Author: Paige Buckley

Medicaid, the largest health insurance program in the country, provides coverage to over 72 million low-income individuals, people with disabilities, and the elderly. It covers one in five Americans and funds almost half of all births in the United States. Medicaid is also administered by the states and jointly funded by the states and the federal government. The Affordable Care Act (ACA), signed by former President Obama in 2010, gave states the option to expand Medicaid eligibility and had the federal government cover 90% of the costs for the 41 states that took them up on the offer. This expansion has been a bipartisan mission over the past decade, with much of the new enrollment coming from Republican-majority states. However, recent governmental developments threaten to restructure the program in vast ways.

On February 25, the House of Representatives passed a budget resolution designed to extend the 2017 tax cuts while requiring $2 trillion in federal savings. The resolution invokes the House Committee on Energy and Commerce (E&C) to find $880 billion in savings over ten years. E&C has widespread supervision of the U.S. economy with subcommittees focusing on areas such as technology, energy, the environment, and health. At the moment, President Trump has ruled out cuts to Medicare, leaving Medicaid the probable target for cost reductions under the tax-cut bill. 

Congressional Republicans have proposed various ways to accomplish these savings, each having disastrous consequences for states and citizens who rely on Medicaid. One approach is to impose work requirements for non-disabled adults and young children. This policy would require Medicaid recipients to be employed, attend school, or serve as caregivers to maintain coverage. Proponents argue this would encourage workforce participation, reduce taxpayer burdens, and rule out fraud while leaving benefits for those who desperately need and deserve them. However, previous efforts, such as those made in Arkansas during President Trump’s first term, indicate that implementing a Medicaid work requirement can lead to thousands of individuals losing coverage. Currently, Georgia is the only state enforcing such a policy. 

Another option Republicans are considering is lowering the federal percentage of help from 90% under the ACA to the previous standard of 50-70%, The Congressional Budget Office estimates that this could save a total of $561 billion over the next decade. However, this would consequently shift significant costs to states, many of which would be unable to afford the difference. If all 41 states that expanded Medicaid attempted to maintain their current levels of coverage provided for by the ACA, they would need to find an additional $44.3 billion annually to account for the loss in federal funds. Most states would likely therefore roll back the expansion. Moreover, some states, including Arizona, Arkansas, and Indiana, have “trigger laws” in place that automatically roll back Medicaid expansion if federal funding lowers. This could leave approximately 10.8 million Americans newly uninsured. 

Another proposal is to impose a per capita cap on Medicaid funding, restricting federal spending growth per enrollee to the rate of medical inflation. This policy could reduce federal spending by $532 billion to nearly $1 trillion in the next ten years. Supporters argue that a per capita cap can provide lower and more predictable federal costs over time. However, it would also transfer new economic risks to the states. Many states would be pressured to reduce benefits and eligibility. This would likely result in increased numbers of uninsured people, fewer benefits covered for future enrollees, and reduced revenues for healthcare facilities. 

Despite nearly unanimous Republican congressional support, public opposition is strong. A recent poll from Hart Research found that 71% of Trump voters oppose the Medicaid cuts. Even some Republican lawmakers, such as Senator Josh Hawley of Missouri, have asserted their apprehension by filing amendments to prevent Medicaid reductions. As the budget process progresses, Medicaid’s future remains uncertain. Given the widespread reliance on Medicaid for essential healthcare needs, especially in rural communities, any changes to the program could have sweeping consequences for individuals, families, and the healthcare system as a whole.

Over the last decade, private equity (PE) investment in healthcare has surged, impacting everything from small, private physician practices to major hospital systems. In fact, PE buyouts of physician practices increased by six times from 2012 to 2021. PE’s business model is designed for swift financial returns, with major profits only realized upon sale, which usually happens within five to eight years. This model has sparked debate over its seeming incompatibility with healthcare’s mission to prioritize patient welfare.

PE firms use funds from investors to acquire equity stakes in target companies, which they work with to make “more valuable” and later sell at a profit. The firms use substantial debt to finance their acquisitions. This debt is then placed on the balance sheet of the acquired entity. Next, they look for ways to cut costs rapidly in preparation for a profitable sale. This places pressure on PE firms to prioritize profit margins over long-term stability, even if this means the target entity struggles or goes bankrupt after the firm leaves. This model has substantial repercussions for patient safety and quality of care. A 2023 study published in JAMA by researchers from Harvard Medical School and the University of Chicago found a 25% increase in adverse events in PE-acquired hospitals as compared to non-acquired hospitals. These adverse events included situations such as staffing levels and inconsistent patient safety protocols. 

Regulatory bodies at the state and federal levels have begun paying attention and are addressing the issue.  A rising number of states have enacted or proposed “mini-HSR” laws—modeled after the federal Hart-Scott-Rodino Act, focusing on any transactions that could lead to the consolidation of healthcare markets. As of today, only Indiana has enacted a law that expressly mentions PE transactions in healthcare. Under Indiana’s mini-HSR Act, effective on July 1, 2024, a transaction involving a PE partnership and a healthcare entity is likely to undergo regulatory review. In comparison, Washington’s mini-HSR Act may require a hospital system owned by a PE firm to ascertain the healthcare assets of other portfolio companies of the same firm. States like California and Massachusetts have proposed similar laws. California’s much-watched Assembly Bill 3129 (AB 3129), would have required a 90-day notice to the Attorney General before concluding any transactions involving PE and healthcare facilities. However, on September 30, 2024, Governor Newsome vetoed this bill, due to its overlap with the Office of Health Care Affordability (OHCA) which already oversees healthcare transactions and can collaborate with the Attorney General if needed. This veto signals a significant win for PE and healthcare stakeholders.

The federal government has also turned its attention to PE’s role in healthcare. The Health Over Wealth Act, introduced by Senator Ed Markey (D-MA) and Representative Pramila Jayapal (D-WA), aims to increase transparency by requiring PE-owned healthcare providers and for-profit healthcare companies to publicly report financial and operational data, including their debt, profits, and any reduction in services or worker benefits as a result of the acquisition. These initiatives come on the coattails of The Corporate Crimes Against Health Care Act of 2024 put forth by Senators Ed Markey (D-MA) and Elizabeth Warren (D-MA). This Act seeks to advance new civil and criminal penalties for for-profit healthcare investors who are found responsible for initiating conditions that result in patient harm. 

While PE firms argue they provide proficiency and innovation, studies indicate that these advantages may come at the expense of patient care and accessibility and critics have likened the spread of this detrimental model to a “metastasizing disease.” The question remains: how can we balance the need for investment in efficient healthcare delivery models while maintaining patient health and positive outcomes as a priority? The introduction of state and federal regulations signals a step toward addressing this question. However, with Republican control of both the House and Senate beginning in 2025, restrictive legislation aimed at PE firms may face some considerable setbacks. Nevertheless, the debate over PE in healthcare is far from over and the healthcare industry’s profound transformation under this model will be something to keep an eye on.