Tag: Private Equity

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Health Law Highlights

Will Regulatory Scrutiny Impact Private Equity Investment in Healthcare?

Summary of article from Ankura, by Anthony Metke, Robert Mundy:

Private equity (PE) investment in healthcare has grown substantially in the past decade due to the sector’s fragmentation, potential for scale, and attractive returns. However, this trend has raised concerns about the implications for patient care, costs, and industry structure. The Federal Trade Commission (FTC) and other regulatory bodies have recently increased their scrutiny of PE in healthcare, highlighting the potential risks of prioritizing profit over patient care. The future of PE investment in healthcare will likely involve a more cautious approach, with increased emphasis on regulatory compliance, transparency, and alignment with broader healthcare improvement goals. PE firms may need to adapt their investment strategies to a more long-term perspective, aligning with the goals of improving healthcare delivery and patient outcomes.

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Health Law Highlights

With AI, Keep Patient Satisfaction Top of Mind, Says Health IT Investor

Summary of article from Healthcare IT News, by Bill Siwicki:

Artificial intelligence (AI) is poised to revolutionize healthcare, with investors viewing it with cautious optimism due to its potential for significant advancements and the need for careful consideration of secondary implications. AI can catalyze the shift towards value-based care by improving patient outcome measurement, personalizing treatments, and predicting health issues for early intervention. AI can also streamline the revenue cycle management process by automating tasks, predicting revenue leakage, and enhancing billing accuracy. While AI won’t replace clinicians, it will assist in decision-making by analyzing complex data points, providing evidence-based recommendations, and identifying potential drug interactions. Despite challenges like data privacy and integration into existing systems, AI’s development trajectory in healthcare is promising.

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Health Law Highlights

Tame The Private Equity Beast By Shifting Its Focus To Value-Based Care

Summary of article from Health Affairs, by Ken Terry:

The influence of private equity (PE) firms on the healthcare industry has lead to several concerns, including reduced quality of patient care, increased expenses, and potential economic instability. However, PE firms could also play a constructive role in healthcare reform if their investments were directed towards helping entities transition to value-based care (VBC). Tax incentives could motivate PE investments in VBC-oriented entities (VOEs). Policy changes, such as extending holding periods for health assets, creating escrow accounts for failed strategies, and establishing joint liability between PE firms and their owned companies, could motivate PE firms to focus on primary care and reduce healthcare waste.

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Health Law Highlights

Is Your Compliance House In Order? Tips for Ensuring Private Equity and Portfolio Company Compliance

Summary of article from Bass, Berry & Sims PLC, by Angela Humphreys, Jennifer Michael:

The recent Request for Information by federal agencies highlights the need for private equity (PE) firms to have robust compliance programs for their healthcare sector investments. Such programs should align with the Office of Inspector General’s General Compliance Program Guidance, and include written policies, procedures, risk analyses, and audits. PE firms need to understand their role and risk profile in the portfolio company’s structure, including their involvement in executive hiring, business program implementation, and potential antitrust issues. Equity incentive awards should comply with both the Stark Law and the federal Anti-Kickback Statute. Lastly, PE firms should ensure attorney-client privilege is maintained in their interactions with both the portfolio company and outside counsel.

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Health Law Highlights

PE-Owned Health Care Saw Surge in 2023 Bankruptcies, Report Says

Summary of article from Mergers & Acquisitions, by Bloomberg News:

Private equity (PE)-backed businesses accounted for about 20% of the 80 bankruptcies in the healthcare sector in 2023, according to the Private Equity Stakeholder Project. Additionally, venture-capital backed companies made up another 15% of these filings. The report predicts this trend of healthcare bankruptcies will continue in 2024, especially among companies owned by PE firms. Two of the largest bankruptcies in 2023 were KKR Group’s Envision Healthcare Corp. and GenesisCare. The report also highlighted that increased regulation, high expenses, and the impact of the pandemic have contributed to the distress in the healthcare sector.

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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

The FTC Hosts Workshop on Private Equity in Health Care

From Sheppard Mullin Richter & Hampton LLP, by John Carroll, Joy Siu, Jake Walker:

On March 5, 2024, the Federal Trade Commission (FTC) hosted a workshop titled “Private Capital, Public Impact: An FTC Workshop on Private Equity in Health Care”. The event aimed to explore the effects of private equity (PE) investment on the health care system. The workshop brought together representatives from the FTC, Department of Justice (DOJ), Department of Health and Human Services (HHS), academia, and health care professionals. Concurrently, these agencies initiated a “Cross-Government Inquiry on Impact of Corporate Greed in Health Care”, issuing a Request for Information (RFI) to seek public opinions on health care deals involving PE firms.

The workshop revealed a general skepticism from the agencies towards the escalating involvement of PE in the health care industry. They expressed concerns about potential negative impacts, such as increased consolidation and poorer patient outcomes. FTC Chair Lina Khan and Assistant Attorney General of the Antitrust Division of the DOJ, Jonathan Kanter, were among those who voiced worries about the potential for profit motives to override medical judgment and the detrimental effects of PE ownership on patient care.

