FTC, DOJ and HHS Launch Public Inquiry into Transactions Involving Private Equity Firms, Health Systems and Private Payers

On March 6, the Federal Trade Commission (“FTC”), the Department of Justice’s Antitrust Division (“DOJ”), and the Department of Health and Human Services (“HHS”) (the “Agencies”) announced that they were “launching a cross-government public inquiry into private equity and other corporations’ increasing control over health care.”

In making the announcement, the Agencies said that “[p]rivate equity firms and other corporate owners are increasingly involved in health care system transactions, and, at times, those transactions may lead to a maximizing of profits at the expense of quality care.”

They went on to explain that their inquiry seeks to understand “how certain health care market transactions may increase consolidation and generate profits for firms while threatening patients’ health, workers’ safety, quality of care, and affordable health care for patients and taxpayers.”

In announcing the public inquiry, FTC Chair Lina M. Kahn stated: “When private equity firms buy out healthcare facilities only to slash staffing and cut quality, patients lose out.” “Through this inquiry the FTC will continue scrutinizing private equity roll-ups, strip-and-flip tactics, and other financial plays that can enrich executives but leave the American public worse off.”

Request for Information

On the same day as the announcement, the Agencies issued a Request for Information (RFI) requesting public comment on deals conducted by health systems, private payers, private equity funds, and other alternative asset managers that involve health care providers, facilities, or ancillary products or services.

The RFI focuses on three categories of transactions.

Transactions Conducted by Private Equity Funds or Other Alternative Asset Managers

The Agencies are particularly interested in information on transactions in the health care market conducted by private equity funds or other alternative asset managers, health systems, and private payers, especially those transactions that would not be noticed to the DOJ and the FTC under the Hart-Scott-Rodino Act.

The examples of private equity transactions include a private equity fund’s acquisition of a health care provider such as a hospital, nursing home, or specialty service provider. The Agencies state that they are interested in transactions where private equity funds make direct acquisitions, as well as transactions structured to facilitate private equity investment, circumventing applicable corporate practice of medicine restrictions.

They are also interested in transactions involving other alternative asset classes, i.e., investments in assets other than stock and bonds, such as private credit funds and real estate investment trusts.

Transactions Conducted by Health Systems

The Agencies explain that they are interested in learning more about the impact of mergers and other transactions involving health care providers, facilities, or ancillary products or services conducted by health systems.

The Agencies give as examples of health system transactions vertical integrations such as when a health system acquires an independent physician practice, an ambulatory surgery facility, or a nursing home, or horizontal integrations such as when a health system partially acquires a hospital, resulting in the ability to influence the decisions and financial interests of a competing hospital, despite having a passive or minority ownership interest.

The Agencies explain that there are concerns that the involved facilities and providers may have less of an incentive to compete for patients, payers, and health care workers, and that the acquiring health system may have the ability and incentive to weaken rival providers and facilities by changing their referral patterns away from rival providers and facilities and towards their own providers and facilities.

Transactions Conducted by Private Payers

 Finally, the Agencies explain that they are interested in learning more about the impact of transactions conducted by private payors that involve health care providers, pharmacies, facilities, or ancillary products or services. Private payers can be insurers and/or administrative service organizations. Examples of this type of transaction include when insurers purchase primary care practices outright or when they become partial owners of these practices.

The Agencies note concerns that the acquiring payer may have the ability and incentive to weaken rival payers by charging higher prices for the rival’s members to use the acquired practice, removing the acquired practice from rival payers’ networks, or otherwise worsening contracting terms. There is also a concern that these types of transactions may result in vertical integration between certain types of entities such as insurers, pharmacy benefit managers, and pharmacies, which may affect pricing and access to prescription drugs for patients and costs to the government as a payor.

In addition to public comments generally, the Agencies are also interested in hearing directly from patients and health care workers about how their experiences in the health care system changed after a facility or other provider where they work or receive treatment or services was acquired or underwent a merger.

The public has 60 days to submit comments at Regulations.gov, (i.e., no later than May 6, 2024).

Some Background

The Agencies’ announcement and issuance of the RFI come against the backdrop of recent enforcement activity by the FTC and DOJ and state attorney generals in the areas highlighted in the RFI.

As previously reported, the FTC last September filed suit against U.S. Anesthesia Partners (“USAP”) and the private equity firm Welsh, Carson, Anderson & Stowe, which created USAP, alleging that they executed a multiyear anticompetitive scheme to consolidate anesthesiology practices in Texas, drive up the price of anesthesia services provided to Texas patients, and boost their own profits.

In the suit, the FTC alleges that USAP and Welsh Carson executed a roll-up scheme, systematically buying up nearly every large anesthesia practice in Texas to create a single dominant provider with the power to demand higher prices and further drove up anesthesia prices through price-setting agreements with remaining independent practices while at the same time sidelining a significant competitor by striking a deal to keep it out of USAP’s territory.

At the state level, the Colorado Attorney General sued USAP under Colorado’s antitrust law making allegations similar to those made by the FTC in Texas and on February 28, the parties announced that they had settled the case with USAP-Colorado agreeing to relinquish its facility agreements at five hospitals in the Denver-Boulder area and in Durango, Colorado.

Most recently, The Wall Street Journal reported that the DOJ has opened an antitrust investigation into United HealthGroup’s ownership through its subsidiary Optum, Inc. of primary care and specialty physician groups (90,000 physicians as of last November) along with ambulatory surgery centers, and Optum’s relationship with United Healthcare, the health insurance subsidiary of United HealthGroup.

Since Optum’s physicians provide services to patients covered by UnitedHealthcare health plans and to patients of competing plans, the DOJ is likely examining whether UnitedHealthcare provides favorable treatment to the Optum-owned practices to the detriment of competing physician practices.

Even before this most recent enforcement activity and the Agencies’ issuance of the RFI, the FTC had repeatedly expressed its concern about private equity and its involvement in the consolidation of health care practices.

As an example, the FTC in August 2022 entered into a consent decree with the private equity firm, JAB Consumer Partners, pursuant to which the FTC imposed strict prior approval and prior notice requirements on JAB’s future acquisitions of specialty and emergency veterinary clinics as a condition of JAB’s proposed acquisition of a specialty and emergency veterinary services provider.