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Private equity’s next health care target

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https://www.axios.com/private-equity-firm-apollo-buying-lifepoint-health-1532121720-9e9a07eb-3090-4da3-9183-48144da93695.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

A patient sits in a hospital bed with machines nearby.

LifePoint Health owns hospitals in mostly rural areas.

For-profit hospital system LifePoint Health is nearing a deal to sell itself to private equity firm Apollo Global Management for $6 billion, including debt, Reuters reports. Apollo acquired a separate hospital chain — RegionalCare Hospital Partners, which is now known as RCCH HealthCare Partners — in 2015.

Why it matters: Private equity is craving health care deals right now, and this buyout would further consolidate the hospital industry, which is attempting to turn around a pattern of stagnant admissions.

Reuters reported Friday that private equity firm Apollo Global Management was considering buying LifePoint Health in a deal valued at $6 billion, which included debt. Axios’ Bob Herman breaks down the proposed deal…

Thought bubble, per Bob: Private equity has its hands all over the health care industry these days. But it’s a little surprising to hear such a large price tag for a company that owns mostly rural hospitals, which have struggled with fewer admissions and have relied more on the lower-paying Medicare and Medicaid programs.

The bottom line: Gary Taylor, an analyst with J.P. Morgan Securities, wrote this to hospital investors over the weekend, “We certainly do not expect another superior offer for a low-growth, challenged rural hospital company.”

Medicare option is popular but vague among Democrats

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https://www.axios.com/democrats-single-payer-public-option-health-care-1532047129-3b97bb26-f2ff-407a-af5b-6821981b6e45.html

A public health care plan — once deemed too liberal to make it into the Affordable Care Act — is now the more moderate position for many Democrats who are uncomfortable with the party’s rapid embrace of “Medicare for All.”

Yes, but: Democrats haven’t decided yet what a public option should look like.

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“In some ways, a public option or buy in to Medicare or Medicaid has become a place for Democrats uncomfortable with single payer to land.”
— Larry Levitt, Kaiser Family Foundation

Driving the news: Members of Congress have now introduced as many as five bills expanding government involvement in health care, as Vox has reported. A public option is also coming up frequently on the campaign trail, either as a step toward “Medicare for All” or as a policy goal in and of itself.

  • In Iowa’s third district, which is rated as a toss-up, Democrat Cindy Axne is running on a public option “that allows Americans to choose between Medicare or Medicaid.”
  • In New Jersey’s third district, another toss-up, Democrat Tom Malinowski supports creating a universal Medicare option that people could buy into.
  • “I think the much more plausible path to a single payer health care system is through a public option. I just don’t know that the country is ready to support a bill that outlaws private insurance,” said Sen. Chris Murphy, a sponsor of one of the public option plans.

Flashback: A public option for the individual market was almost included in the Affordable Care Act, but former Sen. Joe Lieberman blocked it.

  • “It was too liberal for Joe Lieberman” — not for the entire party — back in 2009, Democratic Minority Whip Dick Durbin told me. “We had 60 votes and he said he wouldn’t vote for it. That was the end of that.”
  • “You may have more people today supporting single payer, Medicare for All than 10 years ago, but I’m not sure that the floor has moved as much as the ceiling has,” Murphy said.

The big question: Some Democrats want a public option to be offered in the employer market in addition to the individual market.

  • “Now, a public option for just the individual market would likely be unsatisfying to single payer supporters, providing no relief from health care costs for the much larger number of people with employer coverage,” Levitt said.

The details: A central tenet of adopting a public option is using the government’s purchasing power to bring down underlying health care prices.

  • “The common denominator of all Democrats is that they want more affordable options for people, and how broadly you apply to tool depends on how broadly you define the problem right now,” said Chris Jennings, a Democratic health care consultant.
  • “Lurking behind the public option discussion is really the issue of health care prices. A public option of any kind would use the leverage and regulatory power of the government to get lower prices for health care,” Levitt said.
  • But determining how far to go would be tricky and comes with risk.
  • “There is some room to put some downward pressure on provider prices without having significant adverse consequences on access to care or quality of care, but the big question is how much,” said Aviva Aron-Dine of the left-leaning Center on Budget and Policy Priorities.

 

 

“The Inevitable Math behind Entitlement Reform”

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“The Inevitable Math behind Entitlement Reform”

Image result for Entitlement Reform

 

That’s the title of a new NEJM Perspective by Michael Chernew and me. After crunching the numbers, our argument is that for long term cost control we will probably need to address growth in per capita health care utilization. The easy “solutions” won’t be enough.

Much of the projected increase in inflation-adjusted spending on health care entitlements, particularly for Medicare, stems from assumed increases in utilization (e.g., 2.75 percentage points of the 5.33% annual projected growth for Medicare spending). Strategies for holding utilization growth below projections (and more in line with very recent historical growth) will thus be central to the success of any attempt at cost containment.

[One approach] is to dissuade patients from seeking care by charging them more at the point of service. About 85% of Medicare beneficiaries have supplemental plans (e.g., Medigap) that reduce their out-of-pocket costs. Policies that limit the generosity of such plans could reduce Medicare spending considerably. However, such strategies would increase beneficiaries’ financial risks, reduce access to care, and probably exacerbate health disparities.

A second strategy is to help beneficiaries improve their health by enhancing long-term care management and preventive services with the goal of avoiding more expensive services. Evidence suggests that although this type of approach is probably beneficial to patients and may be cost-effective, it is generally not cost saving.

