A cooling market for Medicare Advantage has some investors seeing opportunities in Medicaid.
Investors have long been drawn to Medicare Advantage, but that segment has become crowded, dominated by a handful of big companies and less appealing amid regulatory changes. At the same time, states have invited innovation by creating incentives to attract companies willing to take on high-risk Medicaid beneficiaries.
For example, Tiger Global-backed Cityblock Health has raised nearly $900 million since 2017 to finance care programs that target high-needs communities. CareBridge, which provides home and community-based long-term care support to Medicaid recipients, has raised nearly $180 million since 2019, including investments from Oak HC/FT and health insurance companies. Last month, Medicaid care management startup Waymark collected $42 million from CVS Health Ventures and Lux Capital, bringing its total funding to $87 million.
“Most of the innovation is happening in states with Medicaid managed care plans, because those care plans are able to capitate out the risk and create new incentives for innovative providers, whereas the fee-for-service states don’t necessarily have the flexibility or haven’t done as many innovative things to enable these creative models,” said Russell Street Ventures CEO Brad Smith. Smith, who was director of the Center for Medicare and Medicaid Innovation under President Donald Trump, founded his firm in 2019 to develop companies that target vulnerable patient populations.
Low reimbursement rates and the fragmented nature of the federal-state Medicaid program had discouraged companies from investing in Medicaid businesses in the past, said Rebecca Springer, lead healthcare analyst at PItchBook.
But the proliferation of Medicaid managed care has generated big business for health insurance companies such as Centene, UnitedHealth Group and Elevance Health. State Medicaid agencies have encouraged insurers administering the program to adopt value-based care and promote health equity, Springer said.
That's where investor-backed startups such as CityBlock, CareBridge and Waymark come in, Springer said. “[Insurers] need partners to help them achieve those results they’ve promised,” she said. “Investors are becoming more and more cognizant of the opportunities and comfortable with the operational lift that it takes to get there.”
Yet the escalating role of private companies and investors in Medicaid raises questions, said Dr. David Blumenthal, professor of healthcare policy at Harvard Medical School.
“Private equity is a divining rod for opportunities to find hidden profits or less-identifiable sources of margin in our healthcare system,” Blumenthal said. “It doesn’t always mean that private equity is finding societally valuable innovations. But they are finding ways to make substantial profits for their investors, often in nontraditional ways.”
The opportunity in Medicaid
Investors are seeking to leverage new contracts to shore up funding that will allow them to deploy care models designed to reduce costs and increase quality. Medicaid covers a diverse range of people who require services such as long-term support for the elderly, mental and behavioral health services, and maternal, pediatric and primary care for low-income patients.
For example, CareBridge, a Russell Street Ventures portfolio company, provides in-home and community-based long-term care support to elderly Medicaid enrollees in 13 states. The company was built to accommodate variations in each state Medicaid program, which helps it operate across various markets, Smith said.
Companies entering the Medicaid space are developing the ability to contract for risk, which involves data-sharing and quality and safety benchmarking, Smith said. The goal is to provide Medicaid enrollees with more services and healthcare infrastructure than they’ve previously had and encourage innovation, he said.
CareBridge, working with insurers such as Centene and Elevance Health, offers in-home care and equips homes with tablets for full-time access to doctors, nurses and social workers. By investing in additional clinical resources and enhancing their availability, CareBridge hopes to prevent hospitalizations and lower the overall cost of care.