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New report analyzes how private equity gets its cut from Medicare Advantage

February 13, 2024

Report from the Private Equity Stakeholder Project exposes little-reported role of PE in Medicare Advantage

A new report, released today by the Private Equity Stakeholder Project (PESP), examines the role of private equity (PE) in the growing multibillion-dollar Medicare Advantage industry. With a rapidly aging population in the US, and therefore growing market for Medicare Advantage products, the MA sector has provided ample opportunity for investors seeking quick profits, be it through insurance plans, in-home health assessment companies, or brokerage and marketing firms. 

The report finds, in part:

  • Private equity firms have found value in investing in the Medicare Advantage sector, as evidenced by their deal activity in this space from 2016-2023. 
  • The majority of the PE investments have been in companies that operate within the senior insurance distribution market, such as insurance marketing and brokerage firms. 
  • Private equity firms have invested in at least five dual-eligible focused Medicare Advantage carriers that have gone public or been sold to publicly traded insurance companies.
  • Multiple private equity-owned and formerly private equity-owned Medicare Advantage companies have executed dividend recapitalizations, been involved in False Claims Act settlements, and come under scrutiny for their possible roles in the systemic problem of Medicare overpayments, which is costing taxpayers billions per year. 

You can see the full report here:

The report finds that policymakers and regulators should exercise vigilance over private equity’s presence in the Medicare Advantage arena due to the risks that often accompany private equity ownership in healthcare. These include increased consolidation that can create anticompetitive issues and drive-up healthcare costs, business practices that cross the line into Medicare and Medicaid fraud, and highly indebted portfolio companies that engage in cost-cutting to meet their debt obligations, often at the expense of patients and workers.

“When private equity gets involved in our country’s health care systems, it means worse outcomes and higher bills for patients,” said U.S. Representative Pramila Jayapal (D-Wash.). “This is especially true with Medicare Advantage, where we have seen growing consolidation and skyrocketing costs for seniors across America. The increasing privatization of Medicare is a boon for for-profit companies like private equity firms and a curse for patients. Health care is a human right, and we must protect access and keep out investors who only want to increase their bottom line. We need more transparency and oversight to protect Medicare, and I’ll keep fighting in Congress and pushing the administration to ensure that all patients get the quality health care they deserve at an affordable rate.”

The recently announced bankruptcy of formerly private equity-owned Cano Health, a value-based primary health care provider for Medicare and Medicare Advantage enrollees, provides a cautionary tale of what can happen when private equity firms use high amounts of debt to fund acquisitions and growth. Its private equity minority investor and previous owner, InTandem Capital Partners, loaded it with nearly $1 billion in debt before the company went public. Cano has already laid off hundreds of workers in 2023, and its bankruptcy has the potential to impact more jobs and the care for thousands of patients.   

“While publicly traded mega-insurers bear much of the public and regulatory scrutiny around issues and scandals within Medicare Advantage, private equity-owned companies have been active participants within the Medicare Advantage ecosystem and should also be scrutinized,” said Mary Bugbee, PESP healthcare researcher and report author. “Recent regulatory improvements under the Biden administration are a critical step forward, but sufficient funding for robust enforcement is needed to protect Medicare Advantage beneficiaries, taxpayers, and other stakeholders impacted by troubling and even illegal business practices that have proliferated in recent years.”

PESP proposes a number of private equity-specific policy solutions to help curb some of the common issues seen with PE investment in healthcare spaces. Recommendations include:

  • Requiring private equity firms and other corporate owners to refrain from indebting newly acquired companies in order to pay shareholder dividends.
  • Requiring joint liability for private equity owners and their portfolio companies
  • Higher FTC and DoJ scrutiny of healthcare deals involving private equity firm owners, even if individual deals do not meet the typical threshold to trigger FTC review

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