A new report by the Biden administration examines the negative impact of two oft-criticized trends in the industry.
Three federal agencies have issued warning on the potential damage unchecked consolidation and private equity ownership can wreak on healthcare.
Following a year-long investigation, the Federal Trade Commission (FTC), the Department of Justice, and HHS released a report that highlighted concerns regarding the consequences of increased consolidation and private equity investment on patient care.
The report comes after a tri-agency collaboration was announced in December 2023 and a request for information (RFI) was released in March 2024. It contains over 2,000 comments submitted from patients, physicians, health systems, insurers, industry associations, labor unions, and academic researchers.
The comments, as well as the agencies, posit policy considerations that create more ownership transparency, strengthen regulatory enforcement, and lower reporting thresholds for M&A.
"The results from this RFI indicate plainly that the American public is dissatisfied with ongoing trends in the health care sector," the report stated.
Provider consolidation continues to trend upward, the agencies noted. In 1990, 65% of Metropolitan Statistical Areas in the country were considered highly concentrated for hospital services. That number rose to 90% in 2016.
Often as a result of integration, higher prices are charged to insurers and patients, while care quality drops.
Provider M&A that involves private equity can come with its own set of challenges and repercussions. The report said that private equity's presence in healthcare is widening, with more than 40% of the country's emergency rooms estimated to be run by staffing companies owned by private equity firms, as an example.
The agencies cited case studies of private equity firms leaving hospitals in financial ruin after taking out profits. Just this month, Prospect Medical Holdings filed for Chapter 11 bankruptcy, which a Senate report found was due in large part to its former private equity owner, Leonard Green & Partners, extracting $424 million in dividends and preferred stock redemption while engaging in a $1.55 billion sale-leaseback deal.
"PE ownership in health care appears to present new and unique risks related to and apart from consolidation," the tri-agency report said.
Respondents to the RFI urged for policies that clamp down on anti-competitive consolidations and more transparency of private equity acquisition activity, such as expanding the CMS nursing home ownership transparency rule.
Commentators also suggested that the financial threshold for reporting M&A to the FTC or DOJ be lowered past the $119.5 million it currently sits at.
"It is clear from the commentors that the Agencies’ past actions have not sufficiently addressed the harms inflicted by anti-competitive activity in the health care sector, and more effective and vigorous antitrust enforcement is necessary to stop or reverse the trend of consolidation," the report stated.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
The Federal Trade Commission, the Department of Justice, and HHS outlined in a report the harmful effects of consolidation and private equity ownership in healthcare on decreased care quality, increased costs, and financial instability of provider organizations.
Commentators on the request for information offered policy considerations that call for greater transparency in ownership, lowering the M&A reporting threshold, and stronger antitrust enforcement.