FTC and DOJ Launch New Cross-Government Inquiry on the Role of Private Equity in Healthcare

On March 5, 2024, the Federal Trade Commission (FTC), Department of Justice (DOJ), and Department of Health and Human Services (HHS, and collectively with the FTC and DOJ, the Agencies) launched a cross-government inquiry (Inquiry) requesting public comment on the role of private equity and other corporate actors in the healthcare space.^[1] Just hours after the announcement, the FTC hosted a workshop featuring representatives from all three agencies designed to bring attention to the Inquiry and generate public interest. The Agencies’ leadership, along with handpicked academics, nurses, and doctors, strongly criticized private equity firms’ presence in the healthcare space. These speakers alleged that private equity’s involvement has led to increased prices, worse patient outcomes (including deaths), and harm to competition. Despite strong rhetoric regarding private equity’s role as “faceless intermediaries”^[2] utilizing “profit-extracting strategies…[that] have life-or-death consequences”^[3] which are a “threat to the health of this country”^[4], the workshop was light on actionable theories of harm under the antitrust laws, naming just two: (1) roll-up schemes (i.e., consolidation of markets through a series of acquisitions) and (2) concerns regarding interlocking directorates, which have been the target of FTC and DOJ (collectively, the Antitrust Agencies) rhetoric for some time. The timing of the Inquiry coincides with the Biden administration’s new “Strike Force” to fight “corporate rip-offs,” which was announced the same day as the Inquiry.^[5] Looking ahead to the general election in November, the Biden administration has made the fight against “corporate greed in healthcare” a key component of its economic agenda.^[6] Thus, while the political motivations for the rhetoric and timing of the Inquiry may be obvious, from an antitrust perspective nothing would appear to change the regulatory landscape for private equity firms.

Inquiry on Impact of Corporate Greed in Healthcare

The Agencies’ Inquiry provides 60 days for the public to comment on the manner in which healthcare provider transactions, especially those involving private equity, have impacted patient outcomes, prices, and other quality and competition measures. FTC Chair Lina Khan explained, “[t]hrough this inquiry, the FTC will continue scrutinizing private equity roll-ups, strip-and-flip tactics and other financial plays that can enrich executives but leave the American public worse off.”^[7] DOJ Antitrust Division head Jonathan Kanter added that the Inquiry “will give us the information to tackle private equity and corporate greed head on.”^[8] Unsurprisingly, the Inquiry specifically seeks public comment on smaller deals that do not require antitrust filings under the HSR Act, which as Goodwin has discussed in prior alerts, is a focus area for the Antitrust Agencies. This Inquiry was previewed in a December 2023 announcement of a data-sharing initiative between the Antitrust Agencies and the HHS^[9] and builds on a separate market inquiry into the role of pharmacy benefit managers and other healthcare intermediaries.^[10] In addition, as noted by our Healthcare Enforcement colleagues in a recent client alert, the DOJ has already highlighted its renewed focus on private equity amid record False Claims Act enforcement. Notably, the Inquiry does not announce any new policies or guidelines, but instead is focused on identifying additional opportunities for potential FTC and DOJ investigations and challenges.

FTC Workshop on Private Equity in Healthcare

The Agencies participated in the March 5^th workshop hosted by the FTC on the role of private equity in healthcare, which appeared to be designed to generate public interest in this new Inquiry. Private equity firms remain in the Agencies’ crosshairs based on a general skepticism of their business model, which typically involves shorter time horizons for realizing profit compared to other industry participants. Workshop participants claimed this business model necessarily leads to an “extractive” mindset which prioritizes profits, increases prices, and slashes costs at the expense of the health and welfare of patients, healthcare workers, and communities. According to these participants, private equity firms use a number of tactics that harm acquired healthcare providers and their patients, including overuse of debt, increasing billing fraud and over-coding, increasing list prices, shifting patient mix away from Medicare and Medicaid, limiting transparency into ownership structure, selling off facility real estate, lowering staffing ratios, decreasing services provided, and decreasing capital investment.

Notably, many of the issues raised are not specific to private equity firms nor do they have any apparent connection to competitive harms under antitrust laws.^[11] Workshop participants identified only two private equity practices that would be actionable under the antitrust laws: (1) roll-up schemes or the serial acquisition of smaller healthcare facilities or provider groups to consolidate market share, often under the thresholds to trigger antitrust review and (2) interlocking directorates, which occur when a single person or private equity representative holds a position as an officer or board member of two competitors. As noted in Goodwin’s prior client alerts, these concerns with PE acquisitions have previously been identified by the Antitrust Agencies as priority areas of enforcement.

Takeaways

While the announcement of the Inquiry and the March 5^th workshop did not introduce any changes to antitrust enforcement policy or priorities, healthcare market participants should be aware that the Inquiry is ongoing and could bring further scrutiny to and investigation of prior non-reportable deals. Further, healthcare market participants, and especially private equity firms, should be mindful of Goodwin’s previous guidance on antitrust best practices moving forward. Private equity firms should engage antitrust counsel on any questions and expect that “roll-ups,” including non-reportable transactions, may receive antitrust scrutiny from the FTC and DOJ. In addition, all healthcare market participants, and private equity firms in particular, should be mindful of board composition and consult with counsel to consider potential interlocking directorate issues when evaluating transactions, investments, or other combinations.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.