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Senators investigate private equity in health care

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Illustration: Brendan Lynch/Axios

The Senate Budget Committee has launched a bipartisan investigation into private equity ownership of hospital systems.

Why it matters: The move compounds existing regulatory pressure on private equity-led health care dealmaking.

What's happening: Senators Chuck Grassley (R-Iowa) and Sheldon Whitehouse (D-R.I.) are spearheading an inquiry into sponsor involvement with two hospital systems.

  • The senators are looking at Apollo Global, which owns Lifepoint Health facility Ottumwa Regional Health Center. A male nurse there is alleged to have assaulted at least nine sedated patients in 2021 and 2022.
  • Also under the microscope is Prospect Medical Holdings, which owns 16 safety net hospitals across four states. Prospect acquired them from Leonard Green & Partners in 2021 following more than a year of regulatory review.

Between the lines: Grassley and Whitehouse want information on the respective debt loads each operator has taken on under private equity ownership.

  • "The senators are demanding answers regarding questionable financial transactions that may have impacted quality of care for patients in hospitals under private equity ownership, including in Ottumwa," a press release from Grassley's office states.
  • The inquiry seemingly seeks to connect the common PE practice of heavily levering buyouts with a decrease in care quality.

Catch up fast: The inquiry follows a lawsuit filed by the Federal Trade Commission in September against Welsh Carson Anderson & Stowe, accusing it of suppressing competition and driving up prices for anesthesiology services in Texas.

  • Last summer, regulators issued new merger guidelines that look at PE-led roll-up strategies more closely.

What they're saying: Speaking to Axios in October about the FTC's lawsuit against WCAS, PitchBook analyst Rebecca Springer noted sponsors are primarily concerned with state-level regulation hampering dealmaking.

  • "The state-level prohibition of physician non-competes is something I've heard a little more concern over as some of these rules get rolled out," Springer says. "There's certainly some state-level reporting that people are watching."
  • It's also unclear how the upcoming federal election might impact regulators' approaches, she added.

What we're watching: More federal oversight into investor-owned health systems can't be good news for General Catalyst, whose ambitions to buy a hospital could be easily thwarted by regulators.

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