Pensions profiting from medical billing practices banned by states
The role of investors and private equity in medicine is attracting more scrutiny.
(Bloomberg) –Several states have barred medical providers from shocking patients with surprise bills for thousands of dollars, but pensions in those same states are poised to profit from the practice.
Public-employee retirement funds in California, New York, Oregon and other states have heavily invested with a private-equity firm, KKR & Co., that’s been buying up companies known for demanding steep payouts for emergency medical treatment and hospital stays that may not have been entirely covered by a person’s health plan.
Health-care providers that use the practice, known as balance billing, often seek hundreds or thousands of dollars from patients after collecting what they can from insurers. The strategy can be profitable. It has also attracted scrutiny from regulators, who say it places an undue burden on patients caught in disputes between insurance companies and medical providers. California, New York and Oregon have passed laws to restrict the practice.
Read: Rhode Island latest state to take issue with balance billing
The investments have left state employees in the position of indirectly benefiting from practices their states want to quash. U.S. public-employee pension funds have committed more than $2 billion to the $9 billion KKR fund that plans to buy hospital-staffing company Envision Healthcare Corp., according to data compiled by Bloomberg. Envision has been criticized for aggressive balance billing practices.
Hospitals that contracted with an Envision subsidiary to staff their emergency departments “have significantly higher rates of out-of-network billing than other providers,” a working paper by Yale health economists suggested last year. (Envision has challenged the paper, which acknowledged funding from a nonprofit with ties to insurance companies.)
In September Senator Claire McCaskill, a Missouri Democrat, sent Envision a list of questions about its billing practices. She pressed the company on the percentage of emergency visits billed as out-of-network, the number of complaints it received, and the rate of balance-billing, among other issues.
“I’m hemorrhaging in an emergency room, or I need an air ambulance immediately. I am not in a position to price shop”
For KKR, the Envision deal is the latest move by the private-equity firm to purchase emergency-medicine providers. KKR acquired a portfolio of air-ambulance companies in 2015. In March, it bought Envision’s ground-ambulance subsidiary, American Medical Response, for $2.4 billion. It’s planning to buy the rest of Envision, a hospital-staffing and surgery-center business, for $9.9 billion, including debt, in a deal expected to close late this year.
Patients in emergency situations have no leverage to negotiate with providers, leaving them exposed to high charges if their insurers don’t agree to cover the bill, said Zack Cooper, a Yale School of Public Health economist who co-authored the analysis of Envision.
“I’ve shown up and I’m hemorrhaging in an emergency room, or I need an air ambulance immediately. I am not in a position to price shop,” Cooper said. In those circumstances, “there is this opportunity to go out of network and get exceptionally high prices.”
Envision says it made a strategic decision last year to sign contracts with insurers. In 2016, about $1 billion in revenue came from out-of-network insurers, said Bob Kneeley, Envision’s head of investor relations. The company negotiated with insurers to bring about $450 million in-network last year, Kneeley said, and moved another $150 million in the first quarter of 2018.
“We continue to work with payors to reach equitable terms to move more revenue in network during 2018,” a goal KKR is aligned with, Kneeley said in an email.
KKR declined to comment.
Political pressure
Private-equity groups typically raise money from institutional investors such as pension funds and college endowments that are looking for returns that exceed public markets. KKR is one of the largest private-equity firms, with $176 billion in assets under management as of March 31, according to its website. The firms take management fees and invest their own capital alongside investor money. Outside investors are usually not involved in investment decisions.
The role of investors and private equity in medicine is attracting more scrutiny. The policy-making arm of the American Medical Association, the top U.S. doctor’s lobby, recently voted to study the issue and publish a report next year.
KKR’s North America XI Fund, which the firm used to buy American Medical Response, counts state retirement funds in Oregon, Washington State, California and Massachusetts among its largest investors. Washington, New York, Oregon, and California are also among the biggest backers of KKR’s Americas Fund XII, which is acquiring Envision.
Matthew Sweeney, a spokesman for the New York State Comptroller, which oversees pension investments, declined to comment. Officials for the Oregon State Treasury and the California State Teachers’ Retirement System didn’t respond to requests for comment. Chris Phillips, a spokesman for the Washington State Investment Board, said that the investment team hadn’t been aware of the issue before a reporter asked about it.
State pension funds are typically run by boards with some degree of independence from political leaders. They often face calls to use their investments, made with contributions by taxpayer-funded state agencies and their workers, to take stands about public policy.
For example, the California Public Employees’ Retirement System divested from certain coal companies over contributions to climate change. It also faced calls to sell auto stocks for the same reason. Following a massacre at a Florida high school in February, the state’s teachers union called on its pension fund to sell firearms stocks.
After the recent bankruptcy of Toys ‘R’ Us, a KKR investment that resulted in thousands of job losses, the Washington State Investment Board urged KKR “to further explore job transition opportunities and options for workers who are losing jobs,” Bloomberg News reported last month.
Consumer complaints
Private equity-backed medical providers so far haven’t attracted the same public outcry.
Patients who thought insurance covered the cost of their emergency care have been surprised by Envision’s attempts to collect.
Washington State’s pension fund has committed $1.5 billion to the two KKR funds buying Envision and its former ambulance division. Legislation to restrict surprise billing failed in the state’s legislature this year.
Consumer complaints released by the Washington State Insurance Commissioner show patients dealing with bills for months or years after being treated.
Fred Chamberlain, a retired auto-service manager, was transported 10 miles in an American Medical Response ambulance between hospitals in Spokane, Washington, after complications from back surgery left him with spinal fluid leaking out of an incision in his back.
Chamberlain’s insurance paid $302, about 30 percent more than what Medicare typically pays for a similar trip. American Medical Response billed him for another $878.
“They accepted whatever they could they could get from the insurance company and billed me for the rest of it,” he said.
A year and a half after the ride, he’s still getting letters from a collections firm called Bay Area Credit Agency over the ambulance charges. A letter from May 23 said he owed $110 of interest, on top of the $878 bill.
A spokesperson for American Medical Response declined to comment on individual cases. Rates for most of the company’s emergency transports are set by local governments, and insurance companies often don’t pay the full amount, the company said in a statement.
In another case detailed in public records, a Seattle man received a $1,056 bill from American Medical Response in October 2015, in the name of his late wife. She had been taken five miles by ambulance nearly two years earlier, and died shortly after the transport.
Her Medicare health plan had paid American Medical Response $276, records show. Providers that accept Medicare aren’t permitted to balance bill patients beyond Medicare’s allowed charges. “I demand a letter of apology and confirmation that this bill was paid in full,” the man wrote, according to a complaint he filed with state regulators.
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