Private Equity Acquisitions Come with Growing Antitrust Concerns

In some instances, private equity acquisitions have pro-competitive benefits for physician practices, Diane Hazel, partner at Foley & Lardner, told RevCycleIntelligence. Private equity firms can help practices consolidate operations, reduce back office costs, and implement new technologies. Private equity acquisitions can also help physician practices expand and reach more patient populations.

This influx of cash can help struggling practices, adds Jaime Jones, global co-leader of Sidley Austin’s healthcare practice. These acquisitions can help provider organizations invest in new technologies and necessary equipment, leading to improvements in patient care, Jones said. 

However, private equity’s involvement in healthcare is not always positive. One type of private equity acquisition, referred to as a roll-up transaction, has generated particular concerns from the federal government. These deals occur when a private equity firm acquires several smaller practices in the same or similar specialties and merges them into one large entity.

“The US Department of Justice and the US Federal Trade Commission have been public in a number of their statement speeches about their concerns of private equity acquisitions,” Hazel shared. “They have been expressing concerns about potential cost-cutting that could occur and focusing on short-term revenues and how that may impact competition and innovation, as well as concerns about whether there could be quality of care concerns for patients.”

Physician practice acquisitions are subject to certain regulations per federal law. When an acquisition reaches a specific threshold, the involved entities must file a premerger notification with the DOJ and FTC under the Hart-Scott-Rodino (HSR) Antitrust Improvement Act. For 2023, the HRS threshold is $111.4 million.

However, according to Hazel, most private equity acquisitions of physician practices—roll-up acquisitions in particular—do not meet the HSR thresholds, allowing these deals to avoid notification.

“The agencies are coming out and publicly saying that the cumulative effect of these smaller transactions could be enough to violate Section Seven of the Clayton Act,” Hazel indicated. “That’s the merger statute where acquisitions can be challenged if they’re thought to substantially lessen competition or create a monopoly.”

“The agencies are likely conducting investigations of these transactions, where they may not be reaching the thresholds of being reportable, but the agencies are hearing about them.”

FTC and DOJ also recently released draft merger guidelines detailing how they determine a merger’s impact on competition. The ninth guideline addresses roll-up acquisitions and states, “When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series.”

This means that a roll-up transaction could violate Section Seven of the Clayton Act even if one of the acquisitions of a single business line would not be an issue on its own, Hazel explained. Additionally, Section Five of the FTC Act allows the FTC to challenge conduct that is considered an unfair methods of competition.

“We’re seeing the agencies talk about the toolkit they have and the laws they currently have and using those laws to potentially go after and challenge acquisitions that may be too small on their own to require notification under the HSR Act,” Hazel said.

In addition to federal regulations, some states have passed their own laws requiring notification of certain healthcare transactions, Hazel noted.

With the increased scrutiny outside of federal guidelines, private equity firms should be thinking more seriously about their proposed acquisitions in a particular healthcare sector. Working with counsel can help the firms understand if their proposals will garner the attention of federal agencies or the state attorney general.

On the provider side, physician practices should also be aware of the increasing interest from private equity firms.

“To the extent a practice or a hospital is thinking about selling, I would recommend having their own counsel to work with and think through these issues,” Hazel shared.

“If they’re talking to a private equity firm that’s making a number of acquisitions in a space that they may be competing in, whether it’s a physician specialty or hospital, they may want to think about how there could be a challenge or an investigation someday by the federal agencies or states and how they would handle that.”

If a transaction leads to a government investigation, the private equity firm could be forced to divest several practices or hospitals, leading to potential operational and financial consequences for the providers involved.

In contrast, working with another buyer who is not in a space they compete in could come with less risk.

When considering private equity investment, providers should also understand the buyer’s experience, said Jones. Providers need to be aware of what the firm’s commitment is to supporting compliance and how available it will be to serve as a consulting advisor.