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Justice Department, Federal Trade Commission and Department of Health and Human Services Issue Request for Public Input as Part of Inquiry into Impacts of Corporate Ownership Trend in Health Care

From DOJ Office of Public Affairs:

The Justice Department’s Antitrust Division, Federal Trade Commission (FTC), and Department of Health and Human Services (HHS) have launched a joint public inquiry into the increasing control of private-equity and corporate entities over healthcare. This inquiry aims to understand how certain healthcare market transactions may lead to increased consolidation, generate profits for firms, and potentially threaten patient health, worker safety, and the affordability and quality of care.

The agencies are seeking public comment on deals conducted by health systems, private payers, private equity funds, and other alternative asset managers that involve healthcare providers, facilities, or ancillary products or services. This includes transactions that would not be reported to the Justice Department or FTC for antitrust review under the Hart-Scott-Rodino Antitrust Improvements Act.

Research indicates that competition in healthcare provider and payer markets promotes higher quality, lower-cost healthcare, greater access to care, increased innovation, higher wages, and better benefits for healthcare workers. The responses to the RFI will inform the agencies’ enforcement priorities and future actions, including potential regulations aimed at promoting and protecting competition in healthcare markets and ensuring appropriate access to quality, affordable healthcare items and services.

The public, including patients, consumer advocates, doctors, nurses, healthcare providers and administrators, employers, insurers, and more, are invited to share their comments in response to the RFI within 60 days. The agencies are particularly interested in comments on a variety of transactions, including those involving dialysis clinics, nursing homes, hospice providers, primary care providers, hospitals, home health agencies, home- and community-based services providers, behavioral health providers, as well as billing and collections services.

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Health Law Highlights

DOJ, FTC Looking at Roll-Up Acquisitions for Anticompetitive Acts

From The National Review, by Jessica Sprovtsoff of ArentFox Schiff LLP:

In December 2023, the White House announced plans to intensify antitrust scrutiny in the healthcare sector, focusing particularly on “roll-up” acquisitions, a practice where a company acquires several smaller entities, potentially leading to market consolidation. This strategy can potentially violate antitrust laws, but each individual acquisition often falls below the size criteria for pre-acquisition reporting to antitrust enforcement agencies.

The US Department of Justice (DOJ) and the Federal Trade Commission (FTC) have responded by planning to collaborate on data sharing to the maximum extent, aiming to detect potentially anticompetitive transactions that might not usually qualify for antitrust enforcement reviews.

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Health Law Highlights

FTC Seeks to Put Private Equity Roll-Up Strategies to Sleep With its Case Against U.S. Anesthesia Partners

From Winston & Strawn, by Neely Agin and Hannah Gallagher, writing for AHLA (Subscription):

  • FTC and DOJ have increased regulatory scrutiny on the health care industry, particularly private equity investors.
  • FTC Chairwoman Lina Khan has expressed concern over “roll-up” or consolidation strategies in the health care industry, citing potential negative effects on quality of care and costs for patients.
  • In its recent complaint against Welsh Carson and USAP, the FTC alleges a “multi-year anticompetitive scheme” to consolidate anesthesiology practices in Texas and drive up prices.
  • The complaint also includes claims against Welsh Carson, the private equity firm, and not just the portfolio company.
  • This lawsuit serves as a reminder to private equity firms to carefully consider potential antitrust risks in their investments and post-consummation behavior.
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Alert

2020 Health Antitrust Year in Review

The federal antitrust enforcement agencies brought three hospital merger challenges and three criminal antitrust enforcement actions in health care in the past year. Combined with the incoming Democratic administration, healthcare antitrust enforcement is likely to remain strong in 2021.

Hospitals & Health Systems. The Federal Trade Commission (FTC) challenged three hospital and health system transactions in 2020. While the outcome of the most recent challenged transaction is pending, in one of the other two transactions, the merging parties abandoned the deal after the complaint was filed, and in the other transaction the district court refused to grant a preliminary injunction to cease consummation of the transaction pending an administrative trial. Other than various strategic, cost, timing, and business reasons for why parties choose to defend a transaction or not, and the difference in case development, what lessons can be drawn from these recent enforcement actions? First, payor views—and the substantiation thereof—remain key. Parties to proposed in-market transactions should carefully analyze their historical contracting practices and network configuration. Second, geographic market definition has always been and remains critical to the antitrust analysis of these transactions, particularly in urban areas. Relevant geographic markets are analyzed first by the impact a merger may have on insurers, and second by the merger’s potential impact on patients. Detailed economic analysis is part of antitrust due diligence in preparation for proposed transactions.

