Roll-Ups and Surprise Billing: Collisions at the Intersection of Private Equity and Patient Care

Trevor  Fetter; Kira  Seiger

Case | HBS Case Collection | November 2020

Roll-Ups and Surprise Billing: Collisions at the Intersection of Private Equity and Patient Care

Abstract

This case describes the increasing investment by private equity (PE) firms in patient care and other healthcare services. The case focuses on investments in physician staffing firms and roll-up strategy investments in physician practice management (PPM). Included in the case is discussion of the practice of surprise billing, i.e., when staffing firms and insurance companies fail to reach agreement on adequate reimbursement for physician services, resulting in patients’ being responsible for paying the entire bill. The case includes material on the debate over whether surprise billing is part of a deliberate strategy on the part of the staffing companies and their PE owners. The case also includes discussion of PE firms’ fiduciary duty to generate returns for their LPs and how that might affect the cost of care to patients and insurers.

Keywords: Business Ventures; Acquisition; Mergers and Acquisitions; Business Model; Change; Disruption; Fluctuation; Trends; Customers; Customer Value and Value Chain; Ethics; Fairness; Finance; Equity; Insurance; Private Equity; Geography; Geographic Scope; Health; Health Care and Treatment; Markets; Demand and Consumers; Supply and Industry; Industry Structures; Ownership; Ownership Type; Private Ownership; Relationships; Agency Theory; Business and Community Relations; Business and Shareholder Relations; Business and Stakeholder Relations; Networks; Strategy; Competition; Consolidation; Expansion; Integration; Horizontal Integration; Vertical Integration; Value; Value Creation; Health Industry; Insurance Industry; United States;

Language: English

Format: Print

25 pages

Educators

Citation:

Fetter, Trevor, and Kira Seiger. "Roll-Ups and Surprise Billing: Collisions at the Intersection of Private Equity and Patient Care." Harvard Business School Case 321-049, November 2020.

There are numerous restrictions against trading on material, nonpublic information (MNPI)—typically called “insider trading.” This note describes the limitations facing managers and investors as enforced civilly and criminally within the United States.

This case is designed to provide an engrossing overview of stakeholder capitalism through a vigorous discussion of the conflicts that can arise when trying to serve multiple stakeholders. In 2007, Johnson & Johnson’s (J&J) subsidiary Janssen has to decide whether or not to launch a new opioid painkiller—the first such launch in 25 years—amidst growing concerns about opioid abuse in the U.S. The (A) case starts with the history of human interaction with opioids, the most effective painkillers known, from the Sumarians through the innovation of controlled release opioids, lead by Purdue Pharma’s OxyContin. By the time J&J is ready to launch a new opioid, this innovation has lead to increased opioid addiction, complicating the launch decision. Benefits to customers are now murky, employees may no longer feel the company is living up to its Credo, and society as a whole may be harmed. The (B) case summarizes the fallout of the opioid crisis, and how J&J’s participation in that crisis has affected their brand, and society.

Case | HBS Case Collection | December 2019

The Leveraged Buyout of TXU: (B) Energy Future Holdings

Trevor Fetter, Erik Snowberg and Rebecca M. Henderson

This case is designed to support a lively discussion about the relative merits of shareholder vs. stakeholder perspectives in the context of a company that provides a vital public service that has important environmental implications. The 2007 purchase of TXU, the largest utility in Texas, was the largest leveraged buyout in history. Yet, within seven years TXU was bankrupt. TXU (A) examines the spectacular turnaround of TXU from 2004 through 2007, in which shareholders received a tenfold increase in the share price and the CEO was rewarded with nearly $280 million in compensation in four years. But other stakeholders objected to the company’s strategy of aggressive price increases and building new coal-fired power plants. Amidst growing pressure from regulators, elected officials, and consumer groups the board decided to sell the company to the private equity firms KKR and TPG. TXU (B) covers the period after the transaction and the reasons for the buy out’s failure, including its enormous financial leverage and a “one-way bet” on natural gas prices that exceeded the exposure of any of the world’s largest integrated energy companies.

Keywords: Leveraged Buyouts; Transformation; Insolvency and Bankruptcy; Environmental Sustainability; Business and Shareholder Relations; Business and Stakeholder Relations; Energy Generation; Utilities Industry; Energy Industry; Texas;

Citation:

Fetter, Trevor, Erik Snowberg, and Rebecca M. Henderson. "The Leveraged Buyout of TXU: (B) Energy Future Holdings." Harvard Business School Case 320-065, December 2019. View Details

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Roll-Ups and Surprise Billing: Collisions at the Intersection of Private Equity and Patient Care

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