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The bloom seems to be off the rose for several publicly traded insurtechs, which are pruning their market presence as they aim for profitability.

Late last year, Bright Health Group announced it would no longer offer Affordable Care Act (ACA)plans and slashed its Medicare Advantage (MA) business, so it will focus solely on California in 2023. Meanwhile, Oscar Health is giving up on the MA market, and Clover Health is scaling back its participation in a Medicaid program.

Although every company’s situation is different, these companies that view themselves as hybrids of insurance and technology companies — thus the “insurtechs” coinage — entered a “cutthroat, competitive marketplace without a clear sense of the type of strategy the current market leaders were using,” says Tom Cassels, M.P.P., president and CEO of Rock Health Advisory, a digital health strategy group. 

The newcomers entered the ACA or MA markets believing “people would opt for the low-price option,” Cassels says. “The problem with underwriting with a new health plan is your losses mount with your wins.”

Although all three had competitive prices and a technology focus, all “shifted fairly quickly” to pursue other areas of business, notes Peter Manoogian, principal at ZS, a management consulting and technology firm. “There were a lot of distractions and diversions for these companies.”

Perhaps the most dramatic pullback comes from Bright Health, which was founded in 2015 by a group that included Bob Sheehy, a former CEO of health insurance giant UnitedHealthcare. Bright focused on the ACA and MA markets. The company, which is headquartered in suburban Minneapolis, went public in 2021 and brought in $924 million in its initial public offering.

In its 2021 earnings, Bright Health reported a loss of almost $1.2 billion, while its membership climbed to more than 1 million, compared with more than 200,000 in 2020. In December 2022, it received a a warning from the New York Stock Exchange that its shares could be delisted because they were trading at under a $1. 

Bright announced last year that it was dropping out of the ACA market for 2023 and dramatically scaling back its MA presence to only offering Florida and California. Weeks later, Bright announced it was withdrawing from the Florida MA market.

In an October news release, Bright said it would focus on its “fully Aligned Care Model in partnership with aligned external payers and care providers (which) is a faster path to profitability, has greater predictability, and is more capital efficient.” Bright operates NeueHealth, which provides care to more than 500,000 value-based care patients at more than 3,000 clinics. On its website the company says it “align(s) providers, payers, and patients and give(s) them the technology, insights, and processes they need to work together more closely.”

Meanwhile, Oscar Health has left the MA market after struggling to sign up few policyholders. Instead, the company plans to focus on the ACA market, where it has found success.

The New York-based insurtech opened for business in 2012. Joshua Kushner — the brother of Jared Kushner, former President Donald Trump’s son-in-law — was one of the co-founders. The company went public in 2021, pulling in
$1.2 billion. Last year it recorded a net loss of $573 million, an increase of $166 million over the $407 million losses in 2020, and it served almost 600,000 members, an increase of almost 50% during that time. 

In the company’s 2022 third-quarter earnings call, CEO Mario Schlosser said the focus for next year will be on profitability over growth. As part of that push, Oscar is pausing expansion of its +Oscar technology platform, which is designed to help healthcare clients improve growth, efficiency and engagement with members and patients. “We got to solve the question of, how do we sell +Oscar in a more effective and efficient way. And how do we implement +Oscar in a more effective and efficient way with third parties,” Schlosser said.

While withdrawing from the MA market, Schlosser said, “The individualized ACA market looks to us much more like the future of a competitive U.S. health care system than any other health insurance markets.” The company expects to have about 1 million members this year.

Clover Health, which was founded in 2014 and focuses on MA and Medicare markets, went public in 2021 in a $3.7 billion deal with the special purpose acquisition company (SPAC) Social Capital Hedosophia Holdings Corp. III. It is one of six SPACs founded by billionaire Chamath Palihapitiya.

