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On March 5, the FTC convened a workshop with regulators, academics and stakeholders to discuss the impact of private equity in the healthcare market. The workshop reflects the FTC and DOJ Antitrust Division’s recent focus on private equity and serial roll-up transactions more broadly as targets for antitrust enforcement. 

The workshop follows new merger guidelines and proposed HSR filing rules calibrated to bolster enforcement against serial acquisitions, the FTC’s recent lawsuit targeting a private equity-backed roll-up of anesthesiology practices throughout Texas, and an FTC request for information, announced the morning of the workshop, on the effects of transactions involving healthcare providers conducted by private equity funds or other alternative asset managers, health systems, or private payers. 

While the workshop focused on private equity and healthcare, the principles and enforcement criteria discussed by the panelists (including all three FTC Commissioners) could be applied in any industry impacted by roll-ups, and the discussions signaled a regulatory focus on potential harm to both consumers and the labor force from serial acquisitions. 

In both her prepared remarks accompanying the RFI announcement and her introductory address to the workshop, FTC Chair Lina Khan identified harm to patients (from shortages of supplies, decreased quality of care and increased prices) and harm to employees (from reduced staffing, increased hours and reduced or stagnated compensation) as primary consequences of private equity-led consolidation in healthcare. 

Each of Chair Khan and Commissioners Alvaro Bedoya and Rebecca Kelly Slaughter noted that the FTC intended to scrutinize serial acquisitions having potential adverse impacts on end-user consumers and employees. Similarly, Assistant Attorney General Jonathan Kanter of the DOJ Antitrust Division extolled the Division’s recent focus on roll-ups. 

The FTC and DOJ representatives’ remarks suggested that the agencies would strictly scrutinize serial acquisitions tending to result in increased prices or harm to employees in the respective markets and their position may be bolstered by the new merger guidelines, including the potential for a merger to be declared illegal if it has a negative impact on labor. 

Previously, reduced labor costs were seen as a potential pro-competitive efficiency, but regulators under the Biden administration have signaled that they intend to stand that principle on its head and may target acquisitions that result in layoffs or other right-sizing efforts.

Previously, reduced labor costs were seen as a potential pro-competitive efficiency, but regulators under the Biden administration have signaled that they intend to stand that principle on its head.

Chair Khan and panelist Dr. Eileen Applebaum of the Center for Economic and Policy Research also criticized the use of roll-ups to consolidate power and reduce competition and separately cited as an example of federal enforcement priorities on this front the FTC’s ongoing case against a private equity-led acquisition of Texas anesthesiology practices

That case, pending in the Southern District of Texas, targets the alleged monopolization of hospital anesthesia markets throughout Texas as a result of the defendants’ rolling-up of small anesthesiology practices. While the FTC has acknowledged that some of the acquisitions in isolation would not increase market concentration, the aggregate effect of the roll-up has been increased prices to end-users and payors. 

The Texas anesthesiology case and new merger guidelines suggesting that a merger may be illegal if it “furthers a trend” towards market concentration or is part of a series having such an effect in the aggregate, emphasize that any acquisitive business whose efforts may result in price increases could become the target of regulatory enforcement. And this is the case whether or not the business uses a private equity model. As Dr. Applebaum noted, the new merger guidelines expressly empower agencies to block a platform company’s acquisition of rivals if the cumulative effect is a reduction in competition.

Nevertheless, the panelists made an effort to distinguish to some degree private equity from other acquisitive private companies. Private equity’s distinctive features, including short-term strategies reflected in ownership lasting only 3-5 years and the use of leveraged buyouts and recapitalization of acquired companies, were noted throughout the workshop. 

However, the workshop reflected the Biden administration’s hostility to and skepticism of any serial acquisitions that may have the effect of raising prices or harming labor markets. While the focus of recent efforts has been on private equity and healthcare, the regulatory principles discussed in the workshop certainly go beyond private equity and healthcare. 

To paraphrase AAG Kanter’s remarks in support of the RFI, the agencies are taking an active role to investigate and understand “modern market realities” to help them “forcefully enforce the law against unlawful deals.” Although healthcare is the current focus, the Biden FTC and DOJ have signaled that they will scrutinize any market at risk for increased concentration from M&A activity, and they are using various investigatory and enforcement tools to stop merger activity they identify as anticompetitive.