Private Equity in Healthcare: Increased Scrutiny from FTC, DOJ, and HHS

Key Takeaways

• Private equity acquisitions in healthcare will likely face increased scrutiny from multiple federal departments, as well as from state antitrust enforcement officials.
• The public comment period is a good opportunity for private equity firms to weigh in.
• Private equity firms in the healthcare field should consider this increased antitrust scrutiny not only as part of their acquisition strategy but also expect increased attention by regulators into potential anticompetitive conduct for portfolio companies post-acquisition.

On March 5, 2024, the Federal Trade Commission (“FTC”), the Department of Justice (“DOJ”) Antitrust Division, and Department of Health and Human Services (“HHS”) announced that they are launching a “cross-government public inquiry into private equity and other corporations’ increasing control over health care.” This effort is another step by regulators in their increased scrutiny of private equity. The inquiry seeks to understand how private equity transactions in the healthcare field affect consolidation, as well as how such transactions affect patient health, worker safety, and the quality of care administered to patients. The agencies are soliciting public comment on the issue, with comments due by May 6.

The announcement coincided with the FTC’s virtual workshop on private equity firms in healthcare. The workshop featured statements from FTC Chair Lina Khan, Assistant Attorney General Jonathan Kanter, HHS’s Inspector General Christi Grimm, CMS’s COO Jonathan Blum, and Commissioner Alvaro Bedoya, as well as a discussion between Commissioner Rebecca Kelly Slaughter and Rhode Island AG Peter Neronha. Chair Khan specifically mentioned that private equity’s entrance into healthcare forced “medical professionals to subordinate their medical judgment to corporate decision-makers’ profit motives at the expense of patient health.”¹ The workshop also featured statements from a variety of individuals, from researchers studying private equity firms in healthcare to doctors and nurses giving personal accounts about working conditions and patient care under private equity.

Announced Government Focuses

Throughout the workshop, the officials outlined their priorities and strategies on private equity ownership in healthcare and investigating potential anticompetitive practices. Overall, the agencies announced they are paying particular attention to the following:

1. Short-term ownership/“Flip-and-strip” approaches, which the FTC describes as occurring when PE firms take on large amounts of debt to acquire a healthcare entity, increase profits quickly, and then sell the entity as quickly as possible.
2. Private equity acquisitions in emergency rooms (ERs), where over 40% of ERs in the country are overseen by private equity firms.
3. “Cut and Run” approaches, where private equity firms sell off healthcare entities after poor performance.
4. “Roll ups”, where private equity firms make small, non-HSR reportable acquisitions in the healthcare space.
5. “Cross-ownership” approaches, where private equity firms buy “significant” stakes in rival firms that compete in the same industry. Chair Khan said that the FTC intends to use Section 8 of the Clayton Act to combat this practice. AAG Kanter announced the Antitrust Division would also be exploring “unwinding interlocking directorates.”
6. Conducting oversight to increase transparency around ownership of entities owned by private equity firms.
7. Investigating the distribution of Medicare and Medicaid funds and programs; the HHS mentioned in particular investigating Medicare Managed Care, which has attracted private investors.

Mayer Brown’s Global Antitrust team offers in-depth experience and knowledge advising private equity firms and health care entities. We are well-placed to assist private equity firms and multinational corporations in navigating the field of ever-increasing antitrust regulation.

¹ Remarks by Chair Lina Khan, Private Capital, Public Impact Workshop on Private Equity in Healthcare (Mar. 5, 2024), at 2.