The company, headquartered in Franklin, Tennessee, reported a net loss of $588 million for 2021. In early 2022, CEO Vincent Garipalli made optimistic statements about health equity and Clover “enabling physicians to provide great healthcare to all, especially those in underserved communities.” But in the third quarter of 2022, Clover announced it was slashing its participation in CMS’ Accountable Care Organization Realizing Equity, Access and Community Health (ACO REACH) program by up to two-thirds in a bid to become profitable. As of early December, its stock price was one-fifth of what it was in early 2022.

Senior leaders from other insurers were hired to run these insurtechs. In Manoogian’s view, that leadership choice could lead to “individuals who want to make their mark and drive their own strategy.” That, he adds, could lead to diversifying business models in too short a period. Some larger issues are also affecting the newcomers, Manoogian says: “Because macro markets have become tighter, I think investors may be a little bit less patient.”

Insurtech is a relatively new coinage that may make these companies seem exciting. Cassels is not persuaded; he says he views them as “just unprofitable health plans that happen to have technology. They were not built to be tech companies.” He contends they have given their core business of health insurance short shrift, in order “to enter their side business, which is technology.”

Newcomers to health insurance may not anticipate some of the problems of being relatively small. For example, most health insurance companies outsource part of their claims process, but new plans “don’t have enough volume to get reasonable prices from outsourcers,” says Cassels.

That can lead to shortcomings in claims processing issues. In 2022, Bright Health was fined $1 million by the Colorado Division of Insurance for issues concerning paying provider claims, inaccurate processing consumer payments and failing to communicate with members.

There have also been complaints from providers and members about a lack of provider network adequacy, Manoogian says. Having “a lot of out-of-network encounters hurts Bright.”

But Manoogian says Oscar has a good partnership with Cigna to offer small group plans. “Scale is important to be able to compete against the entrenched.” Manoogian also says the ACA, which is in Oscar’s wheelhouse, “is here to stay,” particularly after Congress extended increased marketplace subsidies, the number of people enrolling in ACA plans has climbed and enrollment is expected to reach new highs for 2023.

Manoogian and Cassels are skeptical that the insurtechs will be acquisition targets any time soon.

“It wouldn’t be unreasonable to think these companies might spend more time trying to turn around their existing books of business to be more profitable and scalable,” says Manoogian.

Cassels sees the future differently: “Our bet is that they are going to need to have a completely different business model than the one they have today.”

Susan Ladika is an independent journalist in Tampa, Florida, who covers healthcare and business.

Articles

After some go-go years, Bright Health, Oscar and Clover Health are leaving some markets.

Insurtechs Are Pulling Back

Billionaire Mark Cuban’s Cost Plus Drugs venture, which is aimed at offering low-priced generic drugs, is gradually gaining traction, signing its first agreement with a health insurance company. Capital Blue Cross in Harrisburg, Pennsylvania, announced in October that it was teaming up with Cost Plus Drugs, because the payer “is always looking for ways to control costs for our members and employer groups,” Samir Mistry, Pharm.D., MBA, vice president of pharmacy strategy and services at Capital Blue Cross, said in an email.

Capital Blue Cross approached Cuban’s company to help provide “another option for people to obtain affordable medications,” Mistry said. “We want to increase access and affordability whenever and wherever possible.”

Cuban’s venture is based on low, transparent pricing. A consumer pays for the cost of manufacturing the drug, a 15% markup for each drug the company dispenses, $3 for pharmacy labor, and the cost of shipping.

For example, Cost Plus Drugs’ website features 30, 400-milligram doses of imatinib, a drug used to treat certain types of leukemia and several other types of cancer. Imatinib is available as a generic. The brand-name version is Gleevec. At Cost Plus Drugs, it costs $39 plus shipping, whereas other pharmacies may charge more than $9,600.

Even on the price comparison website GoodRx, prices for imatinib with a coupon range from $115 at Winn-Dixie to over $5,500 at Walmart. “If you have leukemia and you need this drug, thank goodness Mark Cuban has done what he’s done,” says Karen Van Nuys, Ph.D., executive director of the Value of Life Sciences Innovation Project at the University of Southern California’s Leonard D. Schaeffer Center for Health Policy and Economics. In contrast, with some other companies, patients “are treated like piggy banks,” Van Nuys says.

