By Richard Gilfillan and Donald M. Berwick
Health Affairs Blog, September 29, 2021
While the COVID-19 pandemic rages, the past two years have seen another epidemic of a far different type—in financing and acquisitions of firms focused on serving Medicare beneficiaries. These firms include physician practices, notably primary care practices (PCPs); management services organizations (MSOs) that aggregate practices; and Medicare Advantage (MA) insurers. In this arena, the combined activity of private equity and venture capital firms, initial public offerings, special purpose acquisition companies (SPACs), and insurance company purchases of MA-focused firms has soared: more than $50 billion in valuation has been created in the past 18 months, dwarfing the speculative bubble for physician practice management companies in the 1990s.
One indicator of the exuberance underlying this “Medicare Gold Rush” is the amount per covered life implicit in a firm’s overall valuation. Historically, per-life valuations in MA have ranged from $4,000 to $10,500. Exhibit 1 shows per-life valuations for a sample of recent transactions. The average is $87,000 per beneficiary. Most of the firms acquired or financed are PCPs or MSOs that typically produce no margins—just an average take-home income of $240,000 per physician. The first six are participants in the Centers for Medicare and Medicaid Services’ (CMS) new Direct Contracting Model, which we shall discuss further in Part Two of this post.
Dr. Gilfillan was the CEO of Trinity Health System from 2013 until 2019. He is a Trustee for United States Pharmacopeia; a Director for the Health Care Transformation Task Force; a member of Advisory Committees for the Institute for Exceptional Care and several Robert Wood Johnson Foundation programs addressing health equity and SDOH (all uncompensated). Dr. Gilfillan also recently consulted for an integrated health system (compensated). Dr. Gilfillan was the Director of CMMI during the roll-out of several ACO Models and was involved in the development of CMS ACO regulations. He has also been a leader and member of teams that managed multiple ACOs and Medicare Advantage plans.
Dr. Berwick served as Administrator of the Centers for Medicare and Medicaid Services from July, 2010, to December, 2011, during which he oversaw the issuing of the initial CMS regulations for Accountable Care Organizations, as well as numerous other regulations devolving from the Affordable Care Act. He serves on the boards of LumiraDx (stock option compensation); Virta Health (stock option compensation); NRC Health (stipend and stock option compensation); Institute for Exceptional Care (uncompensated); CareVisor (stipend) Partners in Health (uncompensated); Results for Development (uncompensated). He also serves on Advisory Boards for the National Institute for Health Care Management Foundation, Datavant, and the Institute for Accountable Care, and on the American Medical Association Journal Oversight Committee. Dr. Berwick occupies multiple committee positions with the National Academies of Sciences, Engineering, and Medicine.