FTC Hosts Workshop on Private Equity Investments in Health Care

On March 5, 2024, the Federal Trade Commission (“FTC”) hosted Private Capital, Public Impact: An FTC Workshop on Private Equity in Healthcare¹ (the “workshop”). The workshop coincided with the announcement that the FTC, Department of Justice (“DOJ”), and Department of Health & Human Services (“HHS”) would be undertaking a joint, public inquiry into private equity’s increased control of the health care sector.² As part of this initiative, the agencies have opened a 60-day Request for Information (“RFI”) period and are seeking public comments on the impact of acquisitions involving health care providers.

The workshop hosted federal regulators, academics, health care providers, and others familiar with the industry to share their perspectives on private equity and health care. The workshop further amplified prior statements and positions expressed by FTC Chair Lina Kahn and Antitrust Division head Jonathan Kanter. DOJ Principal Deputy Assistant Attorney General Brian Boynton also recently announced increased scrutiny of private equity in the context of the False Claims Act,³ indicating that continued scrutiny of private equity investment in the health care industry may be expected.

Highlights of Speaker Presentations

The event began with remarks from FTC, DOJ, HHS, and Centers for Medicare and Medicaid Services (“CMS”). FTC Chair Lina Khan spoke first, introducing the RFI and then shifting to discuss several private equity-specific business practices that she believed led to worse patient outcomes, such as incremental acquisitions (“roll-ups”) to eliminate competition and interlocking directorates. DOJ Assistant Attorney General for the Antitrust Division Jonathan Kanter echoed these comments and further noted that antitrust enforcement efforts are consistent with state corporate practice of medicine laws. Next, HHS Inspector General Christie Grimm spoke, emphasizing HHS concern regarding private equity’s impact on quality of care. Grimm highlighted the efforts by HHS to improve transparency around private equity’s complex ownership structures and the use of government funds for direct patient care, closing by warning that HHS will seek accountability by private equity where their conduct impacts patient safety or is fraudulent. Jon Blum, Principal Deputy Administrator and Chief Operating Officer of CMS, spoke last, discussing CMS’s plans to be more critical of consolidation and seek more transparency from private equity-backed participants in its programs.

The next set of speakers included individuals from academia, research institutes, and clinical practice. Dr. Eileen Appelbaum (Co-Director, Center for Economic and Policy Research) gave the keynote address. She argued that private equity’s short time investment realization horizon is fundamentally at odds with the clinical care model because it requires health care entities to divert funds from patient care to pay for debt incurred by aggressive expansion efforts. She offered Steward Health Care as an example, which is currently at risk of closing its 10 Massachusetts hospitals after years of financial challenges following a private equity acquisition.⁴

Ms. Appelbaum’s presentation was followed by panels of clinicians and researchers. Several health care providers offered personal testimonials about harms to patients and the community following private equity acquisitions of community hospitals. FTC Commissioner Alvaro Bedoya echoed their sentiments, emphasizing the need to put the doctor-patient relationship at the forefront of health care and highlighting that 30 states require doctors to run medical practices as further proof of its importance. The second panel of researchers and commentators discussed ongoing research regarding the performance of private equity-owned providers. They emphasized that a host of measures, from ownership transparency and expanded practice of medicine laws to greater fraud, abuse, and antitrust enforcement, are required to improve patient outcomes.

The workshop concluded with a fireside chat between FTC Commissioner Rebecca Kelly Slaughter and Rhode Island Attorney General Peter Neronha. The discussion centered on Neronha’s actions involving Leonard Green & Partners’s sale of two Rhode Island hospitals under a state hospital conversion law. Neronha shared that the proposed deal attracted his attention after further inspection of the hospitals’ books showed that they were in significant debt. He attributed the hospitals’ condition to dividends paid out to private equity investors and only approved the sale after the firm placed millions in escrow to prevent their closures. Neronha advised other state enforcers to take action to protect their citizens—whether under a like hospital conversion act, antitrust law, deceptive trade or consumer protection statutes, or their broad parens patriae authority.

Key Takeaways and What’s Next

The need for competition, transparency, and community protection was repeated several times throughout the workshop. The joint RFI and the recent government actions against private equity in the health care space further suggest the federal agencies’ willingness and commitment to pursue actions in this space. In addition, it is important to be mindful of the FTC and DOJ’s proposed revised Merger Guidelines and state competition, access and other laws that may result in further scrutiny of private equity transactions and investment in health care. Ropes & Gray’s Navigating Emerging State Regulation of Health Care⁵ can help keep track of new developments in this area. As a result of the RFI process, the FTC and other enforcers may make further statements or take further enforcement action.

For questions please contact Jane Willis, Tim McCrystal or your usual Ropes & Gray advisor.