03/27/2024 | Press release | Distributed by Public on 03/27/2024 14:21
March 27, 2024, Covington Alert
The federal antitrust agencies have been increasingly focused on the intersection of private equity and healthcare. While that attention has not yet led to many enforcement actions, recent developments suggest that may change.
On March 5, 2024, the DOJ, FTC, and HHS jointly issueda Request for Information (RFI) seeking public comments about acquisitions of healthcare providers and related entities by "private equity funds or other alternative asset managers, health systems, or private payers." Later the same day, the three agencies held a virtual workshopexamining "the role of private equity investment in health care markets," featuring commentary by government officials, academics, and industry stakeholders (including nurses and doctors).
The RFI is notable for what could follow. Prior RFIs have resulted in more in-depth industry studies, investigations, and enforcement actions, and there is reason to expect the same here. For example, the RFI may be a precursor to a 6(b) study by the FTC, which would involve broad document subpoenas targeted at industry participants. Also possible are additional regulations, nonpublic investigations, and enforcement actions, from either federal or state enforcers. Private equity firms and other entities involved in healthcare transactions should prepare accordingly.
The Agencies' Request for Information
In recent years, the federal antitrust agencies have expressed increasing concern about the role of private equity-particularly in healthcare-through statements by agency leadership,[1]policy and rule changes,[2]and a couple of enforcement actions.[3]Building off those steps, the March 5 RFI seeks public comment about acquisitions of healthcare providers and related entities by "private equity funds or other alternative asset managers, health systems, or private payers." The scope of covered healthcare providers is broad: the RFI lists numerous examples-including hospitals, nursing homes, hospice facilities, and behavioral health providers-along with "ancillary products or services" like billing management, staffing services, labs, IT, and data analysis.
The RFI seeks five categories of information about these healthcare transactions:
The RFI states that the agencies are "especially" interested in transactions that were not reportable under the Hart-Scott-Rodino (HSR) Act-typically, smaller transactions-and therefore may not have been subject to prior antitrust review.
Areas of Concern Highlighted During the March 5 Workshop
The agencies' workshop, which took place the same day as the issuance of the RFI, provided greater detail on areas of particular concern to the FTC and DOJ. Those areas suggest potential focal points for future agency investigations and potential outcomes of the RFI.
Chair Khan's opening remarksbegan by acknowledging that private investment "can sometimes be an important source of capital, especially for small to mid-size companies that can benefit from the access that this financing provides," and that "[s]ome private equity firms take a more long-term view and focus on creating real operational improvements to generate value in ways that provide broader benefits."
Her remarks went on to highlight three particular strategies she views as concerning (paired with potential antitrust solutions), and those three themes featured prominently in remarks by the other panelists:
Two other key themes emerged from the workshop: (1) the federal antitrust agencies are concerned with transparency, and (2) enforcement by state attorneys general in the healthcare space may increase.
Predicting and Preparing for the Agencies' Next Moves
After the agencies have received and reviewed responses to the RFI (which are due May 6), there likely will be additional, targeted agency investigations of companies involved in this space. Antitrust enforcers have suggested as much in previous public statements, and prior RFIs have led to more in-depth industry studies, investigations, and enforcement actions.
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Private equity firms and other entities involved in healthcare transactions should bear in mind that the antitrust agencies continue to focus their enforcement resources in this area. Significant players in the space and entities identified in public RFI responses should prepare for in-depth investigations and, potentially, enforcement actions. That preparation could include the following:
Finally, interested parties should take the opportunity to respond to the RFI, bearing in mind that all information produced to the agencies will be publicly available. The deadline to submit comments is May 6, 2024.
If you are interested in submitting a comment or have any questions about compliance given the agencies' increasing scrutiny of the healthcare sector, please reach out to us.
[1]This issue dates back to at least July 2020, when then-FTC Commissioner Rohit Chopra expressed concernabout "significant consolidation through roll-up transactions not subject to HSR reporting" undertaken by private equity firms, particularly "in the health care sector." Other Democrat-appointed antitrust enforcers joined the chorus in the following years. For example, in June 2022, FTC Chair Lina M. Khan and the Assistant Attorney General (AAG) for DOJ's Antitrust Division Jonathan Kanter made similar statementsto the Financial Times, vowing an aggressive approach to private equity roll-up acquisitions. In her statement to the Financial Times, Chair Khan warned of "life and death consequences" from private equity buyouts of nursing homes. A February 2024 speechby Chair Khan to a group of physicians echoed these themes.
[2]The FTC's November 2022 Section 5 enforcement policy statementnotes that "a series of mergers or acquisitions" could be an unfair method of competition under Section 5 of the FTC Act, even if the acquisitions "individually may not have violated the antitrust laws." The recently finalized Merger Guidelinesstrike a similar tone. One of the eleven guidelines targets a "strategy of multiple acquisitions in the same or related business lines," while another targets "acquisitions involv[ing] partial ownership or minority interests." Finally, under the FTC's proposed HSR rules, mergingparties would have to list prior acquisitions over a ten-year period, rather than the current five years. And all acquisitions would need to be included: the proposed rules eliminate the current size thresholds.
[3]For example, in June 2022, the FTC announced two consent decreesaddressing its concerns with two acquisitions of veterinary clinic operators by private equity firm JAB Consumer Partners. In a statementaccompanying one of the consent decrees, Chair Khan and the other Democrat-appointed commissioners-Rebecca Slaughter and Alvaro Bedoya-expressed broader concern about private equity activity in healthcare, "including anesthesiology, emergency medicine, hospice care, air ambulances, and opioid treatment centers."