The role of private equity in healthcare has remained under scrutiny in 2024, with investments continuing to slow in Q1 amidst a challenging regulatory environment.1 Measures taken at both the federal and state levels have targeted private equity-backed deals across the healthcare industry. These measures, tied to concerns about the impact of such investments on the quality and affordability of care, are creating uncertainty about the future of private equity in the healthcare industry.

Federal Action

In March, DOJ’s Antitrust Division, the FTC, and HHS jointly launched an inquiry into the control exercised by private equity and other corporations in the healthcare industry. Together, the agencies issued a Request for Information (RFI), inviting the public to comment on “the effects of transactions involving healthcare providers (including providers of home- and community-based services for people with disabilities), facilities, or ancillary products or services, conducted by private equity funds or other alternative asset managers, health systems, or private payers.”2 Transactions of interest include both scenarios where private equity funds make direct acquisitions, as well as transactions structured to “facilitate private equity investment, circumventing applicable corporate practice of medicine restrictions.” The agencies also are “particularly interested” in transactions that would not be reported to DOJ or the FTC for antitrust review under the Hart-Scott-Rodino Antitrust Improvements Act. Just ahead of the deadline for public comments, a coalition of 96 organizations and individuals (comprised primarily of advocacy organizations) sent a letter in response to the RFI to express their concern about “the harmful impacts of transactions that affect consolidation in health care” with a particular focus on transactions conducted by private equity funds.3

In April, Senator Edward Markey released draft legislation (the “Health Over Wealth Act”) aimed at increasing regulatory oversight of both private equity and other for-profit healthcare providers. The bill would expand HHS’s control over private equity firms—most notably by (i) requiring them to obtain a license from HHS to invest in or purchase a “health care entity,” and (ii) allowing HHS to block private equity deals until a task force created by the bill had sufficient time to study the effects of private equity on the healthcare industry. The proposed legislation followed a hearing by the Senate Primary Health & Retirement Security Subcommittee examining the impact of private equity on American healthcare companies.

State Action

Several states also have proposed or enacted legislation and regulations targeting private equity investments across the healthcare industry;4 and this comes amidst the pattern of states increasing their oversight of healthcare dealmaking more generally. Of particular note is new legislation passed by the Massachusetts House of Representatives, which would increase oversight of investments in hospitals and other providers in the state.5 The bill would require providers to disclose significant equity investors (including health care REITs and MSOs) and the financial statements of the parent organization’s out-of-state operations.6 It also would increase the penalties for failing to make these disclosures from $1,000 to $25,000 a week, beginning after a two-week period following notice of noncompliance. Finally, the bill would require providers to notify the Massachusetts Health Policy Commission before making any “material change” to operations or governance structure. Material changes include (i) significant expansions in a provider or provider organization’s capacity; (ii) a corporate merger, acquisition or affiliation of a provider or provider organization and a carrier; (iii) mergers or acquisitions of hospitals or hospital systems; (iv) acquisition of insolvent provider organizations; (v) transactions involving a significant equity investor which result in a change of ownership or control of a provider, provider organization or a carrier; (vi) significant transfers of assets including real estate sale lease-back arrangements; (vii) conversion of a provider or provider organization from a non-profit entity to a for-profit entity; and (viii) mergers or acquisitions of provider organizations which will result in a provider organization having a dominant market share in a given service or region.

Conclusion

With congressional bills and state legislation continuing apace, stakeholders in the healthcare space should continue to expect scrutiny at the federal and state level. Even if some of the more far-reaching federal proposals do not come to fruition, CMS has already stepped-up reporting requirements. A recent change to Medicare enrollment form CMS-855A requires institutional providers to report ownership and managing control by private equity companies and REITs, with applicable definitions proposed and adopted by the agency.7 Monitoring of federal and state requirements will remain even more important to stay abreast of changing requirements, whether they come in the form of enhanced reporting obligations or more stringent transaction approval steps.

  1. Rebecca Springer, Healthcare Services Report: PE Trends and Investment Strategies Q1 2024, PitchBook (May 7, 2024). ↩︎
  2. Public comments on the RFI were due on June 5, 2024. ↩︎
  3. Re: Request for Information on Consolidation in Healthcare Markets, Docket No.: ATR-102, (June 4, 2024) https://ourfinancialsecurity.org/wp-content/uploads/2024/06/AFREF-Community-Catalyst-PESP-et-al-Coalition-Comment-Consolidation-in-Health-Care-Markets.pdf. ↩︎
  4. See, e.g., S.B. 9, Second Regular Session of the 123rd Gen. Assembly (Ind. 2024) (requiring health care entities and private equity (regardless of location) to notify the Office of the Attorney General regarding a merger or acquisition involving an Indiana health care entity and a health care entity with at least $10 million dollars in total assets); H.B. 4643, 193rd Gen. Court (Mass. 2024) (discussed in more detail in body of article). ↩︎
  5. Commonwealth of Massachusetts, House Passes Major Health Care Legislation, https://malegislature.gov/PressRoom/Detail?pressReleaseId=84 (May 16, 2024); H.B. 4643, 193rd Gen. Court (2024). ↩︎
  6. A “significant equity investor” is defined as “any private equity company with a financial interest in a provider or provider organization” or “an investor, group of investors or other entity with a direct or indirect possession of equity in the capital, stock or profits totaling more than 10 percent of a provider or provider organization.” H.B. 4643, Section 17, 193rd Gen. Court (Mass. 2024). ↩︎
  7. Medicare and Medicaid Programs; Disclosures of Ownership and Additional Disclosable Parties Information for Skilled Nursing Facilities and Nursing Facilities; Medicare Providers’ and Suppliers’ Disclosure of Private Equity Companies and Real Estate Investment Trusts, 88 Fed. Reg. 80141, (Nov. 17, 2023); Medicare Learning Network, “New Ownership Reporting Requirements for Providers Using the Form CMS-855A,” Nov. 2023, https://www.cms.gov/files/document/mln9340578-new-ownership-reporting-requirements-providers-using-form-cms-855a.pdf. ↩︎
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Joanna Borman

About Joanna Borman

A valued member of Dentons’ Health Care practice, Joanna provides regulatory guidance to health care organizations with particular focus on helping clients navigate federal and state regulatory issues as they relate to health care transactions, as well as in support of Medicare and Medicaid compliance, reimbursement issues and internal investigations.

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