Below we are featuring a compact and highly readable study by the Private Equity Stakeholder Project, How Private Equity Gets Its Cut from Medicare Advantage, by Mary Bugbee (mary.bugbee@pestakeholder.org). We have had to omit the cover page so the document would be small enough to upload.
This paper is useful since it describes some of the Medicare Advantage abuses, explaining how various rentiers game the program, including outright fraud. After explaining the common types of extractive behavior, and making clear they are serious. Improper payments, according to the CBO, approximately 10% of total payments to Medicare Advantage Organizations, as in insurers that have contracted with Medicare to offer Medicare Advantage plans. And as the study explains, this isn’t the only place fraud occurs. Broker schemes to get paid well over their supposedly regulated commissions and mis-selling of plans are also common abuses.
The post points out that private equity is not at the heart of this ecosystem; giant health insurers dominate. But private equity has a solid and growing toe-hold in providing some Medicare Advantage services to insures, and also operating in niche insurance markets, mainly by running HMOs in geographically distinct markets.
Perhaps readers are familiar with the workings of Medicare Advantage will find the mechanics of these scams to be old hat, but some were new to me.
Upcoding is one of the big schemes to overcharge. Medicare pays more to Medicare Advantage plan for patients with chronic conditions, as well as “dual eligible” such as eligible for Medicare and Medicaid. As the report drily notes:
It also means that insurers can game the risk adjustment system by colluding with providers or contracting with in-home health assessment companies to add more diagnostic codes to a patient’s medical record in order to receive a higher payment
Admittedly, this con takes a bit of work. The New York Times reported in 2022 that eight of the ten biggest insurers engaged in flat out theft via overbilling and other fraud.
We’ve commented often about how solicitation costs, particularly for TV ads and in-person selling (think the Big Pharma reps that call on doctors) are an important reason American medicine is so unnecessarily expensive. Drug companies spend more on marketing than R&D. Similarly, if you watch any old people TV, you’ll be subject to a barrage of both ads for meds, and at Medicare Advantage times of year, plan hucksters.
Brokers shamelessly game the fixed commission rules. Again from the article:
The various players within the senior insurance distribution market, composed of brokerage firms, marketing companies, and independent agents, have much to gain from enrolling seniors in private Medicare plans.
Brokerage and marketing agencies provide the types of administrative, technology, and marketing support that licensed brokers need to facilitate enrollment of beneficiaries in Medicare Advantage plans. Both brokers and the agencies with which they work contract with multiple insurance companies and earn commissions and other types of payments when they enroll individuals in
a particular plan. As the Commonwealth Fund explains, “[Independent agents and agencies] represent both plans and beneficiaries, with compensation tied exclusively to enrollments with contracted insurers. As a result, agents may find themselves choosing between their income and beneficiaries’ needs.
That is a polite way of saying brokers have incentives to steer patients to crappy plans that pay higher commissions. This sort of bad behavior has long been endemic in the money management industry. Back to the study, which then describes how payments to brokers and marketers are goosed up, making a joke of the pretense of fixed commissions:
The Centers for Medicare and Medicaid Services (CMS) sets maximum broker commission payments, but according to the Alliance for Community Health Plans, “there are no limits on creative add-on fees such as referral payments, marketing, administrative expenses, bonuses and incentives for completing a health risk assessment. As a result, brokers often collect more than double broker commission limits, totaling billions of dollars each year that could be used to enhance care or extend the Medicare Trust Fund.
The study then as a series of case studies on badly-behaving private-equity-owned players, to give another window into how the scamming works.
Admittedly, the Biden Administration has roused itself, and in 2022, CMS issued some sensible new regulations. A summary:
- Requiring CMS review of all prospective television advertisements.108
- Requiring insurance companies to have greater oversight over the third parties with which they contract.109
- Requiring that the relevant insurer must be identified in the advertisement of specific plans.110
- Prohibiting the marketing of plan benefits in areaswhere those benefits are not available.111
- Updating the audit process to help recover improper risk adjustment payments made to Medicare Advantage plans.
And, in November 2023, CMS proposed a new rule that aims to address overcompensation and contract terms for agents, brokers, and third-party marketing organizations that have led to individuals being steered into plans that are not in their best interest
Sadly, even though this is a good set of reforms, the article describes how enforcement will be weak unless those efforts are well funded, and how these measures could be rolled back by future administrations.
As we have discussed often in our considerable work on private equity, general partners are established masters of tricky practices that create “heads I win, tails you lose” outcomes, such as (literally) fees for nothing, unwarranted clawbacks, schemes to avoid paying refunds, and shifting risk on to other parties. So this discussion of additional is important; I particularly like joint and several liability:
PESP has private equity-specific recommendations that address some of the common issues seen with private equity investments in healthcare companies:
1. Prohibit or Limit Dividend Recapitalizations
– Require private equity and other corporate owners to refrain from indebting newly acquired companies in order to pay shareholder dividends. To the extent dividend capitalization is allowed, limit dividends to a percentage of profits.
2. Joint Liability for Portfolio Companies – Require joint and several liability for private equity owners and portfolio companies. This would mean that if portfolio companies were sued for violations of the False Claims Act or other alleged illegal behaviors, the private equity owner could be held liable as well.
3. Greater Antitrust Enforcement – Because private equity rollups and mergers typically fall under the radar of antitrust regulation,115 the Federal Trade Commission (FTC) and the Department of Justice (DoJ) should scrutinize healthcare deals involving private equity firm owners even if individual deals do not meet the typical threshold to trigger FTC review.