Cost Plus Drugs now sells about 1,000 generic drugs. Mistry said Capital Blue Cross members can still use the payer’s formularies for drugs that Cost Plus Drugs doesn’t carry, “or whenever doing so is a better option for them,” Mistry said.

Capital Blue Cross is one of the Blues plans that owns Prime Therapeutics, a pharmacy benefit manager (PBM) headquartered in suburban St. Paul, Minnesota. Starting Jan. 1, 2023, Cost Plus Drugs will be integrated into Capital Blue Cross’ pharmacy benefits through Prime Therapeutics, so members will be able to process prescription claims, Mistry said.

Rightway, a new PBM based in New York, announced this fall that it will add Cost Plus Drugs to its network. With that agreement, Rightway members have access to all medications available through Cost Plus Drugs.

For Capital Blue Cross, the addition of Cost Plus Drugs will help with “empowering consumers by giving them more choices” as to where they fill prescriptions, Mistry said. By potentially reducing costs for its members, Capital Blue Cross hopes it will improve medication adherence. “There have been multiple studies showing a link between medication affordability and adherence,” Mistry said. A study by Aon found that the average cost for employers who pay for their employees’ healthcare is jumping 6.5% in 2023 to $13,800 per employee. For employees, premiums are projected to rise just 0.6% to $2,520, but out-of-pocket costs will climb 5.2% to reach $1,892.

These two partnerships with Cost Plus Drugs might just be the starting point for wider acceptance of Cuban’s company, says Van Nuys, who expects similar deals to follow. “I don’t think they will stop at two. This is like a snowball.”

Susan Ladika is a health and business writer in Tampa, Florida.

Cuban’s Cost Plus Drugs business has entered into agreements with Capital Blue Cross and Rightway.


Mark Cuban’s Low-Cost Pharmacy is Making Deals with Payers

EmsanaRx, one of several upstarts entering the pharmacy benefit management (PBM) industry, is teaming up with Cleveland Clinic, a 21-hospital healthcare system that is in the upper echelon of U.S. healthcare.

EmsanaRx was launched by the Purchaser Business Group on Health (PBGH), a nonprofit organization that comprises almost 40 public entities and large employers, including Apple, Microsoft and Chevron. Collectively, PBGH’s members spend about $350 billion per year on healthcare services for more than 21 million people.

PBGH is the majority owner of EmsanaRx, which was set up as a public benefit corporation, which means that it is legally obliged to pursue public benefit goals, not just the financial interests of shareholders. EmsanaRx has promised to bring transparency and fair dealing to an industry that is often accused of being opaque and driven by profits from rebates from manufacturers.

EmsanaRx intends to work with large, self-funded employers and is beginning to consult with experts at Cleveland Clinic as it selects drugs to include on its formulary. Experts from the healthcare system will “validate the best clinical product at the lowest cost,” says Greg Baker, the CEO of EmsanaRx.

For some drugs, such as prophylaxis for migraines, “the information out there is ambiguous at best,” Baker notes. So instead of trying to make decisions on drugs on its own, EmsanaRx leaders are talking with Cleveland Clinic experts to see which drugs have had the best outcomes. The PBM’s decision on which drugs to cover will depend on advice use from “real-world practitioners,” Baker says. The upstart PBM turned to Cleveland Clinic because it was “looking for a world-class academic medical center with a diverse group of clinicians,” says Baker, noting that the organization’s clinicians deal with everything from cell and gene therapies to mental health conditions.

The partnership will draw upon experience that the healthcare system has had with its own employees, says Bruce Rogen, M.D., M.P.H., chief medical officer of the Cleveland Clinic Employee Health Plan. The clinic’s self-insured health plan has more than 100,000 members. The clinic’s health plan is cost effective, with low out-of-pocket expenses for employees. “Other employers have noticed,” Rogen says. “We’ve been successful, and we’d like to share our success.”

Cleveland Clinic experts are operating to outside consultants for PBM, and the clinic is paid a “fairly modest” amount for its assistance, Rogen says.

