FTC, DOJ and HHS release report warning of private equity consolidation in healthcare
Multiple regulatory agencies have released a report decrying the “new and unique risks” private equity poses to healthcare, including higher prices, layoffs, inadequate staffing and diminished care quality.
The report comes after a year-long investigation by the Federal Trade Commission (FTC), U.S. Department of Justice (DOJ) and the U.S. Department of Health and Human Services (HHS). The agencies said concerns related to private equity investments in hospitals and provider practices have led to “increasing consolidation” which has largely negative trickle-down effects.
“The cost of healthcare has been outpacing wage growth for patients for decades, putting strain on both public and private budgets and limiting access. One of the main factors contributing to unsustainable healthcare inflation has been growing consolidation in the healthcare sector and the lack of meaningful competition,” the agencies wrote in the report.
The investigation from the trifecta of agencies began in December 2023 and involved review of over 2,000 unique comments from “patients, physicians, health systems, insurers, industry associations, labor unions and academic researchers,” all of which the agencies said they vetted and categorized by subject matter.
An interagency team “reviewed both the tabulations and underlying comments, the results of which informed” the report, the groups said, adding that they also looked into research and case studies that highlight the impact of consolidation and private equity buyouts.
Of them, there was a cited study that concluded 40% of U.S. emergency rooms are “overseen by for-profit healthcare staffing companies owned by private equity firms.” Another found that 25% of mental health and substance abuse centers are owned by for-profit investment firms.
Rolling up sectors, piece by piece
One way in which this consolidation happens is serial purchasing, or “roll-ups,” when a firm acquires organizations in small pieces to avoid regulatory thresholds and fly under the radar unimpeded.
“A roll-up is when a company acquires and merges multiple small businesses in the same industry into a single consolidated company or common management body for separate entities that enjoys market power,” the FTC, DOJ and HHS wrote. “Typically, the stated goal is to reduce costs through economies of scale. However, roll-ups also enable firms to gain market power without the antitrust scrutiny generally triggered by larger transactions. The small serial acquisitions tend to fall below the Hart-Scott-Rodino (HSR) notification threshold (currently $119.5 million), which determines if a transaction must be filed with the FTC for review.”
The report details how this strategy led to consolidation of a variety of specialty care services, from dermatology to nursing homes, where private equity firms typically reduce operation costs through reductions in staffing and care quality, in an effort to maximize profits.
The agencies also noted such groups represent a high percentage of bankruptcies. In 2023, private-equity backed healthcare organizations accounted for 21% of all bankruptcies in the space.
“In theory, private investment in healthcare services could lead to increases in output, reduced prices, and improved quality, but the comments we received—which are consistent with the growing body of research—suggest that the opposite is true,” the agencies concluded. “The harmful effects of private equity in the healthcare delivery system deserves ongoing scrutiny and greater research.”
The FTC, DOJ and HHS said they will continue to monitor PE activity in healthcare. However, they asked state governments and Congress to take action to “prevent harm from further consolidation.”
The full report is available here.
Chad is an award-winning writer and editor with over 15 years of experience working in media. He has a decade-long professional background in healthcare, working as a writer and in public relations.