Antitrust & Competition Healthcare Quarterly Update Q2 2024

I. Summary

• In the second quarter, federal and state antitrust enforcers continued their intense scrutiny of consolidation in the healthcare market by implementing new initiatives and laws designed to gather additional information regarding transactions and conduct in the space. 
• US antitrust agencies’ enforcement actions continued to have a mixed track record, successfully blocking traditional horizontal competition cases while losing on more aggressive, novel claims, including a significant setback in its campaign against private equity when a federal judge granted Welsh Carson’s motion to dismiss the Federal Trade Commission’s complaint. 
• We expect the US antitrust agencies will investigate the use of algorithmic price-setting tools in the healthcare space and probe whether such tools violate antitrust laws, following allegations against MultiPlan in private litigations.

II. Federal and State Antitrust Enforcers Implement New Healthcare Initiatives and Laws Showing Continued Scrutiny

The Federal Trade Commission (FTC) and Antitrust Division of the Department of Justice (DOJ, and, collectively with the FTC, the Agencies) have announced new initiatives to investigate and enforce antitrust violations among healthcare industry participants. While these initiatives have yet to produce any new findings or significant enforcement actions, healthcare market participants should be mindful of the enhanced scrutiny these developments represent. Additionally, state governments have continued to propose and implement new laws requiring parties to notify state regulators of certain healthcare transactions.

A. Cross-government inquiry on private equity and healthcare
As noted in a prior Goodwin alert, in March, the Agencies and the Department of Health and Human Services jointly announced the formation of a cross-government inquiry into the role of private equity and other corporate actors in the healthcare space. ¹ The inquiry is premised on the theory that private equity involvement in healthcare leads to higher prices and worse outcomes for patients. FTC Chair Lina Khan explained that the agencies will scrutinize specific alleged harms caused by private equity, including “roll-ups, strip-and-flip tactics, and other financial plays that can enrich executives but leave the American public worse off.”²

While the inquiry highlights the skepticism of the Agencies toward private equity’s involvement in healthcare, the Agencies still have not clearly articulated why investments by private equity are more likely to harm competition than are investments by other players in healthcare markets. The inquiry’s public comment period has generated thousands of comments, but the agencies have not announced any findings or instituted any enforcement actions as a result. ³ Most commenters, the bulk of which were individuals, expressed the view that private equity involvement in the medical field has worsened the quality of care and increased prices as a result of a supposed greater incentive to pursue short-run profits compared to other market participants. ⁴ Other industry participants asserted a more balanced view, such as the American Medical Association, which noted that while healthcare consolidation — among other administrative and regulatory concerns — is driving physicians to partner with private equity, “[m]any physicians do choose to enter into private equity agreements that prove successful and preserve high-quality patient care.” ⁵ Others raised concerns about the agencies’ inquiry, such as the Federation of American Hospitals, which criticized the agencies for singling out private equity because “[t]he lens of ‘ownership structure’ has no place in law enforcement or competition policy.”⁶

B. DOJ Task Force on Health Care Monopolies and Collusion
In May, the DOJ announced the formation of the Antitrust Division’s Task Force on Health Care Monopolies and Collusion (HCMC), which is intended to “identify and root out monopolies and collusive practices that increase costs, decrease quality and create single points of failure in the health care industry.” ⁷ The HCMC will bring together prosecutors, economists, and other health care experts to advise on the Antitrust Division’s policy advocacy, investigation, and enforcement in health care markets. As with the cross-government inquiry, the HCMC has yet to announce any new investigations or enforcement actions, although its formation highlights the DOJ’s continued attention to the healthcare space.

C. Updates on state filing notifications
As detailed in Goodwin’s State Healthcare Transaction Notification Laws resource, numerous states have continued to develop and expand their regulatory tool kit for monitoring healthcare transactions. These newly enacted or proposed laws are particularly focused on transactions involving private equity firms, mirroring the federal Agencies’ enforcement priorities.

1. Indiana
Indiana’s healthcare reporting regime took effect on July 1, 2024, which requires most transactions involving an Indiana health care entity to be notified to the Indiana attorney general at least 90 days prior to closing. ⁸ As described in a prior Goodwin alert, the new law’s broad language applies to most providers, insurers, health maintenance organizations (HMOs), insurance administrators, pharmacy benefit managers, and even private equity firms. Indeed, a private equity firm is considered a health care entity as long as it is “seeking to enter into a merger or acquisition” with another healthcare entity. We expect the laws’ broad definitions to require filings for most transactions involving healthcare entities in Indiana, though in most cases, due to the lack of additional enforcement mechanisms, we do not expect the law to impose more than a 90-day delay to closing.

2. Pennsylvania
Pennsylvania is actively considering a new healthcare transaction notification requirement with at least two different approaches in two proposed bills. Proposed law SB 548 would amend the Health Care Facilities Act and require provider organizations and for-profit entities that own or operate hospitals, nursing homes, or hospice agencies to notify the Pennsylvania attorney general at least 90 days prior to entering into material change transactions or other agreements. ⁹ The attorney general has 90 days to determine whether a proposed transaction is against the public interest and can extend the review period by an additional 30 days.