In an agreement between the two, Cleveland Clinic will “share internal data in an advisory capacity,” Rogen says. In Baker’s telling, the PBMs that dominate the market focus on profit rather than on the needs of patients or of self-funded employers. He says EmsanaRx will be transparent for its clients, and companies that use the PBM will pay a fixed priced per prescription and a fixed fee to EmsanaRx.

EmsanaRx, which started operation this year, has started serving smaller companies but is bidding on large blocks of business.

Rogen says self-funded employers, even large companies, often struggle with evaluating drugs. By working with EmsanaRx, Cleveland Clinic will share information about the drugs on its formulary and the factors that went into its coverage decisions, he says. With the collaboration, “anytime you share ideas, both sides gain something,” adds Rogen. "High-quality, cost-effective provision of care shouldn’t be something we keep a secret,”
Rogen says.

‘We’ve been successful, and we’d like to share our success,’ says the chief medical officer of the healthcare system’s employee health plan.

EmsanaRx Is Getting Formulary Advice From Cleveland Clinic

Drug-related deaths are soaring among older Americans, driven by factors including unintentional misuse of prescription medications, self-medicating to treat pain, recreational drug use and social isolation.

In just a decade, the drug-related death rate doubled for those 65 years and older, climbing from 4.2 deaths per 100,000 in 2008-2010, to 8.4 deaths per 100,000 in 2018-2020, according to a report on senior health by United Health Foundation, which is part of UnitedHealth Group, earlier this year. The report drew on statistics from the Centers for Disease Control and Prevention. “It’s a really sad finding,” says Rhonda Randall, D.O., chief medical officer at UnitedHealthcare. “There’s a misperception that seniors may be exempt from this problem.”

While drug-related deaths increased across all age groups during the period the researchers studied, deaths among seniors increased the fastest, Randall says. Most of the deaths in the United Health Foundation study involved opioids, particularly synthetic fentanyl, she says.

A study focused solely on opioid deaths among older adults conducted by experts from Northwestern University’s Feinberg School of Medicine saw a similar surge in deaths. Findings from that study reported in 

 earlier this year showed opioid overdose deaths among those 55 years and older increased tenfold between 1999 and 2019.

The United Health Foundation report found that for those 65 years and older, men experienced drug-related deaths at twice the rate of women. For older men, the death rate was 11.7 per 100,000 population, compared with 5.8 for women. For African American adults 65 years and older, the death rate was almost 20 per 100,000 population.

Experts don’t know exactly why drug-related deaths are increasing; Randall says it is likely a combination of factors. People who are older are more likely to take prescription medications for chronic conditions, and they may inadvertently misuse medications such as opioids. Misusing medications is especially risky for older people because with age, the ability to metabolize medications decreases. Anxiety, depression and social isolation affect seniors, all of which have been exacerbated by the COVID-19 pandemic. Maryann Mason, Ph.D., an associate professor of emergency medicine at Northwestern and lead author of the 

 paper, says older Americans who are underserved by the healthcare system may “turn to unregulated drugs to self-medicate illnesses that emerge with age.” Another factor: Baby boomers are flooding the senior age brackets, and they were more likely to use illicit drugs when they were young than other generations.

It’s important for primary care providers to take the time to screen their older patients for prescription and recreational drug usage, Mason says. They also should devote time to educating patients about the possible dangers of drug use, in Mason’s view. She says that organizations that focus on substance abuse should reach out to older Americans in nonmedical settings such as senior housing complexes and community centers.

It’s also imperative for healthcare providers to be aware that opioid use disorder is an increasingly common problem among older patients, experts say. Providers can monitor their patients’ prescriptions or recommend alternative treatments for chronic pain, such as getting care from a chiropractor or acupuncturist. “Preventing this from the start is important,” Randall says.

Susan Ladika is an independent journalist in Tampa, Florida, who writes about healthcare and business.

Two reports show that drug-related deaths are skyrocketing among people 65 years and older.

