Content Detail

• Content META

  Title	Healthcare Consolidation and Private Equity: Public Input on Antitrust Healthcare Regulations
  ID	6891039
  External ID	7548472196
  Author	Robin Crauthers, George Kendall, Khaled Klele, Richard Myslinski
  Published Date	Feb. 13, 2025, 10:53 a.m.
  Summary	The Department of Justice Antitrust Division (DOJ), the Federal Trade Commission (FTC), and the Department of Health and Human Services (HHS) (together the Agencies) launched a cross-government agency
  Tags	None
  URL	https://www.jdsupra.com/legalnews/healthcare-consolidation-and-private-7853773/
  Sentiment	Negative: 0.24976    Neutral: 0.42207    Positive: 0.32817
  Relevance	0.01293

• Content Details

  Content ID	4291865
  Key	83214ccf-e37d-4e2b-9836-6b1cbbcc49c0
  Content	The Department of Justice Antitrust Division (DOJ), the Federal Trade Commission (FTC), and the Department of Health and Human Services (HHS) (together the Agencies) launched a cross-government agency request for information (RFI) seeking public comments on consolidation in the healthcare industry and the impacts of private equity (PE) investments in the healthcare system. In January, the Agencies released a report synthesizing the more than 2,000 comments received. The report discusses two trends in the healthcare industry: an increase of consolidation in healthcare markets and an influx of PE and other private investors in healthcare services. While it is not clear that the Agencies will continue their focus on PE acquisitions and healthcare concentration during the Trump administration, companies should seek both healthcare regulatory and antitrust advice for any PE acquisition in the healthcare space. The report identifies five themes that fall into the two trends (consolidation and influx of PE investment). Themes: 1. “Provider consolidation leads to higher prices and less access for patients” The report identifies consolidation in all sectors of healthcare but calls out the hospital, physician, and insurance markets specifically. For hospitals, the report highlights that community hospitals are increasingly becoming parts of larger health systems and are no longer independent, community-based decision centers. The same is true for primary care physicians, who are increasingly owned by and report to a larger healthcare system. The report links the concentration resulting from the change from community-based hospitals to larger hospital systems with increased prices for services. Hospital systems cited advanced operational efficiencies, increased coordinated care, and improved quality as rationale for the acquisitions, but the report questions the validity of these claims and cites to studies showing negative quality and health impacts. The report also links the concentration with reduced wage growth for healthcare professionals. For insurers, the report finds that market concentration has increased insurance monopsony power, meaning the insurers (the purchasers) have the power to control pricing. As monopsonists, healthcare insurance companies demand and pay lower fees for services provided by physicians or hospitals. The report is silent, however, on the connection between the lower reimbursement rates paid by insurers and the healthcare providers’ operational efficiencies designed to ensure the providers stay solvent in the face of lower reimbursement rates. 2. “M&A in healthcare services, especially in PE backed transactions, result in process changes and quality reductions” The report highlights that PE investment in healthcare is a 15-year trend. PE-backed companies are invested in nursing homes, hospitals, emergency departments, outpatient care delivery, home care, dental care, mental health, dermatology, and vision. According to the report, as a result of the trend toward consolidation, in a quarter of the metropolitan statistical areas (MSAs), PE-backed companies own more than 30 percent of the physician practices. In about 13 percent of the MSAs, PE-backed companies control over half of the physician practices. The Agencies advance these statistics presumably to show concentration, but no information is provided as to how many PE firms are included in the statistics or the range of physician specialties, both of which may impact any alleged concentration. PE firms typically hold their investments for a short term, between four and seven years, and the report identifies the lack of long-term stakeholder relationship as problematic. This, according to the report, is compounded by the PE firms’ deployment of other stakeholder capital. In the Agencies’ view, the lack of ownership and longevity creates ethical hazards and encourages risk taking. The report links PE’s pursuit of profits to problematic behavior such as “upcoding, provision of unnecessary services, exaggeration of population health risks, and ordering more high margin tests and procedures.” 3. “Physicians that worked with PE firms offer mixed reviews” The report highlights comments from physicians and healthcare consumers that showcase the impact on patient care stemming from PE tactics to reduce operational costs. Physicians, concerned with patient safety, reported understaffing, competing demands on doctors’ time, and rules dampening out of healthcare system referrals. The report correlates PE acquisitions to safety issues and reduced quality, relying on studies that show adverse events and mortality in nursing homes that were acquired by PE firms. 