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FTC takes aim at PE influence on health care

Illustration of a gavel hovering over a block with an image of a red cross.

Illustration: Gabriella Turrisi/Axios

With a federal election looming, the Federal Trade Commission took aim at private equity's influence on health this week during a public virtual workshop.

Why it matters: Regulators are intent on a crackdown.

Driving the news: This week's workshop and an FTC-DOJ-HHS probe into health care deals not reported to antitrust agencies (aka PE roll-ups).

What they're saying: FTC chair Lina Khan jump-started the discussion by saying PE firms' use of debt to acquire and increase profits can "undercut long-term value" and "have life-or-death consequences."

  • "When PE firms buy hospitals, patients are more likely to fall, more likely to get blood infections and more likely to suffer other complications," said assistant attorney general for the antitrust division Jonathan Kanter.
  • "I can definitively say that working under a private equity-backed manager group has been the worst experience of my professional life," said Jonathan Jones, an emergency physician in Jackson, Mississippi. "More importantly, it's also been the worst possible experience for my patients."

Zoom in: The four-hour session addressed what the agency described as common quality and access pitfalls linked with PE ownership of hospitals, hospice facilities, nursing homes and physician practices.

  • Georgia State University College of Law professor Erin Fuse Brown cited geographically concentrated roll-up strategies as PE's primary revenue strategy, pointing to the FTC's suit against Welsh Carson's U.S. Anesthesia Partners.
  • Chair Khan also slammed roll-up plays, saying they're designed to "jack up prices, degrade quality [and] neutralize rivals" while avoiding antitrust scrutiny.

Case in point: Colorado's attorney general scored an antitrust win against USAP last week, which agreed to end contracts with five hospitals in Denver.

What's next: CMS COO Jon Blum and HHS inspector general Christi Grimm said the immediate goal is to get more data around PE ownership and impact.

Zoom in: Fuse Brown cited specific policy levers regulators should use:

  • Fraud and abuse enforcement, with increased scrutiny on like captive referrals and up-coding.
  • Strengthening states' corporate practice of medicine doctrines to target contractual workarounds.
  • Modifying antitrust guidance to embrace the consolidation that's currently happening.
  • Closing "payment loopholes" she says private equity is exploiting.

Reality check: Nothing about PE's existing strategy (including levering up its investments) is illegal or inherently anticompetitive, at least by current antitrust standards.

Yes, but: Testimonials from providers from PE-owned practices and assessments from academic speakers painted a bleak portrait, suggesting direct links between PE owners and cuts to quality and staffing and increases in harm to patients and providers.

The other side: A common PE rebuttal to the above claims is that its investment in independent practices helps these providers remain competitive with large corporate players, particularly in the transition to value-based care (VBC).

  • PE's promise is capital and management expertise, letting physicians focus on serving patients.

The intrigue: Even though they're designed to focus on quality, VBC programs have also increased CMS programs' complexity, per Blum.

  • He also said that while the agency has historically taken a "more quiet view toward consolidation," increased health care M&A is contributing to growing CMS costs.

💭 Our thought bubble: While it's unlikely the FTC will ban roll-ups, it's becoming increasingly clear private equity may have to pivot its playbook — and it doesn't bode well for investors with provider-heavy portfolios.

The bottom line: FTC scrutiny on regional concentration "could have a profound impact on exit opportunities for private equity firms," says West Monroe senior partner Brad Haller.

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