In the battle over healthcare costs, private equity plays both sides

Insurance companies have long accused privately owned hospitals and medical associations of exorbitant billing that drives up healthcare costs. But a private equity-backed tool is helping insurers make billions of dollars and shift costs to patients.

The tool, Data iSight, is the flagship offering of a cost-containment company called MultiPlan that has attracted continued private equity investment since it positioned itself as a central player in the lucrative field of medical payments. Today Hellman & Friedman, the California-based private equity giant, and the Saudi Arabian government's sovereign wealth fund are among the company's largest investors.

The evolution of Data iSight, which recommends the amount to pay for each medical bill, is an untold chapter in the story of private equity's influence on American healthcare.

A New York Times investigation into insurers' relationship with MultiPlan found that tackling predatory billing is just one aspect of the collaboration. The low payments have burdened patients with unexpectedly high bills, cut the salaries of doctors and other medical professionals, and left employers who fund health plans with high, often unexpected fees, all while making the biggest companies a lot of money of health insurance in the country.

Often, when someone gets insurance through an employer and sees a doctor outside the plan's network, the insurer forwards the bill to MultiPlan to recommend an amount to pay. Both MultiPlan and the insurer receive processing fees from the employer, usually based on the size of the final payment: the smaller the payment, the higher the fees.

This business model has made Data iSight a cash cow. Of the few tools MultiPlan offers insurers, Data iSight consistently provides the most frugal recommendations, typically earning the highest commissions.

MultiPlan, which has been listed on the stock exchange since 2020, did not respond to detailed questions about Data iSight. A statement released by an outside public relations firm said MultiPlan's payment recommendations were fair and “widely accepted.” He said the company is “committed to reducing out-of-network costs,” including by using “data-driven tools to determine fair reimbursements.”

Concern about private equity investments in medical practices has grown in recent years as practices have documented rising bills. Insurers and MultiPlan say Data iSight is a necessary counterweight.

Caught between these financial interests are patients, who are mostly in the dark. If they come across the name Data iSight, it's usually written in small print on thick documentation. Those who complained said they got little more than assurances that the calculations were rigorous and fair.

For Mary Lavigne, who suffers from chronic pain, visits to the chiropractor near Irvine, California, have nearly doubled her costs. Nadia Salim's treatment appointments in the Boston area have also become nearly double as expensive. And Andrew Faehnle was on the hook for more than two-thirds of the ambulance bill after his 14-year-old was rushed to an emergency room in Anaheim, California. In any case, the insurance statements cited Data iSight.

“I thought, 'Who the hell are these people?'” Mr. Faehnle said. “I started Googling: 'What is Data iSight?'”

MultiPlan's business model is based on simple mathematical calculations: Take the amount your doctor charges, subtract MultiPlan's recommended payment, and you get what the company identifies as a savings or discount. Typically, MultiPlan and the insurer each collect a percentage of the declared savings as a processing fee.

This arrangement helps insurers profit from the most common way Americans get health coverage: through an employer who pays medical claims out of its own money, using an insurer only as an administrator. By using MultiPlan, insurers cut medical costs, then charge employers to do it.

For decades, MultiPlan has determined payments primarily through negotiations. The discounts were modest but included an agreement not to collect more from patients.

After MultiPlan founder Donald Rubin sold it in 2006, the company's new private equity owners began a movement toward automated pricing that executives would later call “MultiPlan 2.0.”

In 2010, it bought Viant, an Illinois-based company that used algorithms to recommend refunds. But for some types of care, Viant's calculations used a database of billed amounts. Therefore, if healthcare providers charged more over time, recommended payments would likely increase as well.

A small company in Grapevine, Texas, had developed an alternative strategy. Rather than start with a bill and negotiate it, Tom Galas, a former insurance executive, wanted to calculate the cost of care and negotiate it.

Mr. Galas bought an analytics company called Data Advantage in 2005 and assigned a team to his company, National Care Network, to realize his vision. The result was Data iSight.

It relied on data submitted by medical facilities to the federal government and on techniques developed by Medicare to estimate the costs of care. So he threw in some extra money, intended to allow for a fair profit. The goal was to save insurers and employers money without paying so little that providers would sue them or pursue patients for the balance.

In 2011, Mr. Galas sold to MultiPlan.