4. “There is widespread desire for transparency on PE-led transactions” The report identifies commenters who believe transparency on PE-owned facilities would help improve accountability. Commenters and the Agencies believe transparency would help identify two potentially problematic behaviors. First, PE firms often acquire healthcare entities through subsidiaries and using a strategy referred to as “rollups.” Rollup acquisitions are defined as acquisitions of numerous small companies within the same industry for the purposes of consolidating the companies. Rollups, however, are not inherently anticompetitive transactions. One procompetitive rationale for PE rollups is to achieve economies of scale, which lowers costs. The report, nevertheless, notes that rollups can occur without triggering the Hart-Scott-Rodino notification threshold, which could enable firms to gain market power without the scrutiny of antitrust review. According to the Agencies and commentators, transparency would reduce the likelihood that these rollup acquisitions would go unnoticed. Second, PE firms’ acquisition strategies include varied structures, but the report is concerned with the model in which a PE firm leverages its acquisition by borrowing against hospital assets or selling assets to real estate investment firms and leasing back those assets. According to the report, these structures allow the PE firm to show profits to the shareholders but harm the hospitals’ long-term interests. Transparency regarding the structure of the transaction, the Agencies believe, will ensure healthcare facilities can remain going concerns post-acquisition. 5. “People are dissatisfied with private health insurers, especially vertically integrated insurers” The report focuses on three main concerns related to private health insurers. First, patients expressed concerns about poor communication regarding denial of care. Second, physicians expressed frustration that insurance companies are directing clinical decisions and steering care to the insurer’s affiliated companies. Third, commenters expressed concern over the size of the independent insurance companies and the drive toward profits at all costs. Policy Considerations The Agencies identify several policy considerations. First, they note that commenters desire the government to take action to limit further harmful industry consolidation. Second, commenters ask the Agencies to mitigate the harms in already highly concentrated markets. Third, workers note that the FTC’s proposed noncompete rule would help remedy some worker harm caused by PE investment. Fourth, commenters believe that transparency in and greater disclosures of PE acquisitions would help identify areas of potential concern for monitoring. The report calls out the CMS nursing home ownership transparency rule as a potential model for such reporting. Finally, the Agencies advance the notion that state policies, including notice requirements that have review and approval rights, could address potential issues. Several states have advanced or are advancing bills that require state regulatory review and approval. Massachusetts House Bill 5159, signed into law on January 8, 2025, grants new regulatory powers to oversee and review healthcare transactions involving PE, REITs, and managed service organizations (MSOs). This bill was a reaction to the Steward health system bankruptcy. Takeaways The Agencies indicate that they will use the comments received to inform regulatory and policy actions, but it is noteworthy that the report was released on January 14, days before the transition to the Trump administration, and the report only appears on HHS.gov, not the FTC or DOJ websites, which listed the original RFI. Unlike with FTC and DOJ policy statements, former Chair Lina Khan did not release a statement and the FTC commissioners did not vote. It is unclear whether the lack of public statements portends a change in the focus on PE for the new administration. The one hint that the new administration might not carry the PE concerns forward is current FTC Chairman Andrew Ferguson’s statement that “There is [] no reason for the Commission to single out private equity for special treatment” in his pre-administration change concurring statement of a PE settlement. Nonetheless, companies, especially PE firms, investing in hospitals, health insurance companies, MSOs, physician practices, or other healthcare providers should consult both antitrust and healthcare regulatory counsel to assess the risk of regulatory review or block. McCarter & English can provide cross-practice advice and assessment of the likelihood of state and federal challenges, provide guidance to navigate the regulatory review process, and offer tailored strategies to increase the likelihood of success.
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• Publisher

  Publisher Name	JDSupra (#3988)
  Publisher URL	https://www.jdsupra.com/
  Description	None
  Trust Flow Score	59
  Citation Flow Score	53

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  Data Source Name	Quantexa News (#5)
  Data Source Type	news
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