The Justice Department, Federal Trade Commission and Health and Human Services Department have announced plans to jointly investigate private equity’s influence on healthcare.
“The cross-government inquiry seeks to understand how certain healthcare market transactions may increase consolidation and generate profits for firms while threatening patients’ health, workers’ safety, quality of care and affordable health care for patients and taxpayers,” the agencies said Tuesday. The request for information about the effort specifically mentions nursing homes, home- and community-based services providers, home health agencies, hospice providers and other service providers.
“When private equity firms buy out healthcare facilities only to slash staffing and cut quality, patients lose out,” Federal Trade Commission Chair Lina M. Khan said in a press release. “Through this inquiry, the FTC will continue scrutinizing private equity roll-ups, strip-and-flip tactics and other financial plays that can enrich executives but leave the American public worse off.”
The request for information seeks 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. The public has until May 6 to respond with comments. Comments may be submitted online or via mail.
According to the agencies, the request for information builds on the Centers for Medicare & Medicaid Services’ proposed changes to Medicare Advantage and a request for information issued by the FTC and HHS on how pharmaceutical benefits managers may be contributing to drug shortages. Tuesday’s request follows a December announcement outlining efforts by the DOJ, FTC and HHS “to lower healthcare and drug costs, while promoting competition to benefit patients and health care workers,” the agencies said.
“We need to do more to understand the impact of private equity and corporate deal-making on our policy-making, regulatory decisions and enforcement actions,” HHS Secretary Xavier Becerra said.
Private equity trends
The federal agencies’ action comes as the Private Equity Stakeholder Project recommends that regulators and lawmakers “scrutinize private equity acquisitions of healthcare companies more closely.”
PESP, like the government agencies, said it is concerned about private equity’s “growing presence in the health sector and propensity for consolidation of healthcare services.”
“The common private equity strategy of pursuing outsized returns over relatively short periods of time can lead to cost-cutting efforts that negatively impact patients and workers,” the organization said in a recent report. “Further, private equity firms often use debt to fund their investments, leading to unwieldy debt service obligations that can divert money away from patient care and fair compensation for employees.”
According to PESP research, PE deal-making in 2023 declined for the second year in a row after reaching its peak in 2021. PESP attributed the decline, in part, to economic challenges such as high interest rates and labor shortages.
“Despite the headwinds, many private equity firms continued to invest in the healthcare space. PESP identified 1,135 unique deals, consisting of 148 buyouts, 259 growth/expansion investments and 728 add-on acquisitions to 422 unique platform companies in 2023,” noted report authors Mary Bugbee, Eileen O’Grady and Michael Fenne.
They said that the deals involved approximately 675 private equity firms, business development corporations, venture capital firms, private credit funds and other types of investors.