Stealth privatization of Medicare is a boon for Wall Street
The Joe Biden administration’s recent entrenchment and expansion of the Donald Trump administration’s efforts to privatize Medicare helps an obscure group of big business beneficiaries: private equity firms and large healthcare, including one that previously employed the government official overseeing the privatization plan, new analysis from us shows.
In April last year, the Biden administration contracted fifty-three third-party companies to mandate privatized health care plans through Medicare. The resulting healthcare options are effectively Medicare Advantage plans, or private coverage offered by National Health Insurance for the elderly and disabled – but with a twist: patients are assigned to these new plans without their consent.
The fifty-three participating companies — called “direct contracting entities,” or DCEs — are authorized to offer benefits beyond traditional health insurance, such as gym membership coverage. But as for-profit companies that receive a fixed payment from Medicare regardless of the amount of care they approve, these DCEs have an incentive to limit the care patients receive, especially when they are very sick. . The first DCEs were launched by President Donald Trump in 2019, and so far at least 350,000 seniors have already been transferred to these privatized health insurance plans.
However, a new analysis that we have made of the fifty-three DCEs has revealed an additional source of concern: fifteen of these entities, or just over a quarter, are backed by private equity firms, known to extract profits at the expense of workers, the environment, and even their own pension fund investors. Companies include well-known companies such as the Carlyle Group, General Atlantic, Clayton, Dubilier & Rice, Benchmark Capital and Warburg Pincus. Additionally, fifteen other DCEs are tied to major health care companies — including one with a direct link to the Biden appointee in charge of the new privatized Medicare plan.
Wall Street’s encroachment on Medicare is the latest example of the aggressive expansion of private equity into health care, which ranges from hospitals to emergency physician groups. In 2021, private equity managers deployed $172 billion in capital into the healthcare sector, nearly four times the total budget of the National Institutes of Health.
Biden himself lambasted the for-profit industry’s takeover of aged care services, noting during his State of the Union address in March: “As Wall Street corporations take over more nursing homes, the quality of those homes has gone down and costs have gone up. It ends on my watch.
Biden apparently doesn’t have the same worries about Wall Street’s growing role in Medicare — a development that could lead to higher medical bills for patients. The financial industry has already demonstrated its willingness to take an aggressive approach to generating healthcare profits. private equity waged an aggressive campaign to derail legislation designed to stop so-called “surprise” medical bills, which were a significant part of their hospital staffing firms’ bottom line.
Now, as private equity strengthens in Medicare privatization, industry lobbyists are likely to push for more generous payment structures that benefit for-profit companies at the expense of Medicare patients. The Medicare Payment Advisory Commission, an independent body that advises Congress on Medicare, hinted at this scenario while discussing the role of private equity in the Medicare Advantage space during a hearing in April 2021.
“The end result might or might not be better for consumers, but I think it impacts Medicare payment policy,” Commissioner Pat Wang said.
Experts fear that the Medicare space is particularly vulnerable to Wall Street’s predatory approach.
“We have ample evidence of many other situations in which private equity puts profits ahead of patients,” said Eileen Appelbaum, co-director of the Center for Economic and Policy Research and co-author of Private Equity at Work: When Wall Street Runs Main Street. “They’re looking for a place where it’s easy to make money – and it’s easy to make money when the taxpayer pays the bill.”
While the ECD program was launched under President Trump, Biden expanded the effort in February under a new name: the Accountable Care Organization Realizing Equity, Access, and Community Health, or “ACO REACH” program. Now, for-profit, hospital-supported health benefit programs are also allowed to automatically enroll Medicare patients into their health care plans.
Like providers of Medicare Advantage plans, these new companies receive a fixed payment from Medicare for their offerings, supposedly to incentivize more holistic, higher-quality care. In exchange, these companies acquire Medicare patients into their plans — often without the patients realizing what’s going on.
