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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.
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'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"
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.