Sadly, the complexity of medical insurance plans, and the disgrace of obfuscatory billing makes Medicare and Medicare Advantage plans easy targets for cons. But we’ve come to expect that sort of thing from financial services industry players; Elizabeth Warren long ago talked about tricks and traps designed to ensnare consumers. Worse is that medical providers, from hospitals to MD practices, have become happy partners in these crimes.
00 private equity and medicare advantatve no cover
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I have watched the American health care system implode over the last 75 years going from largely charity care with billing for the wealthy, a Robin Hood model run by the doctors, to a extractive finance model. All the negatives that the old doctors spouted in opposing Medicare came true. Government financing has proved a disaster. The doctors made a ton of money from it but now the slick MBA shysters have figured out how to get their hands in Uncle Sam’s pockets. Government funding with private fee for service billing will always end up with massive fraud and it forces doctors to sacrifice their ethics. As much as half of all surgeries, for example, are unnecessary and unnecessary surgery does have complications as well. Pharma does not research for new antibiotics because of finance. Medical care is a financial industry now where profit is king. It is impossible to go back to the old concept of charity care for a lot of reasons. The only other option is a national health care program with doctors and all providers and administrators on salary with no production bonus (do you want your surgeon to decide to do an operation because an alimony payment is due?) It is not a bad choice. Despite the recent neoliberal defunding of the NHS in England it is still better than what we have in the US and a good place to start. Do not forget that when you call 911 you will generally get a fireman/paramedic who will be the one that will save your life more often than not. They do a good job and they are on salary and their education is funded by the government. Most doctors would be happy to be on salary with a government retirement and benefits. Those that are going into medicine to make bank should consider another career. Let the finance people financialize something other than people’s health. We now have the medical industrial congressional complex and the military industrial congressional complex and we are working on the asylum industrial congressional complex. All of these are ways to extract tax dollars from the government in return for substandard service to the citizens.
Amen.
Thank you.
Now, patients have to consider impacts of DEI for med school and related admissions and then hiring. :(
I miss my old GP and friendly clinic where people recognized one another from the local community.
Is the NC commentiat now railing against DEI? Holy cow.
Trying to maintain a sense of humor here:
It’s a no-win situation: we must keep ourselves informed, but learning more about this causes hypertension, anger and increased cortisol levels. This may well lead to health problems that force one to become victimized by a predatory/parasitical so-called health care system. Then, when the bill comes – cardiac arrest!
But seriously, when are we going to get to the “I’m mad as hell, and I’m not going to take it anymore” stage?
Thank you for this, Yves. Quite right, An Old Doctor. We have medical insurance of a sort, but no medical “care” now. I say this as someone with a degenerative neurological disease. There is no coordination of care as there is in the UK and the EU. My condition has a registry in the UK for coordination of care. Here, you really are on your own. Care was relatively okay 20 years ago with private insurance. Hit the magic age of 65, and it’s a struggle. Even with traditional Medicare, physicians can opt out. (Extremely comforting. /s) Boutique practices also can be illusory. They get an enormous yearly sum for signing up never ending numbers of patients and often just don’t work, in spite of the promises of the contracts made with their platforms. It’s become an incredible s-show. Finance and health care are mutually exclusive imho. Again, thanks for this and the comments. Most do not know Medicare Advantage is not Medicare.
JonnyJ, it’s awfully hard to fight when you’re ill. A feature, not a bug. I used to represent insurance companies. Picture two people in a room with phones trained to just say “no”.
I’d be interested in finding out about why public retirees are being pushed into Medicare Advantage programs. I’d guess this benefits all the MA players, including PE. In North Carolina, our state treasurer is responsible for both retiree pensions and health care….and has just changed providers for both (and is now running for governor.) MA is advertised to retirees as 90/10 with nearly free Medicare spouse coverage. Original Medicare is advertised as 70/30 with hundreds to add a spouse. I’m sure it’s not just North Carolina pushing public retirees into MA.
It is also being done in NYC. And it isn’t really about spousal coverage, that is a selling point for the beneficiaries, just like lower or no premiums and rudimentary vision and dental care is for the regular public. This is my cheap seat analysis, take it as you will. Here in NY, the agreements had the funds on the tap for Medicare premiums and coverage of the like copays. So they had to have a secondary Medigap like policy for retirees. But the MA scam provides a loophole for that. They supposedly offer no or low premium plans with no copays. So even if the funds don’t get much of a break on the premiums they are no longer on tap for either secondary gap policies or reimbursement for beneficiaries co pays. This is minimum over three thousand dollars a year per retiree. So even though it is a scam the upfront deal means they can say we have covered you with the new MA plan. That means they can use the stick that if you want to stay with the old system you have to pay for the things they no longer have to do with the advantage plan to direct the sheep to their new partners. Either way they offload that gap coverage immediately. And that choice is one that the city retirees are increasingly being faced with as the MA plans here really offer little coverage for even the most basic of the ongoing issues of aging. The retirement funds win upfront but they also win long run as the gap premiums increase faster at least until the MA plans can no longer find ways to systematically deny coverage.
I am extremely disappointed in my unions offering Medicare advantage as an option. This is a federal agency .. I have discovered through intensive research that this union obvious doesn’t understand what they are doing. Also am I being mistaken that there is the possibility that if the majority of people join MA there Will be a push to let them take over all of Medicare?