The Biden administration recently expanded on Donald Trump’s efforts to privatize Medicare. Now patients are being assigned to new private plans without their consent, and private equity firms and major health care companies are the ones profiting.
The Joe Biden administration’s recent entrenchment and expansion of the Donald Trump administration’s efforts to privatize Medicare is helping a shadowy set of big-business beneficiaries: private equity firms and major health care companies, including one that previously employed the government official overseeing the privatization plan, a new analysis from us shows.
In April last year, the Biden administration contracted with fifty-three third-party companies to mandate privatized health care plans through Medicare. The resulting health care options are effectively Medicare Advantage plans, or private coverage offered through the national health insurance program for seniors and people with disabilities — but with one wrinkle: Patients are being assigned to these new plans without their consent.
The fifty-three participating companies — called “direct contracting entities,” or DCEs — are allowed to offer benefits beyond traditional Medicare, like gym membership coverage. But as for-profit businesses that receive a set payment from Medicare no matter how much care they approve, these DCEs are incentivized to limit the care that patients receive, especially when they are very sick. The first DCEs were launched by President Donald Trump in 2019, and so far, at least 350,000 seniors have already been moved onto these privatized Medicare plans.
Now, a new analysis by us of the fifty-three DCEs found additional cause for concern: fifteen of these entities, or slightly more than a quarter, are backed by private equity firms, which are known for extracting profits at the expense of workers, the environment, and even their own pension fund investors. The firms include big-name firms like the Carlyle Group, General Atlantic, Clayton, Dubilier & Rice, Benchmark Capital, and Warburg Pincus. What’s more, another fifteen DCEs are linked to big health care companies — including one with a direct connection to the Biden appointee in charge of the new privatized Medicare scheme.
Wall Street’s encroachment into Medicare is the latest example of private equity’s aggressive expansion into health care, which has ranged from hospitals to ER doctor groups. In 2021, private equity managers deployed $172 billion in capital in the health care sector — nearly four times the total budget of the National Institutes of Health.
Biden himself has lambasted the for-profit industry’s takeover of eldercare services, noting during his State of the Union address in March: “As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up. That ends on my watch.”
Biden apparently doesn’t have the same concerns about Wall Street’s growing role in Medicare — a development that could lead to higher medical bills for patients. The financial industry has already demonstrated its willingness to take a forceful approach to generating health care profits; private equity waged an aggressive campaign to derail legislation designed to stop so-called “surprise” medical bills, which formed a significant part of their hospital staffing firms’ bottom line.
Now, as private equity muscles into privatized Medicare, industry lobbyists are likely to push for more generous payment structures that benefit for-profit firms at the expense of Medicare patients. The Medicare Payment Advisory Commission, an independent body that advises Congress on Medicare, hinted at this scenario while discussing private equity’s role in the Medicare Advantage space at an April 2021 hearing.
“The end result might or might not be better for consumers, but I think that it does have an impact on Medicare payment policy,” said commissioner Pat Wang.
Experts fear that the Medicare space could be especially vulnerable to Wall Street’s predatory approach.
“We have lots of evidence from many other situations in which private equity puts profits before patients,” said Eileen Appelbaum, codirector of the Center for Economic and Policy Research and coauthor of Private Equity at Work: When Wall Street Manages Main Street. “They are looking for a place where it’s easy to make money — and it’s easy to make money when it’s the taxpayer footing the bill.”
Big Players, Big Profits, and a Big Conflict
While the DCE program was launched under President Trump, Biden expanded the effort in February under a new name: the Accountable Care Organization Realizing Equity, Access, and Community Health program, or “ACO REACH.” Now, hospital-backed for-profit health benefit programs are also allowed to automatically enroll Medicare patients into their health care plans.
Like providers of Medicare Advantage plans, these new firms receive a set payment from Medicare for their offerings, supposedly to incentivize more holistic and better care. In exchange, these firms acquire Medicare patients in their plans — often without the patients realizing what is happening.
