On March 5, 2024, the Federal Trade Commission (“the FTC”) hosted a public workshop titled “Private Capital, Public Impact: An FTC Workshop on Private Equity in Health Care”, which covered the impact of private equity investment on the health care system. The workshop included panelists from the FTC, the Department of Justice (“the DOJ”), the Department of Health and Human Services (“HHS”) (together, “the Agencies”), academic thought-leaders, and health care professionals. On the same day as the workshop the Agencies launched a “Cross-Government Inquiry on Impact of Corporate Greed in Health Care,” issuing a Request for Information (“RFI”) seeking public comment on health care deals involving private equity firms, including deals that would not be reportable under the Hart-Scott-Rodino Act. The Agencies will use the RFI to inform future enforcement and policy decisions related to health care consolidation. The public has 60 days to submit comments to the Agencies.

Here are key takeaways from the workshop:

  • The Agencies remain skeptical of private equity’s increasing investments in the health care industry. Multiple panelists across the Agencies noted that PE’s involvement in health care transactions can lead to increased consolidation and worse patient outcomes. For instance, FTC Chair Lina Khan stated that “[a] common theme across these comments is that growing financialization in the health care industry can force medical professionals to subordinate their medical judgment to corporate decision-makers’ profit motives at the expense of patient health.” Jonathan Kanter, Assistant Attorney General of the Antitrust Division of the DOJ, cited a study purporting to show that private equity ownership of nursing homes was responsible for over 20,000 premature deaths in just 12 years.
  • The workshop also made clear that antitrust enforcement seeks to target certain practices deployed by PE firms in the health care industry, including:
    • Serial acquisitions of provider practices (“rollups”), particularly when the practices are in a similar geographic location;
    • Short-term acquisitions using large amounts of debt, with the goal of increasing profits quickly and reselling (“strip and flip”);
    • Investments into competing portfolio companies within the same industry; and
    • PE representation on the boards of competing portfolio companies (“interlocking directorates”).[1]
  • Health care market participants (i.e. doctors and nurses) provided first-hand testimony of alleged decreased staffing and lower quality of care after PE acquisitions.
  • FTC Commissioner Rebecca Slaughter and Rhode Island Attorney General Peter Neronha discussed during a fireside chat how Rhode Island’s Hospital Conversions Act allowed the state to impose conditions on a private equity transaction, and called for similar legislation. Where similar legislation does not yet exist, Slaughter and Neronha encouraged state attorneys general to utilize state antitrust and consumer protection laws, as well as attorneys’ general parens patriae authority, to combat PE consolidation in the health care system.

Although PE has been a target of increased scrutiny for a while,[2] the workshop and RFI underscore that federal and state agency and enforcer oversight of PE transactions, particularly in the health care space, will only continue to increase. Multiple states[3] have proposed new legislation—explicitly aimed at PE—that would give state attorneys general more power to investigate and potentially block investments by PE firms in the health care industry. Jonathan Kanter emphasized that the goal of the RFI is to “enable the agencies to accurately understand the modern market realities of the health care industry and forcefully enforce the law against unlawful deals. Hearing from patients, workers, and market participants will be critical in developing future enforcement and policy efforts relating to consolidation in the health care sector.” PE firms, sellers, and portfolio companies should be aware of, and account for, these potential obstacles when considering health care transactions.

FOOTNOTES

[1] More information regarding enforcers’ increased scrutiny of interlocks under Section 8 of the Clayton Act is available here.

[2] John Carroll & Joseph Antel, FTC, DOJ, and HHS Announce Interagency Initiatives to Promote Healthcare Competition, Sheppard Mullin (Dec. 12, 2023); Ann O’Brien & Lindsey Collins, Hot Antitrust Enforcement Climate Reaches Private Equity, Sheppard Mullin (May 11, 2023); John Carroll, Leo Caseria, Bevin Newman & Ann O’Brien, FTC Sues Private Equity Firm and Anesthesiology Practice for Antitrust Violations, Sheppard Mullin (Sept. 26, 2023); John Carroll, Leo Caseria, Bevin Newman & Malika Levarlet, Mergers & Acquisitions Update: A Closer Look at the Impact of the FTC and DOJ’s Proposed HSR Act Filing Reform on Private Equity Firms, Sheppard Mullin (Oct. 5, 2023); Greg Smith, Phil Kim & John Tilton, Private equity faces heightened FCA and antitrust scrutinyPE Hub (Mar. 24, 2023)

[3] See, e.g.Navigating Increased Health Care Deal Scrutiny, slide 25 (Oregon HB 4130; (Pennsylvania Senate Bill 548, For Profit Health Systems Reform: Preventing Harmful Healthcare Deals).