State prosecutors seek FTC antitrust enforcement

On June 6, 2024, California Attorney General Rob Bonta announced that he led a multi-state coalition of eleven (11) state attorneys general in submitting a comment letter (the “Comment”) in response to the Federal Trade Commission, the U.S. Department of Justice, and a request from the U.S. Department of Health and Human Services (collectively, the “Agencies”) for information regarding private equity consolidation of the health care industry. On March 5, 2024, the Agencies issued a “Request for Information on Consolidation in Health Care Markets,” on the same day the Agencies hosted a public workshop on the impact of private equity investments on the health care system.

California’s 30-page comment letter “presents the U.S. Attorneys General’s perspective on the adverse effects of consolidation in health care markets, particularly through transactions led by private equity funds or other alternative asset managers.” Specifically, the comment letter identified several state concerns regarding the role of private equity in health care, including consolidation and vertical integration.

The comment letter also alleged that the structure of private equity firms (i.e., funds managed by a general partner and having investments in portfolio companies) is a business model with incentives that may harm consumers because, among other things, private equity firms “load high debt and fee burdens on acquired companies,” and “The short-term nature of private equity funds forces them to focus on short-term profits.”

With respect to health care, the comment letter detailed state concerns about the impact of private equity on certain sectors, including nursing homes and hospitals, and made several recommendations for increased government action, including increased transparency and a ban on certain contract provisions (e.g., counteracting steering). in federal contracts and greater state-federal coordination in investigating and challenging mergers and acquisitions.

The comment letter serves as a reminder that antitrust scrutiny of private equity in health care is not limited to federal antitrust enforcement authorities, as several states (notably California) continue to focus on this industry. Private equity firms and portfolio companies and their transaction partners should continue to be mindful of this scrutiny when considering their investment and transaction strategies.