Proposed bill HB 2012 would establish a general state antitrust statute, which includes a state transaction notification requirement similar to the one proposed in SB 548. ¹⁰ In this version, however, the attorney general has 120-150 days to review health care transactions resulting in a “material change” between providers, health care facilities, and their direct or indirect owners, including private equity firms. Either law, if enacted, could require notice for a broad array of health care transactions in Pennsylvania.

3. California
The Golden State is already a leader among states in requiring healthcare parties to provide a great deal of information regarding transactions, with two such laws taking effect this year. Adding to its already onerous regulatory regime, the California legislature approved Assembly Bill 3129, which, if signed by the governor, would require private equity firms and hedge funds to give 90 days’ notice to the California attorney general for any change of control or acquisition of a health care facility or providing group. Upon receiving notice, the attorney general has up to 150 days to consent to the transaction. If this statute is enacted, many private equity and hedge fund health care transactions could be delayed or even blocked if the attorney general decides it is not in the “public interest.” The public interest standard is broadly defined and requires the attorney general to use traditional antitrust analysis to consider whether a transaction would lessen competition, thereby increasing prices or costs, decreasing quality, or reducing access to care.

III. The FTC Experienced Mixed Success in Its Healthcare Enforcement Efforts

The FTC has improved its track record of challenges to hospital acquisitions, convincing the US Fourth Circuit of Appeals to block Novant Health’s acquisition of two competitor hospitals. Beyond its traditional horizontal cases, however, the FTC found less success in bringing novel claims, as a US District Court dismissed its case against Welsh, Carson, Anderson & Stowe (Welsh Carson) for actions taken in one of the private equity firm’s minority investments.

A. Novant walks away from hospital acquisition after Court of Appeals grants preliminary injunction
In June 2024, Novant Health abandoned its acquisition of two North Carolina hospitals from Community Health Systems hours after the Fourth Circuit Court of Appeals panel granted the FTC’s request for an injunction to prevent the parties from closing. ¹¹ This injunction and the prompt abandonment of the transaction was a sharp turn from the US District Court for the Western District of North Carolina’s denial of the FTC’s preliminary injunction just two weeks earlier. ¹² The District Court’s reasoning hinged on the fact that the seller faced serious financial issues and Novant was the only potential buyer. As a result, the District Court found that the transaction would guarantee the hospitals remain open and therefore be an improvement on the status quo. ¹³ A split Fourth Circuit Court of Appeals panel disagreed, voting 2-1 to grant the injunction without further reasoning just days before the transactions were scheduled to close. ¹⁴ US Circuit Judge J. Harvie Wilkinson III dissented and echoed the District Court’s concerns that the hospitals could close in the absence of the transaction but noted “[t]he FTC is acting too aggressively in this case, forgetting there is such a thing as a vibrant private sector.”¹⁵

Ultimately, rather than continuing to pursue the case through appeal and then through further FTC administrative proceedings, which can take several years, Novant and Community Health Systems agreed to drop the acquisition. ¹⁶ Further, this victory reinforces the FTC’s success in challenging hospital deals by asserting traditional horizontal theories of harm, resulting in preliminary injunctions ¹⁷ and parties opting to abandon deals rather than contest FTC administrative complaints.¹⁸

B. Welsh Carson case update
In contrast with the success the FTC has enjoyed when pursuing traditional horizontal theories of harm, the FTC suffered a significant setback when attempting to bring a more novel theory in its enforcement efforts against private equity conduct when a federal judge dismissed the agency’s case against Welsh Carson. ¹⁹ As described in previous alerts, the FTC sued Welsh Carson and its portfolio company U.S. Anesthesia Partners (USAP) under Section 13(b) of the FTC Act, alleging monopolization of the market for inpatient anesthesia services in Texas through a series of acquisitions that allowed USAP to achieve monopoly power and increase prices. The court granted Welsh Carson’s motion to dismiss on the grounds that the FTC lacked the enforcement authority to bring the action under Section 13(b), which “does not permit the FTC to bring a claim based on long-past conduct without some evidence that the defendant ‘is’ committing or ‘is about to’ commit another violation.’” Because Welsh Carson sold the controlling interest in USAP in 2017 and holds only a minority interest in USAP today, the court found Welsh Carson was outside the purview of Section 13(b), no matter its role in forming USAP.

While Welsh Carson achieved a significant victory in its dismissal from the case, this was not a complete loss for the FTC, with the court finding that there were enough factual questions and plausible allegations to allow the case against USAP — the entity that allegedly actually engaged in anticompetitive conduct — to proceed to discovery. Welsh Carson’s minority investment will thus likely still go through a burdensome litigation process absent a settlement with the FTC. Because the court’s reasoning for dismissing Welsh Carson centered on its position as a minority owner, the decision would not shield majority owners from similar antitrust enforcement actions. As a result, firms engaging in small roll-up acquisitions that fall below the threshold established by the Hart-Scott-Rodino Act must still remain vigilant for potential antitrust risks.

