Antitrust Agencies Seek Public Comment on Private Equity’s Role in Healthcare, Foreshadowing Future Investigations and Enforcement Actions

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 issued a 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 workshop examining “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:

• Effects on four groups of stakeholders: (i) patients, (ii) public and private payers (i.e., insurance organizations), (iii) healthcare providers and their workers, and (iv) employers who provide health insurance to their employees. The RFI lists several potential effects for each group, generally focused on cost and quality of care.
• Whether adverse effects are more often associated with particular types of acquirers (e.g., private equity versus health systems) and/or particular types of acquired healthcare entities.
• Transactions’ expected business objectives, whether those objectives were realized, and, if so, who benefitted (e.g., were profits reinvested in the business, used to keep prices lower, or paid out to shareholders?).
• Actions the agencies could take to identify and address potentially problematic transactions in this space.
• A catch-all for any “other impacts from health care market transactions,” paired with a note encouraging stakeholders to also address “related issues” beyond the specific questions asked.

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 remarks began 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:

1. “Strip and flip” deals: So-called “strip and flip” deals were the most frequently mentioned area of concern throughout the workshop. Chair Khan described the strategy as “us[ing] large amounts of debt to acquire companies with the goal of increasing profits quickly so that [the acquirer] can resell and reap returns a few years later.” Many panelists noted how—in their view—this strategy can lead to staffing cuts, decreased quality of care, and worsened long-term prospects for the acquired healthcare provider. Several panelists suggested labor-side antitrust enforcement as a possible solution. For example, one panelist stated that “non-competes and gag clauses [ ] prevent physicians and clinical staff from leaving or speaking out if they have concerns about these practices,” and referenced the FTC’s proposed ban on non-compete agreements. Similarly, AAG Kanter referred to DOJ’s criminal enforcement efforts against wage fixing and employee allocation agreements.
2. Serial acquisitions: Chair Khan reiterated her concern with “serial acquisitions”—that “[b]y consolidating power gradually and incrementally through a series of smaller deals, [private equity] firms have sometimes sidestepped antitrust review.” Both Chair Khan and AAG Kanter pointed to relevant language in the Merger Guidelines in reference to how to address this concern.
3. Stakes in competing firms: Finally, Chair Khan said that when private equity and other firms buy significant shares in multiple competitors in a single industry, competition can decrease because firm managers have “incentiv[es] … to consider their common ownership interests in decisions about pricing[,] output and business strategy.” Both she and AAG Kanter linked this concern to their agencies’ respective efforts to enforce the Clayton Act’s ban on certain interlocking directorates.

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.

1. Serial acquisitions can be difficult to detect: Many panelists said that problematic transactions can be difficult to identify, either because they are too small to be reportable under the HSR Act and/or because private equity’s role is unclear due to complicated ownership structures. Panelists highlighted various ways that this issue is being (and could be) addressed, such as the proposed changes to the HSR rules, state statutes with analogous transaction-notification requirements, and HHS’s regulatory efforts to promote ownership transparency.
2. State-level enforcement: The workshop highlighted the role of state enforcers in scrutinizing healthcare transactions along antitrust and other dimensions. Rhode Island Attorney General Peter Neronha described various tools available to state enforcers, including state analogues to federal antitrust laws, consumer protection statutes, and “very broad parens [patriae] authority”, which he said can apply in the absence of any explicit state authority. When discussing state enforcement, Commissioner Slaughter said “[w]e’re always looking for ideas.”

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.

• 6(b) study and associated investigative subpoenas: The RFI may be a precursor to a more targeted, in-depth study pursuant to Section 6(b) of the FTC Act, which could require individual companies to produce extensive documents and data. RFIs have been precursors to 6(b) studies in the past. For example, a February 2022 RFI on the role of pharmacy benefit managers (PBMs) led to thousands of public comments and was soon followed by a June 2022 6(b) study. As part of that study, the FTC requested documents and data from the six largest PBMs, and in 2023 it expanded its requests to include certain affiliated group purchasing organizations.
• Potential enforcement actions or broader regulations: Additional enforcement actions or regulations, from either federal or state enforcers, are also a possibility. The RFI itself explains that comments received “will inform the agencies’ identification of enforcement priorities and future action, including new regulations, aimed at promoting and protecting competition in health care markets and ensuring appropriate access to quality, affordable health care items and services.” State enforcers will also have access to the RFI comments and might use those materials to identify potential enforcement targets of their own.

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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:

• Review and update document retention and related policies, considering in particular the agencies’ recent guidance that failure to preserve data from ephemeral messaging platforms and collaboration tools could lead to criminal obstruction of justice charges.
• Assess risks related to board “interlocks” under Clayton Act Section 8, and set up mechanisms to catch violations that could arise over time from future deals or other changed circumstances.
• Bear in mind that individual transactions should be evaluated in the context of the company’s prior (and future planned) acquisitions in the same industry. Small, non-reportable transactions could be challenged as part of a “roll-up” theory, even if they occurred long ago.
• Consult with antitrust counsel early in the process of evaluating an acquisition to assess antitrust risk (both state and federal) and account for that risk in transaction agreements.

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.