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.


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.

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.

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.
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.
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.

Enhanced Nursing Home Ownership Data Required by Biden HHS

From Bloomberg Law, by Tony Pugh:

  • The Biden administration finalized a rule requiring nursing homes to provide more detailed information about their ownership structure, including whether they are owned by private equity firms or real estate investment trusts (REITs). 
  • The additional data collected will be made public to allow families to make more informed choices about facilities and allow outside researchers to study the impact of different ownership models on quality of care.
  • Previous research has found that private equity ownership is associated with higher mortality rates for Medicare patients in nursing homes and increased taxpayer costs per resident. 
  • The private equity industry argues that its investments help strengthen struggling nursing homes by providing capital. 
  • The new rule implements requirements under the Affordable Care Act to increase transparency around nursing home ownership and oversight structures.

The Facts About Medical Factoring

One of the immutable truths about healthcare is that it can take a long time to get paid. Though Texas has a prompt payment statute,1 it can take 60 days or longer for a claim to be paid. Disputed claims can get pushed out an additional 60 days. The wait is even longer – sometimes years – for medical claims of plaintiffs involved in lawsuits. In between the service and the payment, health care providers do without.

Even after the delay, some claims never get paid. Patients may not have insurance or plaintiffs may lose their case. And even when claims do get paid, the health care provider loses out on the interest they could have earned on their money had they been paid promptly.

Delays and uncertainties in payment make the healthcare industry uniquely attractive to factoring arrangements. As a result, medical factoring (or medical receivables factoring) is becoming more common.

Practitioners should understand how these arrangements work and have them reviewed by a qualified attorney before entering into these arrangements.

Medical Factoring

Factoring is not new. Its origins can be traced back to the Mesopotamian culture and the Code of Hammurabi.2

Factoring occurs when a business sells its accounts receivable (i.e., invoices) to a third party at a discount in exchange for immediate capital. In the health care context, a financing company (the “factor”), “advances” to the healthcare provider (the “seller”), some amount in exchange for the seller’s accounts receivables for the medical services provided to patients. The party responsible for payment (the “account debtor”) will make payment directly to the factor.

With the advance in hand, the health care provider has immediate working capital, no longer has to deal with the costs and expenses of ongoing collection efforts, and avoids the risk of non-payment. This translates into more predictable revenues.

How Medical Factoring Works

Let’s look at a common arrangement.

The healthcare provider provides a medical service to a patient. Because of the inevitable delay in payment, and the possibility that the provider will never be paid, the provider decides to sell the account receivable to a third-party at an amount less than the full invoice amount.

After verifying the invoices, the factor will pay the seller the advance, which is either a percentage discount of the amount due or a flat-fee per invoice.

The seller will issue the invoices with the factor’s payment information affixed directly to the invoice. Either the seller will mail out the invoices or the factor will choose to do it.

Included with the invoice, or sent separately, will be a letter to the account debtor to inform them that the account has been purchased and payment should be made directly to the factor. The letter is usually signed by the factor and the seller and will extol the benefits of this arrangement as a benefit to the debtor.

As payment is made by the debtor, the factor will report back to the seller so that both parties are aware of the transaction and can assess the value of the arrangement to their business.

While this is a common arrangement, the specific terms of the factoring agreement can vary widely.

Recourse vs. Non-Recourse

Factoring agreements may either be recourse or non-recourse agreements. In recourse agreements, if the factor is unable to collect on the account, the seller will “buy back” the uncollected debt. This type of arrangement effectively shifts the risk of non-payment back to the seller.

In non-recourse arrangements, the risk of non-payment falls on the factor. If the account debtor does not pay the invoice, the factor has no right to recover the advance from the seller. The factor takes the loss.

In medical factoring, non-recourse agreements are most common. The fact that the provider does not have to bear the risk of non-payment is one of the primary incentives for the provider to sell the account receivables at a discount.

Purchase vs. Advance vs. Reserve

The way the factor pays for the account also varies.

In some arrangements, the factor purchases the account outright, either for a discounted percentage of the amount due or a flat-fee for each procedure.

In other cases, the factor will “advance” the account debtor some percentage of the amount due. This percentage varies but usually maxes out at 80%. When (or if) the factor finally collects the account, the remaining balance (the “rebate”) is paid to the account debtor, minus a fee for the factoring company’s collection efforts.

The fee charged by the factor could be a flat-rate, a tiered rate, or a “prime plus” rate.

In a flat-rate arrangement, the factor is paid a set percentage of the account upon collection. In a tiered arrangement, the fee depends on the size of the amount owed, the volume of the debt the factor is collecting for the debtor, and the time or effort it took to collect on the account. A prime plus rate adjusts the fee based on the prime interest rate.

