(Bloomberg) -- A group of investors is putting up $165 million to fuel an expansion of Paladina Health, bringing a recent surge of private funds flowing into companies that run primary-care clinics to more than a half-billion dollars.
The venture capital firm New Enterprise Associates is leading the investment after acquiring Paladina for a reported $100 million earlier this year from dialysis provider DaVita Inc. Paladina, which runs medical clinics for employers, plans to use the money to build new clinics and acquire other firms.
Operators like Paladina promise companies a way to gain control over their health-insurance costs, while providing better, more convenient care for their workers. Employers are increasingly involving themselves more deeply in the health-care system to rein in spending, after efforts to cut costs through high-deductible plans and other changes fell short.
“Employers are under incredible pressure from a cost basis,” said Scott Shreeve, chief executive officer of Crossover Health, another operator of workplace clinics. “They’re starting to realize that this is the last part of their supply chain that they really don’t manage.”
Investors are focusing on primary care for its potential to help limit costs and restructure care in other parts of the $3.5 trillion U.S. health system. Primary-care physicians, who are among the cheapest doctors to employ, can play a big role in helping patients navigate the system, reducing the need for costly tests, specialist visits and hospital stays. Insurers and the U.S. government are increasingly striking deals where the care providers get to keep some of those savings for themselves, a potentially lucrative arrangement.
“There’s a lot of momentum behind providing value-based care,” said Chris Miller, Paladina’s CEO. “Everyone is seeing health-care costs rise dramatically.”
Other private investors have also recently put large sums into workplace clinics. The private-equity firm Carlyle Group LP is investing up to $350 million in One Medical, which is also working to sign up employer clients for its clinics. Iora Health, which operates primary-care sites for elderly patients in the U.S. Medicare program, raised $100 million earlier this year.
About 33 percent of companies with more than 5,000 employees offer clinics on or near their work sites, up from 24 percent five years ago, according to an annual survey conducted by the consulting firm Mercer.
Companies like Paladina and One Medical promise savings from keeping workers healthy and out of the hospital, and by providing them with quick access to medical care without the need for a visit to an urgent-care clinic or emergency room. Denver-based Paladina says its doctors can help guide patients, making sure they see specialists who provide care at a low cost.
“Our primary-care physicians become the quarterback of care,” Miller said. “We can save patients money by doing things that cost a lot less.”
The bets on transforming health care extend beyond the clinic investments. CVS Health Corp. is acquiring the health insurer Aetna Inc., wagering that the combined firm can improve care for customers by turning CVS stores into health hubs. UnitedHealth Group Inc.’s OptumCare unit has been on a doctor-buying spree, building a collection of at least 30,000 doctors, including a $4.9 billion deal to acquire physician groups from DaVita.
Meanwhile, companies like Walmart Inc. and General Motors Co. are striking deals directly with health systems to care for their workers. Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. hired the surgeon and journalist Atul Gawande to lead a joint venture that’s aiming to improve care and lower costs for their workers.
“Employers are trying to be good stewards of their health-care spending and get the most value they can,” said Mercer’s Jeff Dobro, who consults with employers on how to work with hospitals and other health-care providers. “They’re like, Why have we been asleep at the wheel for so many decades?”
Health-care investors including Oak HC/FT, Alta Partners, and Greenspring Associates are also investing in Paladina, according to a statement.
Paladina will use its new funds to expand into additional markets and may buy some similar companies in the next several months, Miller said. The company now has 53 clinics in 10 states. Over time, Paladina will consider caring for Medicare patients as well, Miller said.
A recent study from RAND provides some support for the workplace-clinic strategy. Researchers found that opening health clinics in schools was associated with lower health costs and hospital visits among teachers who used them.
Amir Dan Rubin, CEO of One Medical, said his company will use the Carlyle funds to more than double the number of clinics it operates, from 72 currently. The company operates in eight cities, and plans to expand to more locations as it seeks to sign up more employers, he said. In July, One Medical announced plans to enter San Diego next year.
Carlyle is investing roughly $220 million into One Medical, and will purchase about $130 million of shares from existing investors, Rubin said. Before the Carlyle investment, One Medical had raised about $180 million. Rubin declined to provide the current valuation.
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