Blackstone, KKR hidden hands in ad blitz unleashes Washington fury

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Confronted with the rare prospect of defeat on Capitol Hill, private equity titans Blackstone Group Inc. and KKR & Co. unleashed a national advertising blitz last year against legislation that threatened their investments in health-care companies valued at $16 billion.

The $53.8 million campaign sought to derail a crackdown on surprise medical billing, in which patients are unexpectedly hit with exorbitant charges, often following visits to emergency rooms. Television ads depicted patients in trauma being denied care and urged viewers to contact lawmakers, dozens of whom were identified by name.

The onslaught ended up generating a bi-partisan backlash, and a rebuke from President Donald Trump’s White House, in large part because Blackstone and KKR didn’t reveal that medical-staffing companies they owned were bankrolling the effort.

“It was a dumb strategy,” said Representative Greg Walden, the top Republican on the House Energy and Commerce Committee, which is investigating Blackstone and KKR’s investments in medical-staffing companies. “All it’s done is driven a bunch of us to double down. They would have been much better served to just come in and talk to us about their concerns.”

The furor comes at a time when private equity firms need allies in Washington. The industry is under attack from progressive Democrats, who accuse it of looting companies, putting Americans out of work and profiting from investments in unethical businesses. Among the chief adversaries is presidential candidate Elizabeth Warren, who has proposed making private-equity executives pay much higher taxes and tying their earnings to the success of companies they control.

Those involved in the influence campaign say it was necessary -- even if it did irk some lawmakers -- because Blackstone and KKR have so much at stake.

The bill they are fighting would effectively cap how much medical-staffing firms, which outsource doctors to hospitals, can charge patients. Blackstone completed an acquisition of TeamHealth in 2017, valuing the company at $6.1 billion. KKR bought Envision Healthcare, valued at $9.9 billion, a year later. Health-care policy analysts predict revenues would fall significantly if Congress capped the companies’ fees.

TeamHealth and Envision support competing legislation that would resolve payment disputes between medical providers and health-insurance companies through arbitration. They argue the cap would be a boon for insurers that would hurt patients by triggering doctor shortages.

“A very broad coalition of doctors, patients, and bi-partisan members of Congress -- not just TeamHealth -- believes that arbitration is the right approach to end surprise medical bills,” Blackstone spokesman Matthew Anderson said in a statement. “By contrast, the insurance-industry-backed bill for government rate setting has generated widespread opposition from many quarters given concerns it would harm the availability of high-quality patient care, which is the real reason it has failed to gain support.”

KKR’s Envision made similar points, saying in a statement that it “will continue advocating for an effective independent dispute resolution process that puts patients first.” KKR fully supports those efforts, Envision said.

TeamHealth and Envision funded the tsunami of ads. Opponents such as Walden, who backs the bill that TeamHealth and Envision are trying to kill, concede the campaign slowed momentum on Capitol Hill.

But the fight is far from over. In December, lawmakers tried to include a measure on surprise-medical billing in year-end legislation funding the federal government but couldn’t work out their differences. Key negotiators in the House and Senate have now set a deadline of May 2020 to strike a deal, at which point they intend to include a proposal in negotiations to extend funding for expiring health-care programs.

TeamHealth and Envision influenced the debate via a front group called Doctor Patient Unity. One ominous ad showed an ambulance arriving at a hospital with a dark and empty emergency room -- all because of “government rate setting.”

“The ads are disgusting and are only meant to take advantage of vulnerable Americans,” White House domestic policy adviser Joe Grogan, a former pharmaceutical industry lobbyist, said in a statement. “The administration remains undeterred as we meet with members of both parties to find a bi-partisan solution to end crushing surprise medical bills.”

Calls from anxious voters flooded the offices of House and Senate members after the ads began to run. Once lawmakers started probing, they found out that Blackstone and KKR controlled the companies behind them. No advocacy group spent more than Doctor Patient Unity on a single issue in 2019, according to Advertising Analytics, which tracks political ads.

“They’ve made a lot of enemies,” Senator Jeanne Shaheen, a New Hampshire Democrat, said in an interview. “They deliberately misled the American public.”

Surprise medical billing has long been controversial. It happens when patients don’t realize that all the doctors who treat them during a hospital visit aren’t covered by their insurance.

One proposal that was gaining traction last year would restrict out-of-network medical providers from billing patients the full amount for services. Instead, medical bills would be based on the median rates paid to in-network providers, likely hurting TeamHealth and Envision’s profits.

With the debate heating up on Capitol Hill, Doctor Patient Unity started blanketing airwaves in July. Its biggest ad buys have been in states where lawmakers face tough re-elections this year, including North Carolina, Georgia, Colorado and Minnesota. Running the campaign is Narrative Strategies, a Washington-based communications and advocacy firm.

Greg Blair, a spokesman for Doctor Patient Unity at Narrative Strategies, said the group had to step up to counteract insurers, which have spent almost $50 million to lobby for legislation that would have “severely harmed patients.”

“As the insurance industry pressed lawmakers to rush their legislation through Congress, our coalition worked to educate voters about the harmful consequences of rate setting,” Greg Blair said in a statement.

At the Minnesota State Fair in August, Democratic Senator Tina Smith said voters flooded her booth to share how “completely confused” they were by Doctor Patient Unity’s campaign.

Smith added that the group’s ads sent mixed messages. She felt targeted by an early version even though she was co-sponsoring the bill that TeamHealth and Envision supported. Then, with no disclosure of who was funding the ads, Doctor Patient began airing new ones thanking Smith.

“You ought to at least have the guts to say who you are,” she said.

The fight is erupting as Trump seeks re-election. Private-equity executives say privately that they expect to be wearing a bullseye in 2020, with critics shining a spotlight on policy wins the industry secured during his first term.

House Financial Services Committee Chairwoman Maxine Waters has already said she plans to hold a hearing early this year featuring executives from top firms. Meanwhile, progressive groups such as Americans for Financial Reform and United for Respect are funding anti-private equity campaigns.

The scrutiny won’t be helpful should Congress turn its attention back to surprise-medical billing, something the firms’ opponents on the issue have pledged to do.

“I’m going to do everything I can to keep surprise medical billing on the front burner,” retiring Republican Senator Lamar Alexander of Tennessee said in an interview. “It’s a bill that almost everyone wants passed except a handful of people, including private equity firms that benefit from it.”

Bloomberg News