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Profits and Pain: Backed by D.C. power players and private equity, a healthcare provider is under scrutiny for failing fragile seniors

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By Eleanor Laise

Julia Gutierrez spent her final weeks in pain. Last year, the 78-year-old Arvada, Colo., assisted-living resident suffered a serious skin breakdown. When she got to the hospital, she was found to have severe dehydration and sepsis, and a portion of her bowel had failed, says Gutierrez’s daughter Sylvia Torralba. Gutierrez was put on hospice care and died at her daughter’s home less than two weeks later.

Torralba says Gutierrez’s care fell far short of what was promised by her healthcare provider, InnovAge Holding /zigman2/quotes/208648373/composite INNV +5.65% . The Denver-based company is the largest player in the Program of All-Inclusive Care for the Elderly (PACE), a Medicare- and Medicaid-funded service designed to cover all the healthcare needs of some of the most frail, high-cost and medically complex seniors—and keep them out of nursing homes.  

“InnovAge should have been aware and monitoring mom and known about her overall condition,” says Torralba. “I was constantly keeping up on them just to get them to do their job,” she says. “The hardest part was getting someone to talk to me.”

Torralba also holds accountable the assisted-living facility to which InnovAge referred her mother. The InnovAge promise of all-inclusive care, Torralba says, turned out to be “all-inclusive neglect.”

Backed by private equity, InnovAge has more than doubled its enrollment over the past five years while snaring Washington-connected directors, including scions of the Bush and Kennedy families and two former top Medicare officials. On Wall Street, the company raised roughly $374 million in a March initial public offering.  

But vulnerable seniors have been brushed aside as InnovAge prioritized financial growth in recent years, people who have worked for the company say. Despite the cash and well-heeled connections, many InnovAge participants have had long waits for medical appointments, little access to specialists, and poor coordination of transportation, medication delivery and other services that the company is supposed to provide, according to former employees, patient advocates, and regulators. InnovAge pursued a plan to expand nationally while “denying [patients] access to thousands of medically necessary services,” according to a 2019 whistleblower complaint filed against the company by a former InnovAge employee. The federal government didn’t intervene in the case, and the former employee dropped the suit last year. The company’s growth also sits uneasily with some PACE experts and even the organization’s founders, who started InnovAge as a non-profit.  

Now, the company is attracting attention from federal and state regulators. The Centers for Medicare and Medicaid Services in September suspended enrollment of Medicare beneficiaries at InnovAge’s Sacramento location, citing failure to provide participants with medically necessary services. In Colorado, the company has recently been audited by two state agencies as well as CMS, and the state attorney general in July sent the company a civil investigative demand for information regarding patient services, referrals and Medicaid billing. 

The scrutiny of InnovAge comes at a critical time for America’s seniors and the roughly $430 billion long-term care industry that serves them. Now that the pandemic has killed more than 186,000 people in U.S. long-term care facilities , patient advocates, lawmakers and some industry groups are pushing to dramatically expand home and community-based services such as PACE, which accounts for virtually all of InnovAge’s revenue. This year, Medicare and Medicaid PACE spending will total roughly $5.2 billion, the National PACE Association estimates. That’s more than $94,000 per participant. 

InnovAge’s evolution from humble nonprofit to Wall Street growth story also underscores how the revolving door between Washington D.C. and the private sector can generate wealth for the well-connected and have profound implications for health policy and the public interest. Among InnovAge’s many friends inside the beltway is Tom Scully, a former CMS administrator, InnovAge board member, and general partner at Welsh, Carson, Anderson & Stowe, a New York City-based private equity firm and major InnovAge shareholder. Scully has shepherded InnovAge through its conversion to a for-profit corporation and its expansion across the country, largely through acquisitions of existing non-profit PACE programs, as Welsh Carson extracted dividends.

Scully says that InnovAge has tapped Wall Street to fuel a business that is helping people who are better off maintaining a degree of independence. “The whole concept is keeping people out of a nursing home” by providing great care, he says. InnovAge participants have fewer hospital admissions and low-to-medium severity emergency-room visits than a comparable group of traditional Medicare beneficiaries, according to company securities filings. Scully says that laws prevent InnovAge from commenting on individual participants like Gutierrez, but adds that InnovAge has care management plans for all participants.

Despite some service problems, the number of people dropping out of the program is “incredibly low,” he says. “PACE is a wonderful thing” that should be available to many more seniors, he says. “I’m all about trying to make it bigger.” 

***

Tom Scully was roaming the halls of San Francisco’s Westin St. Francis Hotel in 2013 when he bumped into a friend who was having coffee with Maureen Hewitt, the CEO of InnovAge. At that chance meeting amid the hubbub of a healthcare conference, Scully recalls, Hewitt told him that she needed capital to expand her business offering comprehensive medical care to frail seniors through taxpayer-funded programs. Scully, who specialized in making healthcare investments at private equity firm Welsh Carson, told Hewitt he would love to work with her.  