Payors. If finally approved by the court, the proposed Blues plans’ subscriber settlement may change the competitive dynamic in the healthcare services insurance markets. Employers would be able to request bids from and providers may negotiate rates with multiple insurance providers even under the same umbrella. Insurance licensees may be able to make inroads into new markets and offer new products.

Criminal Enforcement. The Department of Justice (DOJ) has brought several criminal charges against healthcare companies in the past couple of months, including for wage-fixing, nonsolicitation/nopoach agreements and market allocation. General counsels (GCs) and human resources (HR) professionals should emphasize company-wide training and familiarity on how the sharing of nonpublic wage and employment term information with competitors can lead to antitrust violations for individuals as well as the company. Enforcement agencies, as well as private plaintiffs, can challenge agreements as anticompetitive irrespective of whether they challenge any underlying transaction. The federal government and state AGs are ramping up criminal enforcement in healthcare markets. Healthcare organizations should consider their internal corporate compliance programs and education.

Vertical Mergers. In analyzing the potential harm of a vertical transaction, the antitrust enforcement agencies will ask whether the parties, after they have merged, will have the ability or incentive to foreclose rivals. For example, if a hospital system acquires an ambulatory care provider in the same geographic area, a key inquiry would be whether the merged entity will have the ability to force payors into an exclusive arrangement that limits the payors’ ability to contract with other hospitals or ambulatory care providers. Another relevant question is whether the merged entity would have the ability to cherry-pick profitable cases and refer less profitable cases to other entities. In a vertical merger between an insurer and a pharmacy, a key concern would be whether insurer enrollees could use only the payor’s pharmacy, or have to pay higher fees to use a different pharmacy. Parties to vertical transactions should engage in antitrust planning to assess potential competitive effects.

Federal and State Policy & Enforcement. With Xavier Becerra nominated to Secretary of the Department of Health and Human Services (HHS), states pursuing antitrust enforcement in the provider marketplace will be likely to receive support (e.g., briefs, public statements, parallel federal enforcement actions) from the federal government. Moreover, the injunctive relief included in the settlement terms of a lawsuit Becerra joined as California Attorney General could very well lead states to pass tighter transparency regulations and price controls. Providers should examine their ordinary course and post-closing managed care contracting practices.

Source: 2020 Health Antitrust Year in ReviewMcDermott, Will and Emery.

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Alert

Former Owner of Health Care Staffing Company Indicted for Wage Fixing

A federal grand jury returned an indictment charging Neeraj Jindal, the former owner of a therapist staffing company, for participating in a conspiracy to fix prices by lowering the rates paid to physical therapists and physical therapist assistants in north Texas, including the Dallas-Fort Worth metropolitan area, the Department of Justice announced today.  The indictment also charges Jindal with obstruction of the Federal Trade Commission’s separate investigation into this conduct.

Price fixing is per se illegal under Section 2 of the Sherman Act. This appears to be an alleged horizontal price-fixing claim. One element in this type of charge is that the conduct must “unreasonably” restraint trade. That inquiry depends on the degree of the restraint’s adverse effect on competition and on the degree of any pro-competitive effects from restrain.

Source: Former Owner of Health Care Staffing Company Indicted for Wage Fixing | Department of Justice

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Alert

FTC sues to block $350 million sale of 2 Tenet Healthcare-owned hospitals in Memphis area

The Federal Trade Commission is suing to block Farmers Branch-based Tenet Healthcare’s $350 million sale of two hospitals in the Memphis area to another healthcare system.

I don’t know the specifics of the transaction, but the FTC likely objected after the parties filed a “Hart-Scott-Rodino Premerger Notification,” or just “Hart-Scott filing.” These filings, which must take place a certain amount of time prior to the closing of the transaction, give the FTC time to object.

Often, the FTC will object and also file an injunction in Federal Court to prohibit the transaction. The practical effect is that the preliminary injunction hearing becomes the “trial” for whether the transaction will be allowed. If the FTC is successful with the injunction, the deal is usually scuttled.

Source: FTC sues to block $350 million sale of 2 Tenet Healthcare-owned hospitals in Memphis area – Dallas Morning News