VC and private equity firms to face more scrutiny, CMS official warns

The Centers for Medicare and Medicaid Services will turn a skeptical eye toward venture capital and private equity investments in healthcare and demand greater transparency, a key agency official said Wednesday.

Officials worry patients won’t get the care they need if investors are only in healthcare to collect government money, Pauline Lapin, director of the Center for Medicaid and Medicaid Innovation’s Seamless Care Models Group, said during the Policies, Techies & VCs conference on Wednesday.

“Are they in it for the right reason?” Lapin said. “Are they in it to provide better care and focus on underserved populations? Or have they found a way to use federal dollars…to make some money without actually improving care and driving value?” she said. “We need to protect our beneficiaries.”

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Lawmakers and regulators have been skeptical of venture capital and private equity investments in healthcare. While investors often demand greater innovation and efficiency from providers, their profit-motivated decision-making can sometimes lead to greater provider consolidation and lower quality. Patient mortality is 10% higher at private equity-owned nursing homes than at other nursing homes, according to a recent study.

CMS is increasingly focused on preventing investor-backed healthcare companies from boosting their valuations by steering beneficiaries toward products or services that don’t meet their needs, Lapin said.

CMS also is concerned that Medicare and Medicaid beneficiaries could get hung out to dry if an investor-backed provider is sold. “What happens to care of these beneficiaries?” Lapin said. Patients may not be able to access the same providers and services they used under the original ownership in these cases, she said.

Federal officials also worry about the lack of transparency around venture capital and private equity-owned healthcare organizations.

“It’s not always clear who is in control and making decisions for an organization,” Lapin said. “We need better transparency and line of sight into ownership, governance and leadership. For example: Who is on the board and what do they stand to gain financially?”

Nevertheless, investors could help transform the healthcare delivery system by spurring innovation and disrupting the status quo, Lapin said. And while most participants in CMS’s value-based payment models are traditional providers like health systems and independent primary care practices, a growing number are backed by venture capital or private equity investors.

In some instances, they’re delivering superior care to specific patient populations, such as people enrolled in both Medicare and Medicaid because they better address patients’ physical, mental and social needs, Lapin said. Further investments could advance health equity and reduce healthcare disparities, she said. “These are really disruptive innovations.”