In March, we reported how a Medicare beneficiary who was quietly assigned to an ELD initially misinterpreted a message she received about the change as a health-related communication from her doctor — though she is an experienced health policy expert.
In addition to the fifteen private equity-backed companies, the list of DCEs approved by the Biden administration published in April 2021 includes fifteen operations owned by healthcare giants, such as insurers Humana, UnitedHealth and Anthem, the pharmacy chain Walgreens and the dialysis provider. DaVita.
Experts say these connections raise serious questions about conflicts of interest. For example, the DCE program is run by a little-known federal entity, the Centers for Medicare & Medicaid Services (CMS) Innovation Center, headed by Liz Fowler — the former vice president of public policy at the now well-known insurer WellPoint. as Hymn.
In response to our request for comment, a CMS spokesperson said Fowler was not involved in the ELD approval process. They further claimed that many of the entities we identified are not backed by private equity because they are public companies.
But several of these public companies have received substantial investments from private equity firms, also known as “private investments in public funds”. For example, while 1LifeHealthcare — a primary care provider that owns one of the DCEs, One Medical’s Iora Health — is publicly traded, leading private equity firm Carlyle Group owns more than 7% of its shares.
Critics say Fowler has a history of crafting politics to help his contacts in the private sector.
“Honestly, it just seems to add to the pattern we’ve seen with Liz Fowler,” said Fatou Ndiaye, research assistant at the Revolving Door Project, which monitors the revolving door between the public and private sectors.
Ndiaye pointed out that before lobbying for WellPoint, Fowler worked for Sen. Max Baucus (D-MT), where she helped draft Medicare Part D, a program that critics say was a huge giveaway for the state. pharmaceutical industry because it created massive new benefits for drugs without controlling prices.
After working for Wellpoint from 2006 to 2008, Fowler joined the staff of Baucus, where she helped draft a version of the Affordable Care Act (ACA) that excluded the public health insurance option promised by Democrats. , resulting in huge profits and no competition from the public sector to the private sector. insurers.
” One year later [ACA’s] passage, Wellpoint’s profits increased 91% to $2.3 billion,” Ndiaye said.
The fact that private equity now backs more than a quarter of all companies in the DCE space stands in stark contrast to the fact that private equity owns only 2% of all for-profit Medicare Advantage programs.
While Medicare Advantage options have been criticized by health advocates for their extremely high costs, the focus of private equity on this new type of non-voluntary, privatized Medicare plan suggests that Fowler and the Biden administration could pave the way for much larger projects. involvement of private equity in the national health insurance program.
Examples abound of the problems that arise when private equity supports healthcare operations. Just last month, News reported that BrightSpring, a group home operator acquired by mega-private equity firm KKR in 2019, has since been plagued by serious issues at its group homes for people with disabilities, resulting in serious injuries and in some cases , the death of residents.
The Carlyle Group, which owns a stake in OneMedical, the parent company of Iora Health, has a particularly troubling history in healthcare. After Carlyle acquired HCR Manorcare, a chain of nursing homes, the company was plagued with serious shortcomings in standards of care until it went bankrupt eleven years later.
Other private equity-backed deals approved for the new DCE program have major ties to the Democratic Party establishment. Private equity firm Warburg Pincus, which backs a DCE called Excelera, was co-founded by the current secretary of state’s father Antony Blinken and counts former Barack Obama Treasury Secretary Tim Geithner among its chairmen.
Laura Katz Olson, professor at Lehigh University and author of the recently published book Ethical Challenge: Private Equity Is Taking U.S. Health Care By Storm, said the role of private equity in Medicare privatization raises significant concerns.
“If you understand the private equity playbook, the dangers are pretty obvious,” Katz Olson said. “They borrow money to pay off their debts. They take money out of their pockets through fees. It would take a magician to maintain the quality of care by doing all of these things.
She added, “Private equity is bad for health care, period, so I can’t imagine it would be good for Medicare Advantage. I’m actually in a state of surprise that they even think about it.