The Affordable Care Act sets limits on insurer profits, and in an effort to protect consumers, the law requires plans spend a majority of premium dollars on actual care, or claims for their patients.
Each year, if insurers do not meet that threshold, also known as the medical loss ratio, they issue rebates to customers. The rebates in 2019 take into account performance for the trailing three years.
“Insurers in 2018 were highly profitable and arguably overpriced, which is why rebates are so large despite being averaged across less favorable years (2016 and 2017),” KFF said.
Insurers in the individual market are fueling this whopping rebate return, according to KFF.
Even though exchange insurers struggled in 2016, previous data show that profit margins spiked in the first quarter of 2018. Many attribute the spike to insurers drastically raising premiums amid the uncertainty around policy plans from the Trump administration. Experts have said insurers raised prices and overcorrected in preparing for the potentially turbulent year.
Lingering overhead at the time was the threat of ACA repeal and the loss of cost sharing subsidy payments.
St. Louis-based Centene is expected to dish out the most in rebates, totaling nearly $217 million, followed by Virginia-based Optima Health, owned by Sentara Healthcare, which is set to return nearly $99 million.
The battle over health care that has dominated the Democratic race for the White House took center stage in Houston, where for the first time the top three candidates tangled over whether the nation is ready for sweeping reforms.
Former Vice President Joe Biden went back and forth at the opening of Thursday’s debate with the two progressives who are his leading challengers atop the polls, Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.).
Arguing that the “Medicare for All” proposal championed by Sanders would cost people their insurance, Biden called out the Vermont senator as a socialist and said his proposals would be too costly.
At one point in the debate, Biden said of Warren and Sanders that “nobody’s yet said how much it’s gonna cost for the taxpayer.”
He also pointed to the taxes that would have to increase for middle class people to pay for Medicare for All.
“There will be deductible in your paycheck,” Biden said, referencing the chunk that taxes would take out of people’s pay.
Sanders said most Americans were getting a raw deal in terms of their present health care costs compared with countries that have systems more similar to his Medicare for All approach.
“Let us be clear, Joe, in the United States of America we are spending twice as much per capita on health care as the Canadians or any other major country on earth,” Sanders said.
“This is America,” Biden retorted.
“Yeah, but Americans don’t want to pay twice as much as other countries and they guarantee health care to all people,” Sanders responded.
Health care is a top issue in the race according to polls, and Democrats believe they can win the White House if the general election against President Trump is focused on the issue.
But it is also the issue that divides the Democratic candidates the most, with Biden and other centrists proposing more modest steps, such as reforms to ObamaCare.
The battle over health care is intertwined with the debate Democrats are having over which of their candidates is best positioned to defeat President Trump, with some in the party worried that Warren and Sanders are too liberal to win a general election. Others say their bold ideas are what is needed for the party to defeat Trump.
Biden argues Medicare for All means scrapping former President Obama’s signature achievement, the Affordable Care Act, instead of building on it.
While Sanders touted that everyone would have coverage under his plan and that it would be more generous, with no premiums or deductibles, Biden countered with the cost of the proposal, which estimates put at around $32 trillion over 10 years.
In the debate’s first hour, Biden was already hitting Sanders and Warren over the cost of the plan.
“The senator says she’s for Bernie,” Biden said of Warren’s support for Sanders’s Medicare for All plan. “Well I’m for Barack.”
Warren, pressed by host George Stephanopolous on whether middle class taxes would rise from Medicare for All, did not directly answer, pivoting to argue that overall costs for the middle class would go down once the abolition of premiums and deductibles is taken into account.
“What families have to deal with is cost, total cost,” Warren said, adding: “The richest individuals and the biggest corporations are going to pay more, and middle class families are going to pay less.”
Other candidates were also in the middle of the Medicare for All exchanges.
Sen. Kamala Harris (D-Calif.), who drew flak in the early months of the campaign for seeming to change her position on health care several times, touted the plan she eventually developed, to allow some private insurance to remain under Medicare for All by allowing private companies to administer some plans in a tightly regulated way.
“I want to give credit to Bernie. Take credit, Bernie,” Harris said, while adding, “I wanted to make the plan better, which I did.”