In March, we reported on how one Medicare beneficiary who was quietly assigned to a DCE initially misinterpreted a message she received about the shift as a health-related communication from her doctor — despite being an experienced health policy expert.
Along with the fifteen private equity-backed companies, the list of approved DCEs the Biden administration released in April 2021 includes fifteen operations owned by health care giants, such as insurers Humana, UnitedHealth, and Anthem, the pharmacy chain Walgreens, and the dialysis provider DaVita.
Experts say these connections raise serious questions about conflicts of interest. For example, the DCE program is being led by a little-known federal entity, the Centers for Medicare & Medicaid Services’ (CMS) Innovation Center, headed by Liz Fowler — the former vice president of public policy for the insurer WellPoint, now known as Anthem.
In response to our request for comment, a CMS spokesperson said that Fowler was not involved in the approval process for DCEs. They additionally asserted that many of the entities identified by us are not private equity–backed because they are public companies.
But several of these public companies have received substantial investments from private equity firms, also known as “private investment in public equity.” For example, while 1LifeHealthcare — a primary care provider that owns one of the DCEs, One Medical’s Iora Health — is publicly traded, the major private equity firm Carlyle Group owns more than 7 percent of its shares.
Critics say Fowler has a history of crafting policy to help her private sector contacts.
“Honestly this just seems to add to the pattern we’ve observed with Liz Fowler,” said Fatou Ndiaye, a research assistant with the Revolving Door Project, which monitors the revolving door between the public and private sector.
Ndiaye pointed out that before she lobbied for WellPoint, Fowler worked for Senator Max Baucus (D-MT), where she helped draft Medicare Part D, a program critics said was a huge giveaway to the pharmaceutical industry because it created massive new drug benefits without controlling prices.
After working for Wellpoint from 2006 to 2008, Fowler rejoined Baucus’s staff, where she helped draft a version of the Affordable Care Act (ACA) that excluded the public health insurance option promised by Democrats, resulting in huge profits and no public sector competition for private insurers.
“A year after [ACA’s] passage, Wellpoint’s profits increased by 91 percent to $2.3 billion,” said Ndiaye.
Private Equity Muscles In
The fact that private equity now backs more than a quarter of all companies in the DCE space stands in stark contrast to the fact that private equity owns just 2 percent of all for-profit Medicare Advantage programs.
While Medicare Advantage options have been criticized by health advocates because of their extremely high costs, the fact that private equity is focusing its attention on this new kind of nonvoluntary privatized Medicare scheme suggests that Fowler and the Biden administration could be setting the stage for substantially larger private equity involvement in the national health insurance program.
Examples abound of problems arising when private equity takes over health care operations. Just last month, Buzzfeed News reported that BrightSpring, a group home operator acquired by private equity megafirm KKR in 2019, has since been plagued by serious problems at its group homes for people with disabilities, leading to residents being seriously injured and in some cases dying.
The Carlyle Group, which has an ownership stake in OneMedical, the parent company of Iora Health, has a particularly disturbing history in health care. After Carlyle acquired HCR Manorcare, a nursing home chain, the company was plagued by serious lapses in standards of care until it went bankrupt eleven years later.
Other private equity–backed operations approved for the new DCE program have major connections to the Democratic Party establishment. The private equity firm Warburg Pincus, which backs a DCE called Excelera, was cofounded by the father of current secretary of state Antony Blinken and boasts former Barack Obama treasury secretary Tim Geithner as its president.
Laura Katz Olson, a professor at Lehigh University and author of the recently published Ethically Challenged: Private Equity Storms US Health Care, said that private equity’s role in Medicare privatization raises significant concerns.
“If you understand the private equity playbook, the dangers are fairly obvious,” said Katz Olson. “They’re borrowing money so they have to pay off debt. They’re taking money into their pockets through fees. You would have to be a magician to keep up quality of care doing all of these things.”
She added, “Private equity is bad for health care, period, so I can’t imagine that it would be good for Medicare Advantage. I’m actually in a state of surprise that they’re even thinking about it.”
Jacobin, May 11, 2022, https://jacobinmag.com/