The piece continues with some more promising approaches, in our view. Click to read it in full (unfortunately pay-walled though).

 

Hidden From View: The Astonishingly High Administrative Costs of U.S. Health Care

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Hidden From View: The Astonishingly High Administrative Costs of U.S. Health Care

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It takes only a glance at a hospital bill or at the myriad choices you may have for health care coverage to get a sense of the bewildering complexity of health care financing in the United States. That complexity doesn’t just exact a cognitive cost. It also comes with administrative costs that are largely hidden from view but that we all pay.

Because they’re not directly related to patient care, we rarely think about administrative costs. They’re high.

A widely cited study published in The New England Journal of Medicine used data from 1999 to estimate that about 30 percent of American health care expenditures were the result of administration, about twice what it is in Canada. If the figures hold today, they mean that out of the average of about $19,000 that U.S. workers and their employers pay for family coverage each year, $5,700 goes toward administrative costs.

Such costs aren’t all bad. Some are tied up in things we may want, such as creating a quality improvement program. Others are for things we may dislike — for example, figuring out which of our claims to accept or reject or sending us bills. Others are just necessary, like processing payments; hiring and managing doctors and other employees; or maintaining information systems.

That New England Journal of Medicine study is still the only one on administrative costs that encompasses the entire health system. Many other more recent studies examine important portions of it, however. The story remains the same: Like the overall cost of the U.S. health system, its administrative cost alone is No. 1 in the world.

Using data from 2010 and 2011, one study, published in Health Affairs, compared hospital administrative costs in the United States with those in seven other places: Canada, England, Scotland, Wales, France, Germany and the Netherlands.

At just over 25 percent of total spending on hospital care (or 1.4 percent of total United States economic output), American hospital administrative costs exceed those of all the other places. The Netherlands was second in hospital administrative costs: almost 20 percent of hospital spending and 0.8 percent of that country’s G.D.P.

At the low end were Canada and Scotland, which both spend about 12 percent of hospital expenditures on administration, or about half a percent of G.D.P.

Hospitals are not the only source of high administrative spending in the United States. Physician practices also devote a large proportion of revenue to administration. By one estimate, for every 10 physicians providing care, almost seven additional people are engaged in billing-related activities.

It is no surprise then that a majority of American doctors say that generating bills and collecting payments is a major problem. Canadian practices spend only 27 percent of what U.S. ones do on dealing with payers like Medicare or private insurers.

Another study in Health Affairs surveyed physicians and physician practice administrators about billing tasks. It found that doctors spend about three hours per week dealing with billing-related matters. For each doctor, a further 19 hours per week are spent by medical support workers. And 36 hours per week of administrators’ time is consumed in this way. Added together, this time costs an additional $68,000 per year per physician (in 2006). Because these are administrative costs, that’s above and beyond the cost associated with direct provision of medical care.

In JAMA, scholars from Harvard and Duke examined the billing-related costs in an academic medical center. Their study essentially followed bills through the system to see how much time different types of medical workers spent in generating and processing them.

At the low end, such activities accounted for only 3 percent of revenue for surgical procedures, perhaps because surgery is itself so expensive. At the high end, 25 percent of emergency department visit revenue went toward billing costs. Primary care visits were in the middle, with billing functions accounting for 15 percent of revenue, or about $100,000 per year per primary care provider.

“The extraordinary costs we see are not because of administrative slack or because health care leaders don’t try to economize,” said Kevin Schulman, a co-author of the study and a professor of medicine at Duke. “The high administrative costs are functions of the system’s complexity.”

Costs related to billing appear to be growing. A literature review by Elsa Pearson, a policy analyst with the Boston University School of Public Health, found that in 2009 they accounted for about 14 percent of total health expenditures. By 2012, the figure was closer to 17 percent.

One obvious source of complexity of the American health system is its multiplicity of payers. A typical hospital has to contend not just with several public health programs, like Medicare and Medicaid, but also with many private insurers, each with its own set of procedures and forms (whether electronic or paper) for billing and collecting payment. By one estimate, 80 percent of the billing-related costs in the United States are because of contending with this added complexity.

“One can have choice without costly complexity,” said Barak Richman, a co-author of the JAMA study and a professor of law at Duke. “Switzerland and Germany, for example, have lower administrative costs than the U.S. but exhibit a robust choice of health insurers.”

An additional source of costs for health care providers is chasing patients for their portion of bills, the part not covered by insurance. With deductibles and co-payments on the rise, more patients are facing cost sharing that they may not be able to pay, possibly leading to rising costs for providers, or the collection agencies they work with, in trying to get them to do so.

Using data from Athenahealth, the Harvard health economist Michael Chernew computed the proportion of doctors’ bills that were paid by patients. For relatively small bills, those under $75, over 90 percent were paid within a year. For larger ones, over $200, that rate fell to 67 percent.

“It’s a mistake to think that billing issues only reflect complex interactions between providers and insurers,” Mr. Chernew said. “As patients are required to pay more money out of pocket, providers devote more resources to collecting it.”

A distinguishing feature of the American health system is that it offers a lot of choice, including among health plans. Because insurers and public programs have not coordinated on a set of standards for pricing, billing and collection — whatever the benefits of choice — one of the consequences is high administrative burden. And that’s another reason for high American health care prices.