“The industry was condensing,” he said. “The timing felt right.”

While he considered Data iSight revolutionary, he said, even he didn't predict what it would become.

Executives from the country's largest insurers gathered in Laguna Beach, California, in 2019 and listened to Dale White, executive vice president of MultiPlan.

He presented a slide showing the cover of a self-help book, “Life Is Magic,” which had been digitally altered to show Mr. White’s face and read “MultiPlan Is Magic.” The slide added: “We have some things up our sleeves too.”

The company's annual revenues had reached about $1 billion, and three groups of private equity investors had cashed in on it. After purchasing MultiPlan for just over $3 billion in 2010 from the Carlyle Group, BC Partners and Silver Lake firms sold it for $4.4 billion. in 2014 to Starr Investment Holdings and Partners Group, which sold it two years later to Hellman & Friedman for a reported $7.5 billion.

Hellman & Friedman, which owned the company when it went public in 2020, declined to comment.

Fueling the growth was Data iSight. According to a 2020 investor presentation, annual revenues brought in to MultiPlan grew from $23 million in 2012 to more than $323 million in 2019. The following year, CEO Mark Tabak told investors that Data iSight was MultiPlan's main source of revenue among its largest insurance clients.

While the company continued to offer other tools, it pitched Data iSight as an “industry-leading” and “cutting-edge” way to “maximize savings.”

For insurers, the tool came with tradeoffs: lower payments but potentially more patient complaints. They knocked him out gradually. The nation's largest insurer by revenue, UnitedHealthcare, began using it in 2016 for certain plans and treatments, documents show.

As Data iSight became widespread, patients, doctors and healthcare facilities began receiving unwelcome surprises. Some practices that had negotiated contracts with MultiPlan found they were no longer receiving the agreed-upon rate and patients were no longer protected from high bills.

Brett Lockhart underwent spinal surgery at a facility near Cocoa, Florida that had a negotiated rate with MultiPlan. When his insurer used Data iSight, he found himself on the hook for nearly $300,000. The invoice is the subject of dispute and remains unpaid.

There was more behind MultiPlan's growth than just an increase in the number of claims. The average fee per claim also increased, executives told investors.

In a presentation shortly before becoming a publicly traded company in 2020, MultiPlan emphasized that its tools were “scalable”: Reducing payouts by just half a percentage point could yield an additional $10 million in profits, the company said.

After MultiPlan missed its 2022 revenue target, White, who had become CEO, assured investors that the company had an “action plan” that included “aggressively rolling out new initiatives with our customers to help them cope with the acceleration of healthcare.” costs.”

A change to Data iSight's methodology, he said, is expected to produce an additional $6 million in revenue.

MultiPlan told investors it plans further “enhancements” to the tools, including the use of artificial intelligence.

As patients and providers have demanded an explanation for payment denials, MultiPlan has fought to keep details about Data iSight confidential, arguing in lawsuits that the information is proprietary.

Interviews and documents, some obtained after the Times filed a petition in federal courts, offer some insights.

Data iSight begins by using Medicare pricing methods. But subsequent calculations are less transparent. MultiPlan says it applies multipliers that allow for a fair profit for hospitals and something close to a fair market rate for doctors. The documents show that MultiPlan allows insurers to cap prices and set what they consider fair profit margins for medical facilities.

MultiPlan launched Data iSight as an alternative to simply paying premium Medicare rates, an option offered by some insurers. Paying about 120% of the government-set rate “seems fair, perhaps even generous,” a MultiPlan document says, but this is “inherently misleading” because “the average consumer doesn't understand how low Medicare rates are.”

Interviews and documents, however, indicate that Data iSight's recommended prices are sometimes around 160-260% of Medicare rates — amounts that former MultiPlan employees have described as “ridiculously low” and “insanely low.”

Even fees that may seem reasonable can put a strain on medical practices. For example, UnitedHealthcare, citing Data iSight, offered Dr. Darius Kohan approximately 350% of the Medicare rate for surgery to repair a patient's eardrum. It amounted to $3,855.36.

Dr. Kohan, who has a small practice in Manhattan, said the meager payments are forcing him to consider joining a large hospital system or a private equity-backed group.

“I'm a dinosaur, but my patients like it that way,” he said. “I may not be able to support it.”

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