Drugs and Older Age: An Increasingly Deadly Combination

An already-complicated patchwork of abortion coverage laws has become even more complex with the U.S. Supreme Court’s ruling to overturn Roe v. Wade.

“It really is all over the place,” says Fabiola Carrión, J.D., director of reproductive and sexual health for the National Health Law Program’s Los Angeles office. There were plenty of restrictions before, but “it’s becoming really complicated,” she saays

Some states had abortion bans that kicked in immediately after the court’s 5-4 ruling in June 2022. Others have seen their abortion bans temporarily blocked by the courts. And another group of states has moved in the opposite direction, strengthening their abortion rights statutes. “The legal landscape is changing rapidly,” says Meera Shah, M.D., M.P.H.,M.S., the national medical spokeswoman for Planned Parenthood Federation of America.

Even before the Supreme Court ruling, laws governing insurance coverage of abortion varied widely from state to state. As of July 1, 2022, seven states required private health plans to cover abortions, 11 states restricted insurance coverage from private insurance plans and 25 restricted coverage from plans offered on state health exchanges, according to Guttmacher Institute, a research and policy organization committed to supporting sexual and reproductive rights.

Coverage also varies tremendously for women who are insured through a health insurance. The 1977 Hyde Amendment forbids using federal funds for abortions unless a woman’s life is endangered or she is a victim of rape or incest, and many state Medicaid programs hew to that rule, which has been extended to include the military’s Tricare program, Medicare and the Indian Health Service. But 16 states get around the Hyde Amendment by using state funds to pay for abortions for women covered by their Medicaid programs.

Fully insured health plans are subject to state insurance regulation, but self-funded plans fall under the Employee Retirement Income Security Act and aren’t governed by state insurance law. Instead, they fall under the jurisdiction of the U.S. Department of Labor.

With all the differences among states, “for insurers, it could mean one version of a plan in one state and another in another,” observes Sarah Raaii, J.D., an associate in the law firm McDermott Will & Emery in Chicago who focuses on employee benefits.

A number of health insurers, including CVS Health (the parent of Aetna), Cigna and Blue Shield of California have already come out in support of abortion rights and in support of their employees and clients. CVS Health said in an email: “We’ve made out-of-state care accessible for covered CVS Health employees residing in states that have instituted laws that limit access in their state. With the new (Supreme Court) decision, we are evaluating how we can best support the coverage needs of colleagues, clients and customers.” That includes, said the email, providing them “with the flexibility to choose medical and pharmacy benefits to best suit their needs. This includes, subject to plan terms and customer direction for self-funded plans, making out-of-state abortion health care services more accessible and affordable.”

Other payers, such as Blue Cross Blue Shield of Michigan and Blue Cross Blue Shield of Massachusetts, are developing or have developed a travel benefit for those who need to go out of state for an abortion. The Michigan Blues plan said in an email that group customers had requested expanded travel benefits for a number of services, including behavioral health and substance abuse disorder treatment, and that the payer was including an option for abortion coverage in the new benefit. The benefit will be available in the next month or two and will reimburse travel between the patient’s home and location at which they receive care.

But there are concerns that states in places where abortions are banned might try to restrict residents from traveling out of state for an abortion. “It’s potentially murky legal territory,” Raaii says. In a concurring opinion in Dobbs v. Jackson Women’s Health Organization, Justice Brett Kavanaugh said he didn’t think a state could prevent a woman from traveling to another state for abortion care. Raaii says when she has discussed Kavanaugh’s opinion with employers, “this has helped increase their confidence in an abortion travel benefit.” A number of major companies, including Tesla, Starbucks, JPMorgan Chase and Amazon, have said they will cover travel expenses for employees.

Much, though, remains unclear about the travel benefits and insurance coverage of abortion services in general. Carrión says even when companies and health plans say they will offer a travel benefit, it’s not clear the type of transportation that will be covered — the cost of gas if someone drives to another state, a bus ticket or an airline ticket. Will food and lodging be included? If so, for how many days? Carrión notes that some states have a waiting period of 24 to 72 hours before a woman can receive an abortion. Other variables include whether there will be coverage or consideration of loss of income and extra child care expenses.

