CalPERS, Private Equity Fund Partner on Health Investments
David Brailer, a former Bush administration official, on Monday announced the creation of a private equity fund that will partner with CalPERS to invest as much as $700 million in health care businesses, the San Francisco Chronicle reports.
CalPERS is the nation's third-largest purchaser of health insurance, with a budget of $5 billion for health care costs in 2007 (Colliver, San Francisco Chronicle, 6/5).
CalPERS will provide the fund, called Health Evolution Partners, with up to $500 million for direct investments and another $200 million for health care-oriented private equity investment funds (Chan, Sacramento Bee, 6/5).
As the national coordinator for health information technology under the Bush administration until May 2006, Brailer, a physician and economist, focused on the adoption of electronic health records. However, Brailer said the fund will not invest in EHRs, which he called a "saturated market."
Instead, the fund will invest in other businesses that are working to "reduce the crushing costs of health care" by developing innovative products that assist with remote patient monitoring, chronic disease management, telemedicine, predictive genomics to tailor drug doses and Internet marketplaces for services like reading chest X-rays, Brailer said.
Brailer said that the fund primarily will "invest in things that keep people out of institutions."
The New York Times reports that the "challenge to that investment strategy is that payment in America's health care system is typically on a fee-for-service basis" that gives providers incentives to order "more tests, more surgeries [and] more pills."
Brailer said that the fund is the start of a 10-year strategy that assumes the U.S. health care system and its incentives are beginning to change in favor of long-term, cost-cutting strategies. CalPERS will invest in the fund exclusively for one year, after which other investors may participate (Lohr, New York Times, 6/5).
CalPERS spokesperson Patricia Macht said, "Our focus is to turbo-charge a portion of our investment portfolio and identify companies for investment that will create products and services that have the effect of reducing the cost of health care" (San Francisco Chronicle, 6/5).
CalPERS CEO Fred Buenrostro said, "Billions of investment dollars are already in the health care market, but what's missing is the focused investment of those dollars to specifically address the needs of purchasers and consumers." Buenrostro said, "We plan to be a catalyst for companies to come up with new solutions to the health care crisis." CalPERS, which has a $250 billion investment portfolio, has been experiencing double-digit annual increases in health insurance costs.
Kaiser Family Foundation Vice President Larry Levitt said that the health care industry is "ripe for innovation" because the U.S. has "used better technology to treat illnesses, but we've never harnessed technology to make the system efficient."
William Custer, a business professor and director of the Center for Health Services Research at Georgia State University, said that CalPERS should be praised for investing in socially-beneficial innovations but added that returns might not meet investors' expectations. "Some wells are going to be dry, but, hopefully, [Brailer will] hit enough gushers to make it worthwhile," Custer said (Lifsher, Los Angeles Times, 6/5).
Peter Lee, CEO of the Pacific Business Group on Health, said that the fund was a "breakthrough investment" that "can be a market shaper," adding that it was "an incredible coup to have landed David Brailer to run this program" (Sacramento Bee, 6/5).