Top enforcement officials at the Federal Trade Commission (FTC) and the Justice Department’s Antitrust Division (DOJ) say private equity (PE) firms are likely to be the next targets of the Biden administration’s aggressive antitrust enforcement plan. It is sending a strong signal.
Workshop to outline government concerns
At a Virtual Workshop on Private Equity in Healthcare earlier this week, antitrust enforcement chiefs from the FTC and the Department of Justice, and executives from Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services, proposed the following: Corporate investments in health care are increasing costs while also decreasing quality and access.
Enforcers said these concerns stem from the PE model’s incentive structure, which prioritizes short-term profits over quality of care and patient well-being. “Short-term, high-risk, low-consequence ownership can encourage a ‘flip-and-strip’ approach,” said FTC Chair Lina Khan.
While some merger challenges have targeted PE firms’ M&A deals, antitrust enforcement authorities have allowed the vast majority of healthcare transactions involving PE buyers to close without investigation or challenge. , this workshop is important.
This may change in the future. This rhetoric suggests that enforcement authorities may investigate further transactions involving PE firms and take enforcement actions based on concerns about how PE firms operate healthcare companies post-transaction. are doing.
Perhaps the most striking comment from bailiffs concerned the relationship between PE ownership and mortality. According to Chairman Khan, “One study estimated that private equity acquisitions of nursing homes and associated layoffs led to increased mortality rates. Specifically, in just 12 years, nursing home patients The excess deaths amount to approximately 20,000 people.”
Physicians and nurses who participated in the panel discussion shared their experiences working at community hospitals that were acquired by private equity firms. They shared anecdotes about how private equity ownership led to staff cuts, shortages of medicines and supplies, and poor patient care.
Academics invited to the workshop echoed Khan’s concerns. Dr. Eileen Applebaum, an economist at the Center for Economic Policy Research, notes a variety of effects that can be attributed to PE ownership.
- Earn profits that can be used to invest in new equipment, staffing, or technology.
- Manipulated CMS to control reimbursement programs in a way that restricted access to health care for seniors.
- Reduce staffing in a way that reduces quality and harms patients and employees.
- It burdens acquired healthcare companies with debt and reduces their long-term viability.
- The real estate owned by the acquired healthcare company will be sold and a high-pressure long-term lease contract will be entered into.
Other participants expressed concern about PE’s increasing ownership of specialty physician groups such as anesthesiologists, ophthalmologists, hospice facilities, skilled nursing facilities, and home health agencies. “Private equity firms, which have entered virtually every level of the health care system, now occupy the position of intermediaries with the ability to pull the levers of health care,” said Jonathan Canter, assistant attorney general at the Department of Justice. .
Joint Agency Study on Healthcare and Corporate Greed
The workshop occurred at the same time that the FTC, DOJ, and HHS issued a new Request for Information (RFI) seeking public input on “Corporate Greed in Health Care.” This cross-government study “explains how certain health care market transactions promote consolidation while threatening patient health, worker safety, quality of care, and health care affordability for patients and taxpayers. The aim is to understand what makes a company profitable. The RFI also includes transactions that are not required to be reported under the law, and includes transactions that are not required to be reported under the law. It also seeks information regarding “transactions conducted by alternative asset managers.” Hart-Scott-Rodino (HSR) method.
A new clause in the Merger Guidelines prohibiting anti-competitive “roll-up acquisition strategies” was repeatedly cited by enforcers. The new guidelines are likely to be included in discussions in future enforcement actions against PE firms.
What does this mean to you?
- Whether the FTC and Department of Justice investigate or challenge a particular PE transaction depends on the facts. Among other things, the agency may consider previous acquisitions by the PE firm and the impact those transactions have on quality, access, and price.
- New merger guidelines, workshops, RFIs, and pending new HSR regulations are all not slowing down enforcement of the Biden administration’s 2021 executive order to use antitrust laws as a tool to address economic and moral issues makes that very clear. Found in certain industries such as healthcare.
- Early analysis and planning are key elements of an M&A strategy to assess how best to mitigate and minimize execution risk.
