New research on PE’s expansion into PACE programs

A recent study has found private equity and venture capital investment in PACE organizations has surged, increasing the number of investor-backed for-profits by 300 percent over a six-year period. PACE – the Program of All-Inclusive Care for the Elderly – provides comprehensive medical and social services to certain older adults still living in the community, most of whom are dually eligible for Medicare and Medicaid services.

According to findings from NORC at the University of Chicago published in March, for-profit PACE organizations have significantly outpaced their non-profit counterparts in growth of the number of contracts and participant enrollment. NORC found that from 2016 through 2022, for-profit PACE entities expanded their contract base by 182%, compared to 6% for non-profit PACE entities. In the same period, for-profit entities increased enrollment by 173%, compared to 44% among non-profits.

Private equity has partly driven this growth in for-profit participation. The report found during the six-year study period beginning in 2016 that private equity- and venture capital-backed PACE organizations grew from four to sixteen organizations, representing a 300% increase. By 2022, more than half of for-profit PACE organizations were backed by private equity and venture capital firms. 

In addition to increased growth, for-profit PACE organizations have different demographic and geographic profiles for enrollees than non-profit PACE organizations. According to NORC, for-profit PACE organizations are serving a younger and more diverse population, with a notable increase in Medicaid-only participants – changes that are likely due to “strategic targeting of underserved markets and states with more favorable policy environments, rather than deliberate strategies to diversify enrollee demographics.” (And while Medicaid-only enrollment had a higher rate of growth at for-profit PACE organizations, non-profits continue to maintain a larger share of Medicaid-only participants.)

Furthermore, for-profit PACE entities have expanded into rural and low-income areas, with for-profit enrollment in rural areas increasing 493%, compared to 58% among non-profits. The authors note that this increase seems to stem from an oversaturation in urban markets, making underserved areas more attractive markets. And while rural expansion “potentially addresses significant care gaps, it raises concerns about service quality and sustainability in these regions, particularly given the rapid scaling driven by investor expectations.” 

The study authors attribute the growth rate of for-profit PACE organizations to their increased access to capital, particularly compared to non-profit entities, which allow for-profits to pursue aggressive growth strategies that include launching sites, acquiring existing programs, investing in marketing and enrollment outreach, and utilizing centralized administrative functions: “This disparity in access to capital has enabled for-profit organizations to scale rapidly, sometimes outpacing their internal capacity and leading to heightened expectations for quick returns on investment.”

The authors state that the recent for-profit growth surge has coincided with regulatory flexibilities that likely contributed to for-profits’ expansion during the COVID-19 pandemic, including relaxed enforcement of Medicare/Medicaid requirements, flexibility in risk adjustment submissions and telehealth usage, and permission to use remote technology in more settings.

The report concludes with recommendations for policymakers to consider safeguards to maintain high service standards and to prevent potential conflicts between profit motives and care quality. These include monitoring the impacts on PACE service distribution from state reimbursement rates and regulatory environments, as well aligning state regulations with PACE’s overarching goals: “Balancing financial sustainability with quality and equitable care requires ongoing assessment and adaptive regulatory frameworks responsive to the evolving PACE landscape.” 

PESP released a comprehensive report in December 2024 detailing recent legislative and regulatory actions taken across the United States in response to the growing evidence of private equity’s detrimental impact on healthcare systems. It is available HERE.