In 2020, the most recent year for which figures are available, more than 930,000 abortions were performed in the United States, according to Guttmacher Institute. That was up slightly from 2019, when more than 916,000 abortions were performed. But it was far below the more than 1.5 million abortions that occurred in 1991. The abortion rate in 2020 was 14.4 per 1,000 women between the ages of 15 and 44. The rate has declined by half since 1981, when there were 29.3 abortions per 1,000 women. Access to contraception is believed to have helped reduce the abortion rate, and most private health insurance plans are required to cover contraception under the Affordable Care Act. Centers for Disease Control and Prevention data from 2019 for 47 states and the District of Columbia show that 57% of those who had abortions were in their 20s and that teens had just 9% of abortions.

President Joe Biden signed an executive order on July 8, 2022, that that directed the U.S. Department of Health and Human Services to protect and expand abortion access, including to medication abortions; ensure access to all women for emergency medical care; and protect access to contraception. The order does not address issues such as costs and insurance.

An abortion in the first trimester costs about $600, Carrión says. Even those with health insurance may need to cover that cost because many policies have high deductibles. “It’s a big amount for people with low and middle incomes,” she says.

“Hundreds of thousands of people can no longer access the abortion care that they need, and even more are living in confusion about what options are available to them,” says Shah of Planned Parenthood.

Carrie Baker, Ph.D., J.D., M.A., a professor of women and gender studies at Smith College in Northampton, Massachusetts, says her concern is: “Will women be doing dangerous things to get an illegal abortion?”

With the bans in effect, Carrión says that “the people who are going to be most affected are people on the margins who don’t have access to healthcare and services already.

“It will result in two Americas,” she adds. “One with abortion and one without.”

How Employers, Insurers are Coping With Abortion After Dobbs 

A record amount of private equity flooded into the healthcare sector in 2021. This year, investors seem to be proceeding with a little more caution. Even so, the investment is a major development in how healthcare gets financed and the makeup of the sector’s ownership interest. Some are thumbs-up on the healthcare push by private equity firms, arguing that the surge in investment will improve management and operations. Others see the entry of the profit-seeking enterprises as driving up healthcare costs and, especially in the United States, further fracturing an already fragmented healthcare system.

After declining in 2020 as the COVID-19 pandemic swept the world, the total disclosed value of private equity investment in healthcare more than doubled globally last year. It reached $151 billion in 2021 compared with $66 billion in 2020 and $79 billion in pre-pandemic 2019, according to Bain & Company, a Boston management consulting company. At the same time, the number of healthcare deals involving private equity surged from 380 in 2020 to 515 in 2021, Bain reported.

Last year, private equity investment in telehealth, digital health and health information technology “gained a lot of interest, accelerated by COVID-19,” says Jerry Sokol, global head of McDermott Will & Emery's healthcare practice group. The focus is now on how technology “could help improve the healthcare sector.”

Some of the investment is motivated by “the opportunity to aggregate fragmented providers,” such as physician practices, Sokol says. Investment from private equity firms, he says, can help lead to more sophisticated management of physician practices, cost savings that come from group purchasing and more power when it comes to negotiating managed care contracts.

“If they (investors) see an opportunity for improvement, that’s certainly going to pique their interest,” Sokol says. The capital from private equity can also help providers adhere to government rules, take steps to reduce fraud and abuse and improve billing.

“Private equity typically will raise the bar on compliance.”

But not everyone believes private equity is a boon for the healthcare sector. Private equity investors “exist to make money. They invest in companies that they believe will have a significant return,” argues Elizabeth Mitchell, president and CEO of the Purchaser Business Group on Health. Private equity firms aim, she says, to “increase healthcare costs to maximize return.”

Her organization is a nonprofit coalition of almost 40 private employers and public entities that are major purchasers of healthcare services. Members include companies such as Microsoft and Walmart.