The workshop also highlighted that antitrust enforcement is looking to address certain practices employed by PE firms in the health care sector. These include serial acquisitions of provider practices, short-term acquisitions with high debt aimed at quick profit and resale, investments in competing companies within the same industry, and PE representation on the boards of competing companies. Testimonies from health care professionals further supported these concerns, citing instances of reduced staffing and lower quality of care following PE acquisitions.

During a discussion, FTC Commissioner Rebecca Slaughter and Rhode Island Attorney General Peter Neronha addressed how Rhode Island’s Hospital Conversions Act allowed the state to impose conditions on a private equity transaction. They advocated for similar legislation and encouraged state attorneys general to use state antitrust and consumer protection laws to combat PE consolidation in the health care system.

The workshop and RFI emphasize an increasing federal and state oversight of PE transactions, particularly in the health care sector. Several states have proposed new legislation to provide state attorneys general with more power to investigate and potentially block investments by PE firms in the health care industry. The goal of the RFI, as stated by Jonathan Kanter, is to understand the modern market realities of the health care industry and enforce the law against unlawful deals. PE firms, sellers, and portfolio companies should be aware of these potential obstacles when considering health care transactions.

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Health Law Highlights

Hospitals Owned by Private Equity Are Harming Patients, Reports Find

From Ars Technica, by Beth Mole:

  • Private equity firms, particularly Apollo Global Management, are increasingly acquiring hospitals across the US, a trend that has led to a decline in the quality of care, according to reports by the Private Equity Stakeholder Project (PESP) and a study in JAMA. 
  • Apollo Global Management, through Lifepoint and ScionHealth, operates 220 hospitals in 36 states. The PESP report found that some of these hospitals rank among the worst in their states, with an average rating of 2.8 stars, compared to the national average of 3.2 stars, on the Center for Medicare and Medicaid Services’ system.
  • The JAMA study discovered a rise in serious medical errors and health complications among patients in the first few years after private equity firms take over, including a 25% increase in hospital-acquired conditions and a doubling of surgical site infections.
  • Both reports highlight a pattern of cost-cutting measures and staff layoffs following private equity acquisition, leading to reduced services and underpaid staff. Apollo’s hospitals, for example, saw a reduction of $166 million in annual salary and benefit costs and $54 million in supply costs in 2020.
  • The reports also noted that Apollo’s hospitals carry substantial debt, with ScionHealth and Lifepoint having 5.8 and 7.9 times more debt than income, respectively. Additionally, Apollo has profited from sale-leaseback transactions, which involve selling the land under the hospitals and then leasing it back, further straining the financial resources of these institutions.
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Health Law Highlights

Ownership Transparency: The New Normal in Healthcare?

From Davis Wright Tremain, LLP, by Megan Leonard and Robert G. Homchick,

  • On November 17, 2023, the U.S. Department of Health and Human Services published a final rule requiring Medicare and Medicaid nursing facilities to provide more detailed ownership and managerial information on the Medicare Enrollment Application Form CMS-855A.
  • Private equity’s role in the healthcare sector has been under scrutiny, with increased transparency and oversight measures being implemented at both the federal and state levels.
  • The Final Rule was issued in response to studies linking private equity ownership to a decline in quality of care in nursing homes and SNFs.
  • The Final Rule will be effective January 16, 2024 and will require disclosure of ownership and managerial information upon initial enrollment, revalidation, and change of ownership.
  • The Final Rule requires nursing homes to disclose information on their governing body, officers, directors, and additional disclosable parties, as well as the organizational structure and relationships of these parties. This information must be reported upon initial enrollment, revalidation, and every five years.
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Health Law Highlights

Private Investors and Digital Health Attracting Oig Attention: General Compliance Program Guidance to Watch

From McDermott, Will & Emery, by Tony Maida, Dale C. Van Demark, Monica Wallace:

  • The US Department of Health and Human Services (HHS) Office of Inspector General (OIG) has published the General Compliance Program Guidance (GCPG) as a revised reference guide for the healthcare compliance community and other stakeholders.
  • The GCPG specifically references technology companies and the growing prominence of private equity and other forms of private investment in the healthcare sector.
  • The GCPG covers various risk areas, including quality and patient safety, new entrants in the industry, financial incentives and arrangements, and the role of private investors in compliance oversight.
  • OIG’s concern about new entrants and private investment signals increased scrutiny in the healthcare marketplace and its private ownership foundation.
  • Healthcare organizations should take steps to ensure their board members and executives are trained on healthcare legal and regulatory landscape, maintain an effective compliance program, and monitor further OIG guidance and enforcement actions.
  • Private investors should also take note of OIG’s statements and the recent CMS rule requiring detailed ownership disclosure.