The FTC and Chair Khan are continuing their efforts to spotlight their concerns about private equity (PE) ownership of hospitals and other healthcare facilities. In conjunction with a highly publicized workshop titled Private Equity, Public Impact: An FTC Workshop on Private Equity in Health Care, last week they announced a joint cross-government public inquiry with the DOJ and HHS. The agencies issued a Request for Information (RFI) calling for public comment on the role of PE investment in the healthcare sector. This is the latest sign of increased antitrust scrutiny of “roll-up” strategies, which is happening on both sides of the Atlantic (see our 2024 global predictions). In this post, we explain the latest developments.

Scrutiny of PE-backed healthcare flagged as a priority in 2021

US agency hostility to PE-ownership in healthcare has grown in recent years. Within the first months of her appointment as FTC chair in 2021, Lina Khan sent a memo to FTC staff prioritizing an examination of “how [PE] business models may distort ordinary incentives in ways that strip productive capacity and may facilitate unfair methods of competition and consumer protection violations.” More than two years later, Chair Khan’s first major enforcement action reflecting this directive occurred when the FTC sued Welsh Carson and its portfolio company, U.S. Anesthesia Partners (USAP) for various alleged antitrust violations. This case, still pending, is the first of its kind challenging PE “roll up” strategies in the US.

What’s different now?

The latest RFI continues to reflect the US agencies’ antipathy for PE business models in healthcare. While regulators have various tools available to conduct industry-wide investigations, including compulsory orders for production of documents and information, that process can take many months, if not years. Another way for the agencies to supplement their fact-finding is with a public call for information. Where the goal is to publicly highlight business activity that they condemn, they can avoid the investigation process altogether.  That is what the FTC (together with HHS) did when it issued an RFI seeking public input on how concentration among large health care GPOs and drug wholesalers may be contributing to drug shortages, despite the FTC’s ongoing investigation into PBMs on the same issue. 

Today we’re taking new action to take on corporate profiteering in healthcare and we’re asking for the public’s help. Today, the FTC, the Department of Justice and the Department of Health and Human Services are launching a public inquiry to examine the role of private equity in healthcare as well as corporate profiteering, more generally. We’re aiming to gather information from a wide variety of sources and experiences to ensure that we can best harness our tools and enforcement to address the challenges of today. Your engagement on these issues and your expertise is going to be critical.” – Chair Khan, March 5, 2024

Antitrust harm vs. societal harm

The government’s overarching contention is that PE-backed healthcare businesses are chronically understaffed and underfunded, due to a focus on corporate profit over patient outcomes, causing alleged quality issues. But since the antitrust laws focus on competitive impact, not on second-guessing business strategy, under binding legal precedent the agencies have a limited ability to bring cases absent strong evidence of anticompetitive conduct or a merger-specific price or quality effect. The outcome of the USAP case will be closely watched, but even there the FTC is alleging traditional anticompetitive conduct (e.g., per se unlawful agreements with competitors), not merely that a “roll-up” strategy has resulted in lower incentives to compete on quality.   

A wider trend of heightened PE scrutiny

As we foreshadowed in our previous post on global trends for 2024, the UK CMA is also likely to continue to scrutinize perceived “roll up” transactions, particularly in consumer-facing industries. The CMA’s proposed reforms to its de minimis framework make clear that (even small) transactions that form part of a potentially large number of similar mergers will continue to attract close attention.

The CMA has already investigated a number of PE “roll up” acquisitions in the dentistry and veterinary sectors, applying its jurisdictional test expansively and requiring significant structural divestments. Today, it provisionally decided to launch a formal Market Investigation into the veterinary sector, based in part on potential concerns around the effects of sector consolidation and the incentives of large (in some cases PE-backed) corporate groups. This follows a similar inquiry into the provision of children’s social care services in 2021, where concern about private investment in the sector was one of the factors prompting the CMA to investigate. A Market Investigation allows the CMA to compel the provision of information, and ultimately to impose remedies on market participants to address concerns, including the disposal of assets.