Antitrust Scrutiny Intensifies Around Private Equity Healthcare Transactions

• Published date: 22 June 2022
• Subject Matter: orporate/Commercial Law, Anti-trust/Competition Law, M&A/Private Equity, Corporate and Company Law, Antitrust, EU Competition
• Law Firm: Morrison & Foerster LLP
• Author: Ms Megan Gerking, Vishal Mehta and David E. Grothouse

Introduction

On June 3, 2022, Andrew Forman, Deputy Assistant Attorney General of the United States Department of Justice Antitrust Division (DOJ) publicly stated that the DOJ is considering "enhancing antitrust enforcement around a variety of issues surrounding private equity."¹ Citing "recent competition studies" and "firsthand [evidence]" of the "negative impact" of PE-driven consolidation in healthcare, Forman pointed to four areas of enforcement focus: (1) the cumulative competitive impact of roll-ups over time; (2) market distortions stemming from PE's focus on "short-term gains and aggressive cost-cutting"; (3) illegal interlocking directorates in violation of Section 8 of the Clayton Act; and (4) HSR filing deficiencies. Forman's remarks represent the latest - and most salient - antitrust challenge to private equity (PE) dealmaking by current agency leadership, as the storm clouds of competition enforcement in this area continue to gather.

The DOJ's Concerns

In prepared remarks presented at the ABA Antitrust Healthcare Conference in Washington, D.C., Forman set the stage by pointing to the broader volume of PE dealmaking in 2021, citing "a record 14,730 deals globally worth $1.2 trillion ... that is trillion with a T," adding that healthcare was the second leading sector for PE investments. While acknowledging that "[p]rivate equity can play an important role in our economy," he suggested that "certain private equity transactions and conduct suggest an undue focus on short-term profits and aggressive cost-cutting" that in the healthcare space "can lead to disastrous patient outcomes and, depending on the facts, may create competition concerns."

Forman referred to testimony from industry stakeholders at healthcare "listening forums" hosted by the Federal Trade Commission and DOJ, describing "firsthand experiences about the effect of consolidation and acquisitions by private equity groups ... [such as] fewer caregivers, degradation of care, commoditization of health care services, and increased prices." He also remarked that the DOJ is analyzing recent competition studies, which he said illustrate the negative impact of certain PE acquisitions in healthcare products and services, including home health care, inpatient services, outpatient services, and pharmaceuticals.²

Key Areas of Enforcement Focus

Against this backdrop, Forman highlighted four specific areas of enforcement focus:

1. Roll-Ups: Increased scrutiny of PE "roll-ups" consisting of...