' access to care, quality or patient satisfaction.
During the Medicare Payment Advisory Commission's April meeting on Friday, MedPAC's staff said it's difficult to understand how private equity affects the Medicare program because many providers and suppliers structure their organizations to limit liability.
"This is probably the single issue where we have the least amount of data," MedPAC commissioner Amol Navathe said.
According to the commission, private equity firms own less than 4% of hospitals and about 11% of nursing homes. But the commission was unable to pinpoint how many physician practices are owned by private equity, noting such organizations bought at least 2% of practices from 2013 to 2016.
Hospitals and nursing homes probably won't get much private equity investment during the next few years, MedPAC's staff said. The researchers found that private equity firms are especially interested in physician practices, but investments vary significantly by specialty.
Several MedPAC commissioners worried that a lack of transparency about provider and supplier ownership might be hiding the real-world effects of private equity firms on healthcare, especially the impact of provider consolidation on access to care, quality and patient satisfaction.
"We clearly have some access issues," MedPAC commissioner Susan Thompson said. "We're paying enormous amounts of money to staff the health system."
More than a few commissioners argued that federal policymakers need better data to study the issue, including private equity's influence on utilization.
"Private equity is more aggressive," MedPAC vice-chairman Paul Ginsburg said. "The loopholes in our payment systems will be exploited more rapidly."
Many private equity firms help Medicare Advantage plans collect diagnosis codes for risk adjustment, which might encourage upcoding.
According to MedPAC, private equity firms use a range of strategies to make providers more profitable. They often focus on increasing revenue by having providers off more services, deliver more profitable services or using their market power to get higher payments from commercial payers. They also lower costs through greater administrative efficiency and reduced labor expenses, including increased use of non-physician providers like physician assistants. But those strategies aren't unique to providers owned by private equity, as many for-profit providers take similar approaches.
Medicare spending could increase in the long-term as private equity firms pressure more clinicians to deliver a greater number of more profitable services, a MedPAC analyst said.
Private equity firms might also negatively affect hospitals' finances because they tend to invest in high-margin business lines. That can make it tougher for hospitals to fund less profitable departments and services.
"The end result might or might not be better for consumers, but I think that it does have an impact on Medicare payment policy," MedPAC commissioner Pat Wang said.
Researchers found that several strategies used by private equity firms can increase providers' costs. For instance, leveraged buyouts can make it more expensive for providers to pay down debt. Likewise, private equity firms may sell providers' real estate and require them to lease it back or force them to buy goods and services from other businesses owned by the private equity firm. Providers might also have to pay management fees to the private equity firm that owns them.
MedPAC's analysis showed that private equity-owned hospitals had slightly lower costs per discharge and patient satisfaction than the average for-profit hospital. It also found that costs per discharge and patient satisfaction for private equity-owned hospitals were markedly lower than the average nonprofit hospital. But the commission's analysts noted significant variation within each type of hospital ownership, so some private equity-owned hospitals had higher costs per discharge or patient satisfaction than selected for-profit and nonprofit hospitals.
Recent research found that private equity-owned nursing homes increased staff in competitive markets and cut back staffing in less competitive markets. Private equity-owned nursing homes also had higher mortality and Medicare spending per episode, analysts said. But MedPAC commissioner David Grabowski warned against using mortality to judge quality, noting that it's not something the commission usually considers or included in CMS' Nursing Home Compare tool.
"I think it says a lot more about which types of patients are being admitted (and) how much they're using hospice," he said.
According to MedPAC, private equity firms own less than 2% of Medicare Advantage plans sponsors. But some plans—including 25 parent companies with 1% of total enrollment—have other types of private equity investment like venture capital. Analysts found that many investments target: startup health plans focused on Medicare Advantage or ACA exchanges; provider-sponsored institutional special needs plans; or Program of All-Inclusive Care for the Elderly, or PACE, plans.
Private equity firms also invest in companies that serve Medicare Advantage plans by delivering primary care services to enrollees or providing care management for specific services or population. Many of them are paid under risk-bearing, value-based contracts.
