The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference is authored by our colleagues Scott Becker and Timothy Fry.

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State and Federal Policy Changes Impacting Healthcare Markets – Six Key Points

By: Scott Becker & Timothy Fry

Federal and state policymakers could impact healthcare investment markets in the coming year, particularly as more policymakers learn about private equity investment in the healthcare space, according to experts who spoke on a panel at the 17th Annual Healthcare and Life Sciences Private Equity and Finance Conference on February 20 in Chicago.

Experts included Governor James Hodges, President – State Government Relations, McGuireWoods Consulting LLC, Stephanie Kennan, Senior Vice President – Government Relations, McGuireWoods Consulting LLC, Thomas Londrigan, Sr. Vice President & Director, McGuireWoods Consulting LLC, Rick Kes, Partner, RSM and Scott Becker, Partner, McGuireWoods LLP.

Here are six key points from the panel discussion:

1. Surprise billing initiatives could enhance scrutiny of private equity investment in healthcare companies. Washington policymakers would like to end surprise out-of-network bills from hospital specialists. This initiative has introduced some elected representatives and their staff to the healthcare private equity model. Not all have viewed this investment favorably, as key interest groups have made their negative views known to both sides of the aisle. As such, investors should be aware that future efforts to curb surprise billing may also impact private equity investment, with at least one bill (H.R. 5825) introduced to target certain healthcare investors.

2. Significant voter interest remains in healthcare reforms, but the panel experts found it difficult to see pathways for significant federal change. Voters consistently cite healthcare as their top concern, and leading Democratic candidates at all levels are focusing their 2020 campaign messages on healthcare, like during the 2018 midterm election. That said, panelists were skeptical that proposals like Medicare-for-All could be enacted. Panelists even questioned whether reforms with bipartisan appeal, like prescription drug pricing efforts, could succeed in Washington’s current polarized environment.

3. Instead, panelists predicted that the courts will drive federal healthcare policy in 2020. Panelists discussed pending cases, including a third constitutional challenge to the Affordable Care Act, which is set for oral argument before the Supreme Court this fall. Even Medicare reimbursement issues may see more judicial action than congressional focus, as CMS is tied up in multiple site neutrality disputes/appeals that challengers have brought, and thus far won, against the agency.

4. Telemedicine investments may finally be boosted by policy headwinds. The panel experts agreed that policymakers increasingly view telehealth and telemedicine initiatives positively. Many states have enacted statutes addressing telehealth reimbursement. It appears that state legislators and CMS regulators now believe that such care can be high quality and cost effective after witnessing the success of initiatives like hospital remote monitoring efforts. Since the panel, the COVID-19 pandemic has led to additional telemedicine changes in federal law. All told, investors could use such policy changes to build telehealth platforms.

5. State diversification is one way for investors to mitigate policy risk. Business considerations often necessitate expanding operations beyond a core state of operations. Panelists suggested state policy may be another factor. For example, Illinois has had its share of budget challenges, which have resulted in delays of Medicaid payments to providers. A state-diversified platform is likely better positioned than a platform located only in Illinois to withstand cash flow challenges arising from these delays. Further, as states explore policies like benchmarking Medicaid to reduce costs, or adding beneficiary work requirements, provider platforms that are reliant on Medicaid reimbursement should consider expanding their businesses to other states. Expansion into other states may also have the added benefit of diversifying the platform’s participation in commercial third party payor networks.

6. Investors should consider adding a political strategy to their healthcare platforms. As noted above, private equity investors are facing enhanced scrutiny. Conversations with policymakers could help change the narrative if private equity is able to reach these policymakers before their views are set. Forming such relationships can also be critical when a platform is reliant on government contracts or is seeking state licensure or certificate of need approvals. While most investors may rely on overall industry conditions, certain investors may need to focus on specific initiatives to protect and grow their businesses.

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Note, since the panel, the scope of the COVID-19 pandemic has grown more significant and acute. Our panel likely would focus more on this topic if held today.