The impact of changing payment models on private equity investments in health care was the topic explored at a February 10 event co-hosted in New York by Duane Morris and Parthenon-EY. Speakers at the program were Rachel Kaprielian, regional director, New England, U.S. Department of Health & Human Services; Lisa Clark, partner, Duane Morris; and from the private equity sector David Terry, founder and CEO, Archway Health; and David Caluori, principal, General Atlantic. The moderator was Jeff Woods, managing director and co-head of health care, Parthenon-EY.

Private equity investors see many opportunities to improve health care delivery through payment reforms being driven by the Centers for Medicare and Medicaid Services (CMS). CMS’ August 2011 launch of a bundled-payment initiative created a model for encouraging specialists to manage care and be held accountable for results. “When Medicare leads, you can bet everybody else is paying attention,” she said.

HHS is embracing value-based payments in part because of the success Accountable Care Organizations (ACOs) have had in improving the quality of care while lowering costs. Private equity firms are pursuing investments in entities that drive those changes, including ACO and bundled-payment models.

“There’s a ton of opportunity to do that better, and to make money,” Archway’s David Terry said.

The complexity of structuring risk-sharing deals was another key theme that emerged from the discussion. Providers must craft their ACO and bundled payment contracts carefully, advised Duane Morris’ Lisa Clark.

An ACO contract requires providers to calculate the risk level they are comfortable with, but it also must take into account such factors as exclusivity and market share. That complexity, Clark noted, is why contracts can take two to three months longer than projected to finalize. Payment reform is a source of anxiety and trepidation for many providers as well as their private equity investors. But for those who have guidance from financial and legal experts in value-based care, the new models represent a unique and lucrative opportunity for them to manage the health care premium dollar. Private equity investors have opportunities to invest in the companies helping providers navigate new payment models or the health care services companies poised to capitalize on those models.