Saturday, August 20, 2016

Another private equity plan to suck the Treasury dry


This one involves elder care and a Medicare program to keep seniors out of nursing homes.
But this is no linoleum-floored community center reeking of bleach. Instead, it’s one of eight vanguard centers owned by InnovAge, a company based in Denver with ambitious plans. With the support of private equity money, InnovAge aims to aggressively expand a little-known Medicare program that will pay to keep older and disabled Americans out of nursing homes.

Until recently, only nonprofits were allowed to run programs like these. But a year ago, the government flipped the switch, opening the program to for-profit companies as well, ending one of the last remaining holdouts to commercialism in health care. The hope is that the profit motive will expand the services faster.

Hanging over all the promise, though, is the question of whether for-profit companies are well-suited to this line of work, long the province of nonprofit do-gooders. Critics point out that the business of caring for poor and frail people is marred with abuse. Already, new ideas for lowering the cost of the program have started circulating. In Silicon Valley, for example, some eager entrepreneurs are pushing plans that call for a higher reliance on video calls instead of in-face doctor visits.

The business appeal is simple: A baby boom-propelled surge in government health care spending is coming. Medicare enrollment is expected to grow by 30 million people in the next two decades, and many of those people are potential future clients. Adding to the allure are hefty profit margins for programs like these — as high as 15 percent, compared with an average of 2 percent among nursing homes — and geographic monopolies that are all but guaranteed by state Medicaid agencies to ensure the solvency of providers.

The goal of the program, known as PACE, or the Program of All-Inclusive Care for the Elderly, is to help frail, older Americans live longer and more happily in their own homes, by providing comprehensive medical care and intensive social support. It also promises to save Medicare and Medicaid millions of dollars by keeping those people out of nursing homes.

Several private equity firms, venture capitalists and Silicon Valley entrepreneurs have jumped into the niche. F-Prime Capital Partners, a former Fidelity Biosciences group, provided seed funding for a PACE-related start-up, as have well-regarded angel investors like Amir Dan Rubin, the former Stanford Health Care president, and Michael Zubkoff, a Dartmouth health care economist.

And no company has moved with more tenacity than InnovAge. Last year, the company overcame protests from watchdog groups to convert from a nonprofit organization to a for-profit business in Colorado. And in May, InnovAge received $196 million in backing — the largest investment in a PACE business since the rule change was made — from Welsh, Carson, Anderson & Stowe, a private equity firm with $10 billion in assets under management.

“For years we were pariahs, and no one wanted anything to do with us,” said Julie Reiskin, executive director of the Colorado Cross-Disability Coalition, a nonprofit group that advocates for people with disabilities, many of whom are eligible for PACE.

“Now that there’s money involved,” Ms. Reiskin said, “everyone is all interested.”

Even the program’s supporters acknowledge that the movement needs fresh momentum. But they worry that commercial operators will tarnish their image in the same way many for-profits eroded trust in hospice care and nursing homes.
Already one year in and some are calling for reduced services because expenses cut into profits, and if there are no profits why bother caring for a bunch of geezers. It is sad to see for profits allowed into the program, no good has ever come from commercialization of healthcare. But you can bet on this opening upthe way for a lot of fraud.

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