DealLawyers.com Blog

In early March, the FTC, DOJ & HHS announced a “cross-government public inquiry into private equity and other corporations’ increasing control over health care.” This Mayer Brown article says:

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. […]

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.

This isn’t the first indication that the FTC and DOJ intend to use various tools to target financial sponsors — especially in the healthcare space. The article says that “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.”

– Meredith Ervine