Bipartisan Investigation to Probe Private Equity Firms' Role in Surprise Billing Practices

Leaders of the House Energy and Commerce Committee Monday announced a bipartisan investigation of business practices they say have fueled the rise of surprise medical billing, including the role of private equity firms that own physician staffing and emergency transportation companies.

Chairman Frank Pallone, D-NJ, and Ranking Member Greg Walden, R-OR, said in a statement they had sent letters seeking information from KKR & Co. Inc., Blackstone Group, and Welsh, Carson, Anderson, & Stowe (WCAS). The role of hospital outsourcing—use of staffing companies for physician groups, the emergency department, and transportation—was cited in a 2018 report by Yale University economists as a key source of surprise medical billing, which the statement referenced.

In their letters, Pallone and Walden cited work by the American Enterprise Institute and the Brookings Institution that found surprise bills come not from the patient’s chief treating physician, but from ancillary members of the care team—the pathologist, anesthesiologist, radiologist, or a consulting surgeon. These providers may not work directly for the hospital but for an outside staffing company, although that may not be apparent to the patient being wheeled into surgery; sometimes, the patient may never meet the doctor who sends the bill.

“Evidence indicates that these physician staffing firms charge substantially higher in-network rates than their counterparts, thereby driving reimbursement rates upward as they enter into staffing arrangements with hospitals,” Pallone and Walden said.

Axios reported in 2018 that private equity firms were increasingly taking these companies private, in part due to their market power. A commentary appearing last week in ModernHealthcare said if the Trump administration was serious about value-based care, it had to rein in private equity practices. Under the business model, equity firms pool together smaller entities into one group and then charge fees to manage them, but expect a hefty return on investment. If the larger entity ever goes public, the doctors in the specialty group can be the direct beneficiaries of the higher costs loaded on to the health system.

Two large ED outsourcing firms—EmCare and Team Health, which were acquired by KKR & Co. and Blackstone, respectively—were mentioned in the lawmakers’ letters. “We are concerned about the increasing role that private equity firms appear to be playing in physician staffing in our nation’s hospitals, and the potential impact these firms are having on our rising health care costs.”

As of early 2019, 25 states have passed laws seeking a halt to surprise medical billing, which has climbed as benefit designs seek to constrain costs by requiring patients to use narrow networks of providers at lower negotiated rates. However, even when patients take care to use a hospital or doctor within their network, surprise bills can result from these ancillary providers the patient does not select. And in an emergency, a patient may have no say in who provides care.

The Kaiser Health Tracking Poll reported last week that 8 in 10 Americans want Congress to pass a law to end surprise billing. The problem has been brewing for years—back in August 2015, a commentary in JAMA Surgery said the issue of surprise medical bills was creating credibility problems for hospitals and the medical profession had to address it. Yet a recent study appearing in JAMA Internal Medicine finds that things are getting worse, particularly in the emergency department, where patients are least likely to make a choice of provider.

State laws can have some impact in shifting bargaining power from providers to payers, and consumers can benefit, according to a recent analysis of California’s law that appeared in The American Journal of Managed Care^®. However, the study also found that consumer protection laws can result in consolidation of provider groups to regain bargaining clout.

A federal bill to protect consumers, the No Surprises Act, passed unanimously out of the Energy and Commerce Committee in July.

At press time, KKR, Blackstone, and WCAS had not yet responded to requests for comment.