This post assumes 2 things:
- People that have “good” healthcare coverage don’t know what it’s like if you have shitty coverage. By good, I mean reasonable premiums, low deductibles, and plenty of choice on healthcare providers. Unfortunately, those types of scenarios are becoming more and more rare. To achieve these types of benefits, you have to work for a massive company, sexy startup or sexier investment firm.
- “Alleviating Stress on the Healthcare Industry” does not refer to the insurers, they’re doing fine. It refers to the providers and patients, who keep getting asked to either provide more service for less reimbursement or pay more for less service. There isn’t any stress from the health insurance standpoint, as United Health’s stock increase at 23% CAGR and 1.3% dividend yield can attest. (However, doesn’t that fact alone tell you why providers are paid less and patients are paying more? Eh, whole different story….)
The playbook for Middle Market Healthcare Private Equity investors to help alleviate the stress is straightforward but not necessarily easy:
- From the reimbursement standpoint, get the portfolio companies united on one plan and negotiate rates with the big boys, like a big boy. I can’t tell you how many CFO’s of Healthcare providers I’ve talked to that have lamented the fact that they keep getting squeezed by reimbursements but just “aren’t big enough to demand more”. Keep in mind, this CFO may be part of a Private Equity fund that has $5B of assets under management, all in healthcare (even if it’s 1/10th of that, it still carries weight). The Sponsor needs to take the lead and get a Portfolio Company task force together and go renegotiate rates for their investments.
- From providing employee benefits, this will be a bit more complicated and could require rivals on deals to work together but Middle Market PE is buying up all kinds of healthcare services: Internal Medicine, Cardiologist, Home Health Services, Rehabilitation Companies, Eye Doctors, Dentists, etc. You get the idea. These sponsors need to come together and create their own network. They’ll be cutting out the middleman for the millions of employees that work for their firms and portfolio companies.
Once MMHC sponsors can get their reimbursement strategies and employee coverage aligned, that’s a huge step in “fixing” the health insurance problem. It won’t be easy, but since when has easy been part of any Private Equity Group’s strategy?