At another point in the debate, Biden dismissed the idea that employers would raise workers’ wages if employers no longer had to provide health insurance under a Medicare for All system.
“My friend from Vermont thinks the employer’s going to give you back what you’ve negotiated as a union all these years … they’re going to give back that money to the employee?” Biden said.
“As a matter of fact they will,” Sanders interjected.
“Let me tell you something, for a Socialist you’ve got a lot more confidence in corporate America than I do,” Biden responded.
While all of the Democrats advocate large additional government spending to expand health insurance coverage, the debates over whether private insurance should remain as an option has proven to be a particularly fierce source of debate.
Republicans have sensed an opening on that point as well, eagerly bashing Democrats for wanting to take away employer-sponsored coverage that millions of Americans have. Sanders and Warren counter that Medicare for All coverage would be better insurance, with no deductibles at all, so people would not miss it.
“I’ve actually never met anybody who likes their health insurance company,” Warren said, noting people like their doctors, which they would be able to keep.
Sen. Amy Klobuchar (D-Minn.), who has staked out a more moderate ground, tore into Sanders, though, over his plan’s elimination of private insurance.
“While Bernie wrote the bill, I read the bill, and on page eight of the bill it says that we will no longer have private insurance as we know it,” Klobuchar said.
“I don’t think that’s a bold idea, I think it’s a bad idea,” she added.
Amid the division, Harris tried to strike a unifying note.
“I think this discussion is giving the American people a headache,” she said. “What they want to know is that they’re going to have health care and cost will not be a barrier to getting it.”
A hodgepodge of news this week is telling the confusing and contradictory story of President Donald Trump’s efforts to change American health care.
On Monday, a federal judge blocked the administration’s efforts to force drugmakers to disclose the often astronomical list prices of medicines in their TV ads. It was intended to shame pharma into lowering prices, and would have been the first of the Trump administration’s major drug-cost initiatives to actually take effect.
On Tuesday, oral arguments were set for a Department of Justice-backed case that could wipe out the Affordable Care Act.
Wednesday will reportedly see the president reveal an ambitious set of initiatives intended to rein in spending on kidney costs.
The kidney initiative is among the administration’s better notions, along with its effort to index some drug costs covered by Medicare to the lower prices available abroad. Yet even when the administration lands on a good idea in health care, it seems to get in its own way. The Trump-backed ACA lawsuit, for example, would directly undermine the kidney initiative and price-indexing plan. And while the president has a variety of other proposals in the works – from an effort to pass drug discounts directly to consumers to a plan to force hospitals to make their pricing transparent – many could be exposed to the kind of legal risks that killed the drug-ad initiative. It’s all part of a scattershot and often incoherent approach that isn’t as effective as it could be.
Take the kidney-care push: this area of treatment is costly in part because the current system incentivizes expensive care at dialysis centers that are largely run by two companies: DaVita Inc. and Fresenius Medical Care AG. (Peter Grauer, the chairman of Bloomberg LP, is the lead independent director at DaVita.) The Department of Health and Human Services reportedly wants to change that dynamic with new payment models intended to shift patients to more cost-effective treatment at home. At least part of the administration’s ability to implement those models comes from the Center for Medicare and Medicaid Services’ Innovation Center, which was created by the ACA and is threatened by the lawsuit.
The contradictions don’t end there. People with end-stage kidney disease are covered by Medicare, so the lawsuit wouldn’t strip their coverage. However, the administration’s plan reportedly emphasizes intervening before people get to the point where they need dialysis or transplants. Killing the ACA is at direct odds with that goal. It would see millions lose insurance coverage, would eliminate protections for people with pre-existing conditions like chronic kidney disease, and crimp access to preventative care.
Though it is a long shot, the court case demonstrates the administration’s inconsistency in health care. Just about every health initiative would be harmed by the disruption that would result if this lawsuit succeeds, especially considering that the administration doesn’t have a replacement plan. If it were serious about keeping people off of dialysis or curing HIV, it would oppose this suit and stop other ongoing efforts that harm the ACA’s individual market and Medicaid.
The administration hasn’t detailed an ACA alternative because its previous effort to pass one was a political disaster that helped Democrats seize control of the House of Representatives in 2018. Instead, its health-care efforts have largely been confined to executive orders and rule-making. That approach narrows the scope of what the administration can accomplish, and comes with significant risks. If a federal judge thinks that forcing the disclosure of drug prices in ads is an overreach, there’s clearly a chance that the administration’s more ambitious plans will also have issues.