Some private equity-backed staffing companies, for example, tend to utilize surprise billing, which drives up healthcare costs, says Mitchell. Surprise billing is shorthand for patients receiving bills from providers who are out of network even though they were seen in an in-network facility.

Another of Mitchell’s concerns is what she sees as the focus of private equity investment on relatively narrow areas of care (emergency department physicians, for example, or radiologists). Her group wants to see more integrated care, she says, and with private equity undercutting integration, healthcare in the U.S. is “harder to navigate and harder to manage,” Mitchell says.

A recent survey of leaders of private equity firms by McDermott Will & Emery and WSJ Intelligence, part of 

, found that 40% of respondents had the most interest in investing in healthcare IT and telehealth in the next three years, followed by 37% interested in partnerships with large health systems. More than 30% were interested in investing in pharmaceuticals and biotechnology, and in physician practice management. “Large health systems have been struggling recently because of the pandemic,” Sokol says, adding that even before the pandemic, “a lot of profitable procedures migrated out of hospital settings.”

The survey respondents said they were most interested in healthcare industry inefficiencies, the expansion of value-based care models and reducing costs. Nearly three-quarters agreed that “the healthcare sector was ripe for structural change prior to the onset of the pandemic, which has accelerated opportunities for investing in new modes of healthcare delivery.”

Mitchell agrees that “there is certainly need for innovation” in healthcare. Some private equity investment leaders have expressed support for value-based care, and Mitchell says “incumbents have failed miserably” when it comes to implementing value-based care models. “It’s not that the incumbents don’t require some disruption.” But she is skeptical that private equity investors will improve the situation. 

Findings from a study conducted by researchers at Weill Cornell Medical College might stoke Mitchell’s skepticism. They compared nursing homes owned by private equity firms to those owned by other for-profit entities. Patients who stayed in nursing homes owned by private equity investors had more emergency room visits and hospitalizations, and that drove up Medicare costs for patients from those facilities, according to the results, reported last year in the journal 

. Residents of private equity-owned nursing homes were 11% more likely to need care at an emergency room and almost 9% more likely to experience a hospitalization. Those services translated into Medicare costs that were 4% higher — $1,080 more per resident — for residents of the private equity-owned nursing homes than those of residents at the other for-profit homes.

The pressure to generate profits for private equity investors could result in a reduction in staff, services, supplies or equipment at those nursing homes, researchers said.

“Our findings indicate that private equity firm-owned facilities offer lower-quality long-term care,” Mark Unruh, M.S., Ph.D., associate professor of population health science at Weill Cornell Medicine, said in a press release. “The majority of revenue that pays for care in nursing facilities comes from public sources. After private equity acquisition, quality of care declines and Medicare spending goes up for residents, and that should be a concern for policymakers.”

The largest private equity deal announced in 2021 was the $34 billion investment in Medline, a medical supply company headquartered in Northfield, Illinois. The money came from private equity firms Blackstone, The Carlyle Group and Hellman & Friedman. The second largest of the year was Bain Capital and Hellman & Friedman investing $17 billion in Athenahealth, a health tech company headquartered in Watertown, Massachusetts.

But during the first part of this year, private equity lost some of its appetite for healthcare investment. A report by KPMG found that from the fourth quarter of 2021 until the first quarter of 2022, activity by private equity investors in healthcare fell by as much as 50%. “Deal activity in 2021 was at a feverish pace that was unsustainable,” says Ross Nelson, principal and national healthcare strategy leader for KPMG.

The KPMG report found that private equity companies slowed their investments in hospitals and health systems due to rising labor and supply costs, although interest in healthcare IT and physician practices remained strong. The Russian invasion of Ukraine also was a factor and raised further supply chain concerns. Nelson says the continued switch of patients from traditional Medicare to Medicare Advantage plans “will continue to drive deal activity longer term.” At the same time, for many corporations, “balance sheets remain strong … and (private equity) still has a lot of money to deploy.”

Private equity firms have pulled back some this year, but money has been pouring into the healthcare sector. Will the cash infusion make healthcare more efficient or drive up costs as investors seek returns? 