On March 5, 2024, the U.S. Federal Trade Commission (“FTC”) hosted a workshop “aimed at examining the role of private equity (“PE”) investment in healthcare markets.” During the workshop, the FTC and the Department of Justice, Antitrust Division (“DOJ”) (collectively, the “agencies) along with the Department of Health and Human Services (“HHS”), and Centers for Medicare & Medicaid Services (“CMS”), addressed their increasing concern about the effects of PE investment in healthcare. The workshop coincided with the FTC’s announcement of a “cross-government” inquiry on the “impact of corporate greed in healthcare,” in coordination with DOJ and HHS. This inquiry requests public comment on healthcare deals driven by private payers, PE funds, or other alternative asset managers that may harm patients’ health or safety.
Stakeholders expressed concern that private investment into healthcare markets incentivizes cost minimizing and profit maximizing strategies resulting in decreased quality of care and worsening conditions for healthcare workers. To address this, the agencies focused on their enforcement authority, including increased scrutiny of PE roll-up strategies and prohibitions on interlocking directorates. While these are not new enforcement priorities, the agencies’ heightened focus is a warning to PE buyers and targets in the space.
Perceived Harms from Private Investment in Healthcare
The agencies’ concerns about decreased quality of care fall into two categories: (i) harm from excessive cost cutting, and (ii) harm from prioritizing profit over patient care.
With respect to results from cost minimization, stakeholders specifically highlighted poorer conditions for physicians (e.g., longer hours, higher patient-to-staff ratios), declining patient care (e.g., longer wait times, delays to treatment, and less time with a physician), decreased hospital resources (e.g., shortages of basic drugs and supplies, outdated technology), and safety concerns (e.g., facilities operating below industry standards for safety compliance). As evidence, panelists pointed to increased patient falls, surgical site infections, and transfer rates at PE-owned hospitals.
With respect to profit maximization, the agencies’ view the PE business model as incentivizing PE investors to raise product and service prices, reduce availability of care, and retain profits rather than reinvesting those profits into the medical facility or practice. This, in conjunction with a drive to decrease costs, lowers patient care and healthcare employment conditions.
FTC and DOJ Focus on Private Investment in Healthcare
The Chair of the FTC, Lina Khan, and the Associate Attorney General for the DOJ’s Antitrust Division, Jonathan Kanter, each emphasized the agencies’ interest in restricting, where applicable, PE’s involvement in healthcare markets. They focused on two emerging enforcement priorities– increased scrutiny of serial acquisitions, or private equity “roll-ups,” and the prohibition against interlocking directorates in Clayton Act Section 8.
- Serial Acquisitions or Roll-ups. The agencies stated they would scrutinize PE transactions in healthcare through an increased focus on serial acquisitions that may not individually be reportable or raise competitive harm. This is already apparent in recently released 2023 Merger Guidelines (Guidelines) (for more on the Guidelines, see our analysis here). In the Guidelines, the agencies note that “[a] firm that engages in an anticompetitive pattern or strategy of multiple acquisitions in the same or related business lines may violate Section 7 [of the Clayton Act].” The agencies have been focused on roll-up strategies in various markets and have recently acted on this theory against Welsh, Carson, Anderson & Stowe (“Welsh Carson”), where the FTC alleged, among other things, that Welsh Carson, through its subsidiary U.S. Anesthesia Partners (“USAP”) entered into a series of transactions to consolidate anesthesiology practices in Texas in violation of Section 7 of the Clayton Act.
- Interlocking Directorates. The agencies also stated they will use the prohibition against interlocking directorates under Clayton Act Section 8 as a tool to regulate PE healthcare investments. Section 8 prohibits serving as a director or officer on the board of two corporations that compete. The agencies have recently expanded their interpretation of Section 8 to apply to both corporations and LLCs and LPs, and they have used this new interpretation to enforce against interlocking directorates in the PE space.
In addition, the agencies will continue to investigate PE healthcare investments with more traditional theories of harm, including whether such investments significantly increase concentration in highly concentrated markets or would eliminate substantial head-to-head competition.
Cross-governmental Coordination
At the workshop, regulators at all levels – including the FTC, DOJ, HHS, CMS, and state attorneys general (“AGs”) – reinforced their commitment to protect against the alleged harm from PE healthcare investments. Although the FTC and DOJ are the lead enforcers of federal antitrust laws and state AGs already play an active role in merger enforcement, HHS and CMS affirmed their role in healthcare enforcement by coordinating with the traditional merger enforcement agencies in a cross-government enforcement effort consistent with the Biden Administrations 2021 Executive Order on a whole-of-government approach to antitrust.
By way of example, state AGs are scrutinizing PE healthcare investments through state healthcare regulatory regimes. The Rhode Island AG enforced the state’s Hospital Conversion Act (RIGL §23-17.14) to add conditions to a PE firm’s acquisition of two local hospitals. The PE firm was required to transfer $80 million into escrow, to be returned to the firm if it met certain conditions (e.g., ensure payment of operating expenses and guarantee capital improvements). Additionally, Colorado’s AG recently reached an agreement with USAP to settle allegations that USAP, owned partially by Welsh Carson, acquired multiple anesthesiology practices in the Denver area, driving up prices for anesthesiology services for patients and insurers.
The workshop and joint inquiry demonstrate that enforcers at the federal and state level are focused on the impact of PE healthcare investments. Collaboration among these entities in their enforcement efforts will mean greater scrutiny of PE investments in the healthcare space and potentially longer review processes.
If you have any questions, please reach out to your contacts in Freshfields’ US antitrust team or Jamillia Ferris, Meghan Rissmiller, and Jan Rybnicek.
