Private equity’s investment in healthcare has increased rapidly over the past decade, and this is now drawing attention from regulators. Signifying this increased scrutiny is a joint Request for Information (RFI) issued in March by the Department of Justice’s (DOJ) Antitrust Division, Federal Trade Commission (FTC), and Department of Health and Human Services (HHS) seeking comments from the public on “private-equity and other corporations’ increasing control over health care”. (Access the RFI here.) While the RFI has made headlines, it is part of a broader regulatory effort to evaluate private equity’s role as a major player in healthcare. This post summarizes some of those efforts and the concerns among regulators over private equity investment in healthcare that regulators are seeking to address.
Private Equity Investment
Private equity’s investment in healthcare has increased drastically over the last decade. While exact numbers aren’t available, reliable estimates point to a one hundred and eighty-nine percent (189%) increase in annual private equity deal value in the healthcare industry from 2010 to 2019,[1] with the number of reported deals increasing from 352 in 2010 to 937 in 2020.[2] These investments in the industry are wide ranging and include everything from hospitals and physician practices to specialty facilities and managed care plans.[3] This investment, driven in part by the increasingly complex regulatory environment for healthcare delivery and reimbursement, has engendered speculation and studies on the effect private equity has on the pricing and quality of healthcare services. A concern among regulators is that private equity is making healthcare more expensive and less effective, and this concern is the driving force behind the actions described below.
For healthcare providers and practitioners, the rules surrounding non-competition agreements have evolved rapidly over the last two years, and that evolution accelerated even more this month. Over the past 18 months, states and the federal government enacted several new laws that substantially limit when healthcare entities can enforce non-competes. Then, on April 24, the Federal Trade Commission issued a rule that will bar most non-competes in the U.S. if it survives legal challenges (albeit no sooner than late August 2024). This creates yet another potential hurdle for a healthcare entity seeking to enforce a non-compete. Going forward, healthcare entities wishing to utilize non-competes with their employees and contractors should ensure they account for all of the following developments.
The FTC’s rule would bar many healthcare entities from using non-competes, but it arguably would not restrict tax-exempt hospitals and other non-profit providers.
The FTC rule would cover many healthcare employees in the U.S., but not all of them. In terms of employer coverage, the rule applies to for-profit healthcare systems, private medical practices, private equity funds, and most other entities that are “organized to carry on business for [their] own profit or that of [their] members.” The rule does not categorically exempt non-profits, tax-exempt hospitals, and other tax-exempt entities, but these entities will have a good argument that they fall outside the rule’s coverage by its terms.
From a worker perspective, the rule generally covers non-competes with any “person.” If the rule covers an employer as set forth above, then it will cover effectively all of their employees, including physicians, nurses, counselors support staff, administrative employees, custodial and maintenance employees, and effectively any employee performing manual work. One key nuance is that the FTC rule exempts certain “senior executives,” i.e., individuals who earn more than $151,164 annually and serve in policy-making positions. Thus, even if a rule applies at the employer level, it may not apply to certain senior administrators, department heads, and others in higher level management roles. The second key exception is that the rule does not apply to non-competes entered into in connection with the sale of a business.
The FTC rule is facing serious legal challenges, and will not apply at least until 120 days after it is published in the federal register (which currently is scheduled to occur on May 7, which would make the effective date September 4, 2024). The U.S. Chamber of Commerce almost immediately filed a lawsuit challenging the non-compete ban, arguing that the FTC does not have authority under the FTC Act to make rules regulating unfair methods of competition, and that under the U.S. Supreme Court’s “major questions doctrine,” the final rule must be vacated because the FTC acted without clear Congressional authorization. Given the Supreme Court’s increasingly skeptical view of administrative rulemaking of late, these arguments may find favor should they reach the Supreme Court. The Chamber also challenges the final rule on other grounds, including that it impermissibly applies retroactively to existing non-compete agreements, and that it is arbitrary and capricious, as the FTC issued the final rule based on limited and flawed studies without sufficient consideration of the concerns and alternatives raised during the public comment period. Thus, there is a good chance that the rule will not survive legal challenges, and interested parties in the healthcare space should monitor the status of these challenges.