I’m rooting for the kidney effort. It targets a real problem and could have an impact, depending on the details. I’d be more optimistic about the plan’s chances if it were part of a cohesive set of policies that had Congressional backing, rather than the current jumble.
Thanks to TV shows and movies, we tend to think of
private equity bidding wars as involving fast-growing
Silicon Valley companies. But when Oak Street Health,
a Chicago-based network of seven primary care clinics,
began looking for investors last year, more than a dozen
firms flew to Chicago to court the physicians and most of
them ended up bidding for the group of seven primary care clinics, according to a report in Modern Healthcare.
Oak Street is not alone — almost any independent
physician group of scale these days is likely to be an
attractive target for so-called “smart money,” investors
and their advisers.
Increased regulatory requirements and complexity has led
many independent small groups to “throw up their hands
and decide to sell to or join larger entities,” says Andrew
Kadar, a managing director in L.E.K. Consulting’s healthcare
services practice, which advises private equity groups.
While many such physicians sell to a health system and
become salaried employees, investor-backed practice management groups may have certain advantages, Kadar says. “Each private equity firm has its own approach, but in general they tend to give physicians a continued degree of independence and are willing to invest in new tools and technology.”
What is private equity up to? What attracts these
titans of capitalism to one of the most bureaucratic,
heavily regulated industries in the United States? And
what does the acquisition spree mean for physicians?
Here are five things to know about private equity and
healthcare in 2019.
1. The feeding frenzy is just ramping up
The driving force behind investors’ interest in healthcare
is the amount of “dry powder” in the industry — the term
market watchers use for funds sitting idle and ready to
invest, which McKinsey estimates at around $1.8 trillion
Investors are hungry for deals, and healthcare providers
are an attractive target for multiple reasons:
• The healthcare industry is growing faster than the
GDP. Healthcare is a relatively recession-proof industry
(demand remains constant even during downturns).
• Many providers are currently not professionally
managed, and many specialties remain fragmented.
• Investors see an opportunity to create value by
increasing efficiencies and consolidating market power.
Thus, with many independent providers still competing
on their own, there remains ample opportunity to
roll up practices into a single practice-management
organization owned by investors. “A lot of deals are
making the headlines, but when you look closely you’ll
see that most specialties aren’t highly penetrated yet by
investors,” says Bill Frack, a former managing director at
L.E.K. Consulting who is now leading a new healthcare
delivery venture. “We are still at the beginning.”
2. Investors have various strategies for creating value
Far from the leveraged-buyout days of the 1980s, which
relied primarily on financial engineering to generate
returns, almost all private equity deals today require
investors to find ways to add value to organizations over
the course of their holding period (typically around five
to seven years). By and large, in healthcare they follow
two strategies for doing so.
The most prevalent play is to buy high-volume, high margin specialist groups such as anesthesiologists,
dermatologists, and orthopedic surgeons. The PE
group then looks to maximize fee-for-service revenue
in the group by ensuring that the team is correctly
and exhaustively coding patient encounters (via ICD10) and encouraging physicians to see more patients.
Simultaneously, they work to improve revenue-cycle
management and drive efficiencies of scale into sales
and back-office administration.
Private equity firms may also look to vertically integrate
by acquiring providers of services for which their
specialists were previously referring out. For instance, oncologist groups might buy radiation treatment centers;
orthopedic surgeons might acquire rehab centers;
dermatologists might acquire pathology labs to process
biopsies, and so on.
Investors exit either through a sale to a larger PE group or,
for the largest groups, through an initial public offering.
Consolidating fee-for-service providers “is a very mature
strategy, and there’s not a single specialty you could
name where an investor wouldn’t have an incentive to
[form a roll-up],” says Brandon Hull, who serves on the
advisory council of New Mountain Capital, a private
equity firm that is investing in healthcare, and is a longtime board member at athenahealth.
Hull says investors are starting to take another approach
to creating value — which he argues “is more virtuous
and aligned with social goals.” In this strategy, investors buy up general medicine specialists — such as internal
medicine, pediatrics, or ob-gyns — and then negotiate
value-based contracts from payers.
