Antitrust Enforcers Reaffirm Focus on Private Equity in Healthcare at Public Workshop

As Holland & Knight observed previously, the Biden Administration's antitrust enforcers have trained their sights on private equity firms and their portfolio companies, including in a Sept. 21, 2023, lawsuit challenging one private equity firm's "roll-up" of anesthesiology practices in Texas. The agencies took a more measured approach on March 5, 2024, when the Federal Trade Commission (FTC) hosted a public workshop to examine the role of private equity investment in the healthcare industry. But the message from the workshop remains unchanged: The antitrust agencies see private equity as influencing healthcare in a number of ways they regard to be worrying and worthy of continued close scrutiny.

The workshop began with opening remarks by FTC Chair Lina Khan, U.S. Department of Justice (DOJ) Antitrust Division Assistant Attorney General Jonathan Kanter, U.S. Department of Health and Human Services (HHS) Inspector General Christi Grimm and Centers for Medicare & Medicaid Services (CMS) Principal Deputy Administrator and Chief Operating Officer Jonathan Blum. The workshop then turned to several moderated discussions including agency officials, healthcare workers, and scholars. To conclude the workshop, FTC Commissioner Rebecca Kelly Slaughter engaged Rhode Island Attorney General Peter Neronha in a "fireside chat" to discuss Neronha's experiences related to the 2021 sale of Prospect Medical, an investor-owned healthcare system, by private equity firm Leonard Green & Partners.

A significant theme of the workshop focused on how participants believe private equity investments reduced quality of care and worsened outcomes for patients. Certain concerns were unrelated to any possible impact on market concentration or competition. For instance, speakers expressed concern about how financial motivations of private equity companies can undercut incentives to provide high-quality patient care, especially if the complex corporate structures of private equity companies prevent regulators and the general public from understanding who might possess a financial interest in any particular healthcare system or provider. This issue was raised repeatedly, particularly with regard to ownership of nursing homes, hospices and managed care organizations and the special need for accountability to ensure the safety of patients in those systems. Another issue speakers raised as unique to the private equity model was the practice of encumbering providers with the responsibility to service large amounts of debt. A final issue discussed repeatedly in the workshop was the short-term nature of a private equity firm's typical engagement. The speakers asserted that a private equity company's short-term investment horizon, sometimes no more than five to seven years away, creates an undue focus on short-term profits and the payment of dividends to investors, and this can lead to reduced investments in patient care and endanger the long-term stability of acquired healthcare providers.

From a competition perspective, Khan and Kanter both celebrated their work to unwind interlocking directorates, where private equity companies might have representatives on boards of competing providers, which the speakers view as potentially reducing competition between those providers. Khan and Kanter also referred again to the strategy of serial acquisitions, or "roll-ups," of a number of small providers that, before the 2023 revised Merger Guidelines allowed consideration of the cumulative effect of proposed deals, had historically sidestepped antitrust review. Blum also noted that consolidation has caused rising costs for CMS (Medicare/Medicaid) and explained that CMS is working with the agencies to share data in an effort to understand the impacts of consolidation.

Kanter, Slaughter and FTC Commissioner Alvaro Bedoya each mentioned the joint FTC/DOJ/HHS Request for Information issued earlier in the day. The RFI seeks public comments on healthcare industry transactions – both reportable and not reported under the Hart-Scott-Rodino Act – involving private payers, private equity firms and other alternative asset managers. The agencies will accept comments until May 6, 2024.

This workshop and the joint request for public comments confirm that private equity, particularly in the healthcare field, will continue to be highly scrutinized, not only by the FTC and DOJ in antitrust-related actions, but also by other federal and state governmental bodies concerned with fraud and abuse, consumer protection and the provision of healthcare services to the public. Holland & Knight's Antitrust Team is available to discuss questions about the antitrust agencies' concerns about private equity and how it might impact your businesses.

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