Washington’s My Health My Data Act (“MHMDA”) and Nevada’s SB 370 (“NV CHD Law”) (collectively, “CHD Laws”) went into effect at the end of last month, on March 31, 2024 (as many know, MHMDA’s geofencing prohibition went into effect last summer). Unlike the Health Insurance Portability and Accountability Act (“HIPAA”), a federal law which governs privacy and security in traditional healthcare settings, CHD Laws regulate “consumer health data” or “CHD”– a very broadly defined term – collected by companies in a broad swath of health and non-health related industries alike. Even ancillary purposes like providing accessibility accommodations and defending personal injury claims are enough to trigger the laws. CHD Laws impose restrictions and obligations on regulated entities far more burdensome than state consumer privacy laws, many of which already regulate some of the same health data, and unlike those general consumer privacy laws are not proposed to be preempted by the potential federal America Privacy Rights Act.
Squire Patton Boggs attorneys Alan Friel, Kyle Fath, Niloufar Massachi and Gicel Tomimbang provide a detailed discussion of these new CHD Laws on our Privacy World Blog, which you can read here.
The US Department of Health and Human Services, Office for Civil Rights (OCR) and the Substance Abuse and Mental Health Services Administration issued a Final Rule modifying the Confidentiality of Substance Use Disorder (SUD) Patient Records regulations under 42 C.F.R. Part 2 (Part 2), applicable to certain federally assisted SUD treatment programs (Part 2 Programs), and to SUD patient records (Part 2 Records).
The effective date of the Final Rule is April 16, 2024, and entities have until February 16, 2026, to comply.
The Final Rule includes several changes to align Part 2 more closely with the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which applies to protected health information, and to reduce administrative burdens, as summarized below:
On February 28, 2024, President Biden issued a groundbreaking executive order (EO) establishing the framework for new restrictions on transactions involving US persons’ sensitive personal data and “countries of concern,” including China, or related parties.
Members of our Government Investigations & White Collar team recently presented a timely webinar on the new Foreign Extortion Prevention Act (FEPA). The Act, which has been referred to as “the most consequential anti-foreign-bribery law passed in almost 50 years,” allows the DOJ to prosecute foreign officials who demand or accept a bribe from a U.S. citizen or company. Understanding FEPA is critical for US companies with international business interactions and other companies whose business subjects them to US jurisdiction. Read on at the link below for an outline of FEPA’s core provisions and relevant enforcement considerations for companies, international organizations and foreign governments.
Fishermen in the small town of Cape May, New Jersey, are at the epicenter of a legal challenge that could reshape the landscape of agency authority. The fishermen are challenging the entrenched “Chevron” doctrine, which for years has afforded deference to government agencies with respect to reasonable interpretation of ambiguous statutes. Once again, the US Supreme Court is in the spotlight as it hears pivotal cases – Relentless v. Department of Commerce and Loper Bright Enterprises v. Raimondo, which may presage the dismantling of “Chevron”. Squire Patton Boggs attorneys Keith Bradley, Peter Gould, Rebekah Singh, and Austin Harrison discuss the Court’s review and possible implications in a recent article, available here.
Federal appropriations provide annual discretionary funding for our government to carry out its mission and, in turn, spur various healthcare organizations towards efficiencies and achievements. Whether you serve an entity interested in the government’s work in disease research or a nonprofit hospital requesting community project funding for infrastructure needs, it is important for those seeking funding provided through Congress’ annual appropriations cycle to understand the process and current legislative landscape.
On Tuesday January 30, we hope you will join a seasoned team of former Department of Justice (DOJ) prosecutors for what will certainly be a robust a discussion on “the most consequential anti-foreign-bribery law passed in almost 50 years”: the Foreign Extortion Prevention Act (FEPA). Passed as part of the National Defense Authorization Act (NDAA), FEPA allows the DOJ to prosecute foreign officials who demand or accept a bribe from a U.S. citizen or company. For any entity doing business abroad, understanding FEPA is critical.
On December 18, 2023, the US Department of Justice (DOJ) and Federal Trade Commission (FTC) (collectively, the “government”) released the final 2023 Merger Guidelines (the “Guidelines”) which set forth factors and frameworks the government will use when assessing mergers and acquisitions. While the Guidelines are not legally binding, they provide important guidance on how the government may view certain transactions, including those involving healthcare entities. The Guidelines also reflect the Biden Administration’s aggressive stance on merger enforcement. Squire Patton Boggs attorneys Barry Pupkin, Christopher Gordon, Martin Mackowski and Kaitlin Rittgers provide a discussion of the Guidelines and present key takeaways, available here.
