Recent investigations into quality and compliance issues at a private-equity-owned healthcare company focused on serving frail low-income seniors may be a bellwether for the risks of private equity’s entrance into the space.
InnovAge, which is majority owned by private equity firms Apax Partners and Welsh, Carlson, Anderson, and Stowe (WCAS), is the largest company participating in Program of All-Inclusive Care for the Elderly (PACE), a program aimed to providing one-stop-shop services for people dually eligible for Medicare and Medicaid who have a high level of need. PACE providers collect fixed monthly payments from Medicare and Medicaid to cover all enrollees’ healthcare needs.
Regulatory scrutiny of InnovAge over the last year has revealed repeated failures in delivering care to patients in the lucrative program, which only recently opened to for-profit providers. InnovAge’s compliance failures may point to broader issues with private-equity-owned companies’ participation PACE.
Private Equity in PACE
Program of All-Inclusive Care for the Elderly (PACE) centers are programs that provide comprehensive healthcare services to individuals over 55 who need a nursing-home level of care to enable them to live safely in the community. Most PACE participants are dually eligible for Medicare and Medicaid. There are currently 142 PACE programs operating in 30 states.
PACE centers aim to serve individuals with a high level of need. Participants have on average about eight chronic conditions, and nearly half have dementia. The PACE program provides all Medicare- and Medicaid-covered services and is centered around adult day health centers, where participants travel to receive a range of integrated and coordinated services. The care team is composed of an interdisciplinary team, which includes physicians, nurses, physical and occupational therapists, a center manager, home care coordinator, dieticians, social workers, and others.
To finance these comprehensive benefits, Medicare and Medicaid pay PACE providers fixed monthly rates per enrollee to cover all their healthcare needs, making the program potentially very profitable for providers.
PACE has historically been available only to non-profits, but in 2015 CMS lifted the restriction on for-profit companies participating in the program. The following year, WCAS acquired Denver-based InnovAge, which was already participating in PACE, and converted it to a for-profit company. In 2020, private equity firm Apax Partners bought a 49% stake in the company from WCAS.
InnovAge has grown significantly since WCAS acquired it, expanding into two new states with plans to open new centers in Kentucky and Florida. According to InnovAge’s 2021 SEC filings, InnovAge is the largest PACE provider by number of participants. It is twice the size of its closest PACE-focused competitor and more than 30 times larger than the typical PACE operator. The company currently operates in Colorado, California, New Mexico, Pennsylvania, and Virginia.
InnovAge went public through an IPO in March 2021, though it remains majority-owned and controlled by WCAS and Apax Partners. The private equity firms own 86% shares in the company and together hold a majority of seats on InnovAge’s board of directors.
InnovAge Faces Regulatory Scrutiny
Over the last year, several InnovAge locations have had their enrollment suspending following audits that found compliance failures and quality concerns.
For example, in September 2021, CMS suspended InnovAge Sacramento’s enrollment for new Medicare beneficiaries after a May audit that found that the program had repeatedly failed to provide enrollees with medically necessary equipment and services. The deficiencies related to failures to provide covered services, provide accessible and adequate services, manage participants’ medical situations, and oversee use of specialists, among others.
In December 2021, the Colorado Department of Health Care Policy & Financing (CDPHE) suspended new enrollments for InnovAge Colorado and directed a corrective action process for patient care concerns at its PACE programs. The investigation arose from complaints related to the health, safety, and welfare of Colorado Medicaid recipients receiving PACE services from InnovAge Colorado.
The audit, which was conducted between May-July 2021, found “numerous deficiencies on the part of InnovAge Colorado in the delivery of care, the timeliness of care and staffing in both center-based operations as well as in-home care.” CDPHE wrote that if InnovAge properly responds and satisfies the corrective action plan, enrollments can continue.
Profits Soared Even While Patients Suffered
Despite the regulatory scrutiny, InnovAge appears to have been profitable for WCAS and Apax. MarketWatch reported that in the five years ending June 2021, “InnovAge’s participant count climbed about 120%, and revenues grew more than 170%, reaching $638 million in the fiscal year ended June 30—virtually all of it from Medicare and Medicaid.”
WCAS has collected debt-funded dividends from InnovAge multiple times since acquiring the company. In May 2019 InnovAge added new debt to the company to pay out a $66.1 million dividend. SEC filings indicate this was the second or third dividend since 2018.
Private equity firms’ ownership of nursing homes and hospice companies has already drawn fire for appearing to maximize profit at the expense of patient care. For example, a 2021 study published in the National Bureau of Economic Research (NBER) found that private equity ownership of nursing homes between 2005 and 2017 increased the short-term mortality of Medicare patients by 10%, implying 20,150 lives lost due to private equity ownership. A 2019 report by the Government Accountability Office (GAO) found that hospices with the lowest quality scores are most likely to be for-profit.
As PACE expands and creates new openings for for-profit operators, particularly private equity-owned companies, it is critical that regulators examine the impacts on care and ensure that PACE providers do not meet the same fate as private-equity-owned nursing homes. If quality outcomes at for-profit PACE provider continue to fail patients, regulators must more carefully audit, monitor, and enforce quality standards at participating providers.
https://www.npaonline.org/start-pace-program/enrollment-operations/fact-sheet ; https://www.dementiacarecentral.com/medicare-pace-programs; https://www.mcknights.com/news/citing-no-difference-in-outcomes-cms-will-allow-for-profit-pace-programs/
https://claudepeppercenter.fsu.edu/will-for-profits-keep-up-the-pace-in-the-united-states-the-future-of-the-program-of-all-inclusive-care-for-the-elderly/ ; https://homehealthcarenews.com/2021/10/incredibly-profitable-pace-model-tees-up-opportunities-for-home-based-care-providers/
 InnovAge’s nine-member board includes five representatives from Apax and WCAS: Andrew Cavanna and Pavithra Mahesh from Apax Partners; Tom Scully, Sean Traynor, and Caroline Dechert from WCAS.
 “Reflects non-recurring special bonuses paid to certain of our employees of the Company relating to shareholder dividend transactions that occurred in fiscal years 2018 and 2019.” https://www.sec.gov/Archives/edgar/data/0001834376/000110465921027152/tm2037889-7_s1a.htm#tCRAR pg. 89.