To succeed under these contracts, investor-backed medical
groups identify the most cost-effective proceduralists
and diagnosticians in their network and instruct general
practitioners to refer only to them; and they work hard
to play a larger role in patients’ health and thus keep
healthcare utilization down. Groups that employ this
approach include Privia and Iora Health. In this strategy,
investors typically exit by selling the organization to a
larger PE group, a payer, or a health system.
Interestingly, groups that pursue the first strategy often
transition to the second – for instance, an efficiently run
orthopedic group might start with a focus on growing
revenue by maximizing fee-for-service opportunities,
but then consider pursuing bundled payments for hip
replacements. Or an investor-backed oncology group
confident in its treatment protocols and ability to keep
operational costs down might accept capitated payments
for treating patients recently diagnosed with cancer.
3. Private equity can be a great deal for physicians
How these deals are structured depends on whether a
specialty group is the first group acquired by investors —
what is known in private-equity lingo as “the platform”—
or whether it’s being added to an existing group, what is
known as a “tuck-in.”
Physicians in the platform practice are often offered
substantial equity and can benefit from the group’s
appreciation — while, of course, being exposed to the risk that
their share-value may decrease if the group fails to deliver on
its intended value proposition. Physicians in subsequent tuckin groups tend to have simpler contracts with a salary base
and added incentives tied to productivity and other measures.
L.E.K.’s Frack says both models can be attractive, but
that a more simple employment model is probably best
suited to most physicians. “I would tell docs that if they
have a strong group of doctors, they don’t have much to
lose. Even if the deal falls flat for investors, the doctors
will likely just be acquired by another investor, and they
won’t be left holding the bag.”
4. Technology underpins it all
A similar private-equity healthcare frenzy in the 1990s failed
spectacularly. One reason for the collapse was that the
technology did not exist for investors to realize back-office
efficiencies and handle the complexity of value-based contracts.
Today, cloud-based EHR and revenue-cycle management
systems harness the power of network effects to help
provider organizations handle complex and unique
payer contracts, improve back-office efficiency through
automation and machine-learning, implement best practices
for care, and quickly onboard the new practices they acquire.
Technology is particularly important for the general
medicine specialist groups looking to win under fee-for-value contracts. “The moment you start to care about
a patient’s entire episode of care, you need a massive
upgrade of your back-end systems, including full
visibility into what’s happening to your patient outside
your office. Now the technology exists to truly achieve
care coordination,” New Mountain Capital’s Hull says.
5. Public perception can be a problem
Even if physicians believe a private equity deal is their
best option, there’s a public relations risk in tying a medical practice to capitalists whose ultimate goal is to earn a return. Most coverage of private equity in mainstream media outlets questions whether investors’ profit motive is bad for patients. Physician associations and medical journals have also raised concerns in a very public way.
Such public skepticism should worry anyone who
remembers the crash of the first private-equity wave in
the 1990s, says New Mountain Capital’s Hull, who ties
that crash to the failure of managed care. “The American
consumer perceived that doctors were getting bonuses
for denying them care; this became the grim punchline
of late-night talk shows, and the whole thing fell apart.”
Frack advises investors and physicians to “monitor
quality data like a hawk, so that the group can counter
anecdotal accounts of bad care.”
Hull adds that savvy investors should take a page from
the many healthcare startups that are laser-focused on building trust with patients, particularly when it comes
to end-of-life decisions and hospice care. “They know
that success in healthcare depends on patients trusting
their doctors to help them make the best medical
decisions,” Hull says.
Positioned to accommodate uncertainty L.E.K.’s Kadar argues out that whatever direction Washington decides to take healthcare, an efficient, professionally managed group practice with advantages
of scale is well-positioned to succeed — and private
equity is one way for physician groups to reach that goal.
“These groups can adapt more quickly than smaller,
independent practices, whether progressives or
conservatives are in power,” he says. As an example,
Kadar imagines a scenario in which Medicare-for-all
comes to pass. “It turns out that most [PE-backed] groups
do very well on Medicare Advantage contracts. If your
group is focused on delivering more efficient, effective care, with strong operations, you’re in a good position no matter what happens.”