Federal Agencies Continue Probe into Private Equity's Impact on Healthcare

On March 5, 2024, The Federal Trade Commission (FTC), the Department of Justice’s (DOJ) Antitrust Division, and the U.S. Department of Health and Human Services (HHS) jointly launched a cross-government public inquiry into private-equity and other corporations’ increasing control over healthcare.

The agencies issued a Request for Information (RFI) requesting public comment on transactions conducted by health systems, private payers, private equity funds, and other alternative asset managers that involve healthcare providers, facilities, or ancillary products or services. The RFI also requests information on transactions that would not be reported to the DOJ or FTC for antitrust review under the Hart-Scott-Rodino Antitrust Improvements Act. Recently, the agencies extended the public comment deadline of May 6, 2024, by 30 days to June 5, 2024.

The basis for the RFI is the concern that the maximization of profits in the healthcare space may be achieved to the detriment of clinical care. The cross-government inquiry is looking into how certain healthcare market transactions may increase consolidation and generate profits at the cost of clinical quality. The RFI is broad and requests comment from all market participants, including, but not limited to, patients, consumer advocates, doctors, nurses, healthcare providers and administrators, employers, and insurers, among others. The agencies are seeking comments regarding transactions, including, but not limited to, dialysis clinics, nursing homes, hospice providers, primary care providers, hospitals, home health agencies, home and community-based services providers, behavioral health providers, and billing and collections services.

There may be challenges in obtaining advance notice of private equity transactions. Certain states have already enacted additional oversight with respect to certain corporate healthcare transactions and arrangements, so it is strongly recommended that state notice requirements be reviewed early in the transaction to mitigate delays. For example, New York joins a number of states that have already implemented laws requiring notice periods and additional oversight for proposed healthcare transactions, including, but not limited to: California, Connecticut, Illinois, Massachusetts, Minnesota, Nevada, Oregon, Rhode Island and Washington. New York has a notice period of at least 30 days prior to closing; however, other states’ notice periods range anywhere from 30 to 180 days. For example, Connecticut has additional annual report filing obligations that include (i) the names and specialties of each physician practicing medicine within the group practice; (ii) the names of the business entities providing the services; and (iii) a description of services provided at each location and primary service area served by each location. The Oregon Health Authority conducts follow-up reviews of the transaction at one-year anniversaries, two-year anniversaries, and five-year anniversaries of certain closings. Other states cite potential referral to the Attorney General for review of unfair competition, anti-competitive behavior or anti-competitive effects.

Key Takeaways

All healthcare market participants and private equity firms should be mindful of board composition and seek counsel to consider potential interlocking directorate issues when evaluating transactions. Section 8 of the Clayton Antitrust Act of 1914, 15 U.S.C. §§ 12-27, prohibits interlocking directorates.

An interlocking directorate is when an officer or director of one company also acts as an officer or director of a competing company. The statute provides: “[n]o person shall, at the same time, serve as a director or officer in any two corporations … that are … competitors such that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws.” Therefore, Section 8 forbids any person from simultaneously serving as a director or officer in any two corporations (excluding banks, banking associations and trust companies), which due to their business and location of operation are subsequently, competitors, and the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws. Section 8 liability is a strict liability statute, so companies should be cautious of Section 8 issues when entering into mergers or joint ventures.

Private equity firms should consult with counsel regarding questions and expect that “roll-ups,” including non-reportable transactions, may receive antitrust scrutiny from the FTC and DOJ. Given the regulatory focus on private equity in healthcare, interested stakeholders are encouraged to seek counsel to closely track related developments.