To offset as much of the non-recourse risk as possible, some factors will maintain an amount in a reserve account throughout the relationship with the seller. The reserve account is typically 10–15% of the seller’s credit line. The factor can dip into this reserve to soften the impact of non-payment.

Legal Implications

While factoring agreements are popular, they can have other implications for a health care provider.

Factoring Accounts for Plaintiffs Involved in Litigation

In the litigation context, when a plaintiff has medical bills, the defendant will want to know how much a factor paid for the accounts. The defendant will try to limit the damages to that amount.3 Thus, defense attorneys may attempt to obtain the factoring agreement to discover its terms and thereby limit damages.

Medicare/Medicaid Factoring

Getting the account debtor to pay the factor rather than the health care provider is relatively straight-forward when dealing with private insurance companies or cash-pay patients. The arrangement becomes more complex when dealing with government reimbursement programs like Medicare, Medicaid, or Tricare because of the “anti-assignment” provisions of the Social Security Act.4

Factoring companies require that the providers assign the financial rights for their insurance claims to them. However, federal reimbursement rules forbid the assignment of claims to third-parties. Such programs will only reimburse the provider, or their employee or billing agent. They most certainly will not issue reimbursement in the name of the third-party factor.

To factor federal claims, a managed account is used. The factor will purchase the account receivable, but the payment information will remain with the seller. The federal government reimburses the claim directly to the seller by payment into the seller’s account. The seller implements a regular “sweep” of the account to an account controlled by the factor.

Federal Reimbursement

There may also be fraud and abuse implications for federal claims. A fee charged by the factor that is not related to the fair market value of similar arrangements or is not commercially reasonable could imply a kickback under the Anti-Kickback Statute or improper remuneration in violation of the Stark Law (“Ethics in Patient Referrals Act”).


The factor and the health care provider should take steps to make sure the factoring arrangement is appropriate and does not create unanticipated problems.

The Terms of the Factoring Agreement Should Be Negotiated at Arms-Length

The factor and the seller should negotiate the terms of the agreement at arms-length. Terms should be consistent with those common in the medical receivables factoring space. The arrangement should make sense for the factor and the seller without regard to any upstream referrals.

In a straight factoring arrangement, this may not be an issue. But if the factoring company has any relationship with a potential referral source, federal and state law prohibits the factor from receiving anything of value in exchange for patient referrals. The health care provider is also prohibited from paying anything of value for the referrals.

To avoid these prohibitions, there should be no sweetheart terms for either party. If lines of credit are utilized, they should impose a reasonable interest rate. If the factoring agreement is non-recourse, concessions should not be made for non-payment. Treat non-recourse agreements like non-recourse agreements.

Terms Should Be Commercially Reasonable

The terms should be commercially reasonable for both parties. As to the health care provider, they should serve the purpose of providing them immediate capital and offset the risk of non-payment, while not giving up too much by way of the discount.

Without taking into account any patient referrals, does the factoring arrangement make good business sense? Does it serve a legitimate business purpose? The provider should document the costs, delays, and burdens of collecting the debt before and after the factoring agreement. Is the provider better off with the arrangement? If so, then it is probably commercially reasonable. If not, then revisit the terms of the arrangement.

Properly Identify the Eligible Receivables

The factor should ensure that receivables to be purchased have the requisite indicia of recoverability. If the factor is going to purchase a receivable, there should be a reasonable basis to believe the account will be paid. It is therefore vital to properly identify the characteristics an “eligible receivable” must satisfy before it will be sold to the factor. For example, a claim will need to be one in which the service or procedure was covered, the patient was eligible, and the claim was approved. Without these characteristics, the claim is unlikely to get paid.

Securing the Receivables

Healthcare receivables are considered collateral under U.C.C. Article 9. Factors should perfect their security interest in the receivables by filing the appropriate financing statement. The factor may also want to perfect a security interest in the deposit account where the proceeds are deposited when the receivables are paid. To do so, the factor must have control of the account.

Obtaining a security interest in the deposit account is not an option for Medicare and Medicaid funds. Centers for Medicare and Medicaid Services (CMS) prohibits the customary UCC control agreement giving the factor the right to direct funds from the account that receives CMS reimbursement. Nevertheless, the factor can perfect a security interest in the receivables themselves through the appropriate UCC-1 filings and security agreement with the seller.

Understand the Terms of the Agreement

Finally, the health care provider should understand the terms of the agreement, and what other, more positive terms, may be available with a bit of negotiation.

In this regard, it is important to seek the counsel of an attorney with experience with medical factoring agreements.


Delays and uncertainties in getting paid for medical services make medical factoring attractive in the healthcare industry. But all factoring agreements are not created equally.

Health care providers should understand how these arrangements work and have them reviewed by a qualified attorney before entering into these arrangements.

To understand how medical factoring can work for you, contact me at 214-588-3040 or