Scully and Hewitt, however, had a problem. PACE providers generally had to be nonprofit entities, and there was no way for Welsh Carson to invest in InnovAge. CMS had considered the potential for for-profit PACE programs and commissioned a 2013 study of a handful of pilot for-profit programs, which found some evidence they delivered lower-quality care than nonprofit providers, although the differences were often small. 

But as the top Medicare and Medicaid official under President George W. Bush, Scully was known for his work on Medicare’s Part D prescription-drug benefit and Medicare Advantage, two programs that gave the private sector a major role in providing coverage for seniors. Scully, together with other former top officials at CMS, became instrumental in unleashing the private sector in PACE—and Scully’s firm would be among the first in line to profit from it. 

Shortly after he met Hewitt, Scully says he contacted CMS and asked the agency to look at the question of permitting for-profit providers in PACE–an issue that wasn’t getting much government attention, he says. Marilyn Tavenner, whom Scully describes as “a good friend,” was then the CMS administrator and would later join the InnovAge board. By May 2015, a few months after Tavenner stepped down from her government position, CMS lifted the restriction on for-profit PACE providers. Andy Slavitt, who was acting CMS administrator at the time, also became involved with for-profit PACE after he left the government. Slavitt’s venture-capital firm, Town Hall Ventures, became an investor in the PACE provider WelbeHealth. 

Slavitt says the PACE program was not spreading quickly under nonprofit operators. Activating different pools of capital that could help keep seniors out of nursing homes “felt like a smart thing to do,” says Slavitt, who also went on to serve as senior COVID advisor to President Joe Biden. “The reality is that nursing home operations are pretty worrying from a quality standpoint, and we have to keep trying new things and have to police it well,” Slavitt says.

Tavenner didn’t respond to requests for comment.

Scully went on to personally negotiate InnovAge’s 2016 conversion from nonprofit to for-profit status with the Colorado attorney general’s office, he says. As part of the deal, a Welsh Carson fund acquired InnovAge, and the proceeds went to a new, independent nonprofit foundation focused on the aging population. To address concerns raised by public commenters that patient care would suffer under for-profit ownership, the Colorado attorney general imposed some monitoring requirements. But some of those safeguards fell by the wayside. An independent organization, for example, was supposed to assess for-profit PACE, using InnovAge as a case study, three years after the conversion. Asked for the results of the study, Scully said it never happened. It was the Colorado Department of Health Care Policy and Financing’s responsibility to get the study done, he says. Department spokesman Marc Williams said the agency is not responsible for the study.  

Among those with misgivings about the for-profit conversion were the geriatricians involved in the late 1980s formation of the non-profit organization that became InnovAge. In the organization’s early days, “I remember saying, ‘if we don’t accomplish our mission, I don’t give a damn if we’re profitable or not,’” says Dr. Alan Lazaroff, founder of the nonprofit PACE provider Total Longterm Care, which later became InnovAge.

Lazaroff thought the not-for-profit structure was best suited for InnovAge and the PACE program broadly because they serve uniquely vulnerable participants. PACE participants must be 55 or older and need a nursing-home level of care. They have about six chronic conditions, on average, nearly half have dementia, and the vast majority are eligible for both Medicare and Medicaid. Many participants can’t effectively advocate for themselves, and they depend entirely on the program provider for all healthcare services. If participants leave the program, there’s a good chance they’ll be placed in a nursing home. 

Medicare and Medicaid pay PACE providers fixed monthly per-participant rates in exchange for covering all of their participants’ healthcare needs—and “you can make a lot of money, if you don’t spend any” on patient care, says Lazaroff. “That’s why it was set up to be nonprofit in the first place.”

Lazaroff’s approach clashed with the vision being pushed by Hewitt, who became InnovAge’s CEO in 2006 and wanted to build a highly successful business, according to Lazaroff and Dr. Willie Orr, another geriatrician involved with the organization’s beginnings. “She’d make comments such as, ‘why do we only take care of poor people?’” says Orr, who noted that PACE largely serves lower-income seniors. Lazaroff and Orr say that Hewitt pushed them out of the organization shortly after she became CEO. “She worked to get rid of people who had a long-term history with the organization and were going to compete with her, in her mind, for authority and prestige,” Orr says.

/zigman2/quotes/208648373/composite
US : U.S.: Nasdaq
$ 4.86
+0.26 +5.65%
Volume: 71,875
Jan. 20, 2022 11:32a
P/E Ratio
47.60
Dividend Yield
N/A
Market Cap
$623.38 million
Rev. per Employee
$365,725
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