IV. MultiPlan Faces Lawsuits Alleging Conspiracy With Payers to Fix Prices Through Algorithmic Pricing Software

MultiPlan has been sued by three health systems alleging its claims repricing tools facilitated illegal algorithmic price fixing among itself and other healthcare payors (insurers). MultiPlan offers cost containment solutions to insurers seeking to reduce out-of-network reimbursement rates. In separate lawsuits, Community Health Systems, ²⁰ AdventHealth, and Allegiance Health Management each allege these tools allow insurers to pay health systems less and cause patients to pay more out-of-pocket fees. An investigation by The New York Times gave credence to these claims, claiming that “MultiPlan has sometimes told insurers how their unnamed competitors were using the firm’s pricing tools.” ²¹ These lawsuits have been consolidated with other similar provider lawsuits in the US District Court for the Northern District of Illinois for further proceedings. ²² If successful in proving that MultiPlan facilitated collusion in the process of setting out-of-network reimbursement rates among payors, these lawsuits could result in significant monetary damages because antitrust laws permit treble damages.

Allegations of algorithmic price fixing have been a hot-button issue in the real estate and hospitality sectors, in which a number of lawsuits have alleged that revenue management software offerings, such as RealPage and other providers of pricing solutions, have allowed landlords, management companies, and hotels to collude and consequently raise rents or room rates. The DOJ has announced both a civil and criminal investigation into RealPage based on these revenue management software offerings. Similarly, Senator Amy Klobuchar urged the heads of the FTC and DOJ Antitrust Division to turn their attention to MultiPlan and “investigate the use of algorithms that collect and process data in the out-of-network insurance payment industry.” ²³ An agency investigation into the industry could reshape how payors reimburse out-of-network payments, as in 2009, when payors agreed to shift out-of-network pricing decisions to a nonprofit entity for five years to resolve a New York attorney general investigation.²⁴

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^[1] FTC, “Federal Trade Commission, the Department of Justice and the Department of Health and Human Services Launch Cross-Government Inquiry on Impact of Corporate Greed in Health Care” (March 5, 2024).
^[2] Id.
^[3] “Request for Information on Consolidation in Health Care Markets, Docket Number FTC-2024-0022,” FTC, March 4, 2024.
^[4] See, e.g., Michael A. Slubowski , “Re: Docket No. ATR 102, Request for Information on Consolidation in Health Care Markets,” FTC, May 16, 2024.
^[5] James L. Madara, “Re: Request for Information on Consolidation in Health Care Markets: Response by the American Medical Association,” FTC, June 5, 2024.
^[6] Charles N. Khan, “Re: Request for Information; Docket No. ATR 102 ,” FTC, June 5, 2024.
^[7] DOJ, “Assistant Attorney General Jonathan Kanter Announces Task Force on Health Care Monopolies and Collusion” (May 9, 2024).
^[8] Goodwin, Indiana Notice of Health Care Entity Mergers: Senate Bill 9 (IC 25-1-8.5).
^[9] FTC v. Novant Heath, Inc., 2024 U.S. App. LEXIS 14787 (4th Cir. 2024).
^[10] FTC v. Novant Heath, Inc., 2024 U.S. App. LEXIS 14787 (4th Cir. 2024).
^[11] FTC v. Novant Health, Inc., 2024 U.S. App. LEXIS 14787 (4th Cir. 2024).
^[12] FTC v. Community Health Systems, Inc., 2024 U.S. Dist. LEXIS 100388 (W.D.N.C. 2024).
^[13] Id.
^[14] FTC v. Novant Health, Inc., 2024 U.S. App. LEXIS 14787 at *2 (4th Cir. 2024).
^[15] FTC v. Novant Health, Inc., 2024 U.S. App. LEXIS 14787 at *3-4 (4th Cir. 2024) (Wilkinson, dissenting).
^[16] FTC, Statement Regarding the Termination of Novant Health’s Acquisition of Hospitals from Community Health Systems (July 1, 2024).
^[17] See FTC v. Hackensack Meridian Health, Inc., 30 F.4th 160 (4th Cir. 2022).
^[18] Such as John Muir Health’s proposed acquisition of San Ramon Regional Medical Center (abandoned December 2023), RWJBarnabas Health’s acquisition of Saint Peter’s Healthcare System (abandoned June 2022), and HCA Healthcare’s proposed acquisition of certain Steward Health Care System hospitals (abandoned June 2022).
^[19] Memorandum Opinion and Order, FTC v. U.S. Anesthesia Partners, Inc. et al., 4:23-cv-03560 (S.D. Tex. May 13, 2024).
^[20] CHS v. MultiPlan, Inc., No. 1:24-cv-03544 (S.D.N.Y. May, 8, 2024).
^[21] Chris Hamby, “Collusion in Health Care Pricing? Regulators Are Asked to Investigate,” New York Times, May 1, 2024.
^[22] In re MultiPlan Health Ins. Provider Litig., 2024 U.S. Dist. LEXIS 136840 (J.P.M.L. Aug. 1, 2024).
^[23] Letter from Amy Klobuchar to Chair Lina Khan and Assistant Attorney General Jonathan Kantar, April 29, 2024.
^[24] Martha Graybow, “UnitedHealth settles New York reimbursement probe,” Reuters, January 13, 2009.

 

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.