On March 5, 2024, the Federal Trade Commission (FTC), the Department of Justice’s (DOJ) Antitrust Division, and the U.S. Department of Health and Human Services (HHS) (together, the agencies) hosted a public workshop, Private Capital, Public Impact: An FTC Workshop on Private Equity in Health Care, denouncing the purported “financialization” of health care markets. During the workshop, the agencies announced a cross-government inquiry into the impact of private equity investment and other forms of “corporate greed” in the health care sector. As part of the inquiry, the agencies jointly issued a request for information (RFI) seeking public comment on transactions in the health care sector involving private equity firms and other private corporate entities. Responses to the RFI are due by May 6, 2024.
Workshop on private equity in health care
During the virtual public workshop, speakers from the agencies touted enforcers’ recent enhanced scrutinization of private equity firms and their involvement in health care. The workshop featured remarks from agency officials as well as panels of economists, academics, and health care workers. Across the board, the speakers denounced private equity’s role in health care, leaving little room for discussion of the possible benefits – clinical and otherwise – of private capital investments in the health care market.
Officials from each participating agency discussed the agencies’ policy initiatives and enforcement priorities:
- Lina Khan, Chair of the FTC, spoke first, condemning allegedly negative outcomes for health care professionals and patients from what she deemed the “financialization” of health care resulting from private equity buyouts. Khan indicated that FTC enforcers will be focusing on “serial acquisition” or “roll-up” models that evade Hart-Scott-Rodino Antitrust Improvement Act (HSR Act) notification thresholds and related FTC review. She also denounced “flip and strip” approaches where firms abandon short-term investments, leaving them with few resources and large amounts of acquired debt. Khan stated that the FTC would use its enforcement power to investigate and challenge interlocking directorates (i.e., overlapping board membership between competing corporations) and unlawful ownership structures that could lead to anticompetitive outcomes. Finally, she cited the FTC’s ongoing case against Welsh Carson and U.S. Anesthesia Partners as an example of FTC enforcement in this sector and a harbinger of more to come.
- Jonathan Kanter, Assistant Attorney General of the Antitrust Division, stated that the DOJ similarly will focus its investigation and enforcement efforts on interlocking directorates, and will also explore whether private equity firms might violate state corporate practice of medicine laws in addition to the antitrust laws. Kanter pointed to the DOJ’s recent health care staffing prosecution that resulted in a guilty plea.
- Christi Grimm, Inspector General at HHS, detailed research efforts by HHS to explore access, quality, and cost of care in private equity-owned health care entities. Taking a more measured tone than some of the other speakers, Grimm noted that HHS’s oversight will prioritize monetary transparency and accountability to ensure that such entities are making effective use of government funds. HHS will focus particularly on nursing facilities, which have historically been a focus of oversight with respect to potential private investment.
- Jonathan Blum, Principal Deputy Administrator of Centers for Medicare & Medicaid Services (CMS), followed. Blum enumerated four CMS strategies related to this initiative: (1) data sharing between agencies; (2) enhanced transparency into ownership of nursing homes, hospices, and managed care organizations; (3) stronger standards for overseeing and paying health care facilities; and (4) ensuring that private equity-backed entities that contract with managed care plans behave in the best interest of patients.
Discussion followed, featuring personal anecdotes from health care providers who worked in private equity-owned health care facilities. The panelists discussed low staffing ratios, decreased resources, and issues with both patient and worker safety. Further discussion by academics and economists detailed research regarding private acquisitions of health care entities and the revenue strategies used by private equity firms and vertically integrated “payviders.” To close, Rhode Island Attorney General Peter Neronha discussed his enforcement actions against private equity acquisitions of community hospitals. He concluded with a call to action encouraging other state attorneys general to understand the marketplace and use state antitrust enforcement powers to challenge anticompetitive conduct.
Request for information on consolidation in health care markets
The agencies simultaneously issued a RFI on consolidation in health care markets, citing concerns that acquisitions in this space may “generate profits” for private equity firms at the expense of patient care and worker safety. The RFI seeks comments “regarding the effects of transactions involving health care providers (including providers of home- and community-based services for people with disabilities), facilities, or ancillary products or services, conducted by private equity funds or other alternative asset managers, health systems, or private payers.” In particular, the RFI calls for submissions regarding transactions by private equity funds, especially for transactions that are not reportable under the HSR Act. The RFI reflects the agencies’ broad focus on the effects of such transactions on all participants in health care markets – patients, providers, payers, employees, and others.
In the related press release, the agencies noted that comments to the RFI will inform their enforcement priorities and actions going forward, “including potential regulations aimed at promoting and protecting competition in health care markets…” and “forcefully enforc[ing] the law against unlawful deals.” Comments are due by May 6, 2024, and will be posted on Regulations.gov.
Takeaways
As the agencies’ scrutiny of the intersection of private equity and health care continues to intensify, entities in these markets should exercise caution and work with experienced antitrust counsel to evaluate the effects – both procompetitive and anticompetitive – of their strategic business decisions. At a minimum, this evaluation should consider the following:
- The agencies’ focus on private equity investments in nursing homes, hospices, medical staffing agencies, emergency care, and behavioral health will be particularly acute. It is imperative that firms in these specialty spaces consider the impact of their conduct and growth strategies.
- Agencies will continue to scrutinize “roll-up” strategies featuring a series of smaller acquisitions over time, leading to increased market share in the aggregate. The FTC and DOJ’s recently amended merger guidelines likewise target “roll-up” acquisition strategies and instruct the agencies to consider the aggregate impact of smaller transactions.
- FTC, DOJ, HHS, and CMS will continue to share information and data among themselves, meaning that information supplied to one agency can be used by another to investigate possible antitrust or other violations.
- Increasingly, state attorneys general are dedicating substantial resources to the enforcement of state antitrust laws in health care transactions. Many states – including California, Illinois, New York, and others – have implemented pre-acquisition notification rules in the health care sector, known as "mini HSRs" or "baby HSRs."
Client Alert 2024-054
