Antitrust agencies signal increased scrutiny of serial acquisitions and for-profit healthcare | Viewpoint

In recent months, the U.S. Department of Justice, Antitrust Division and the Federal Trade Commission have repeatedly signaled their concern regarding recent impacts of consolidation in markets.

Conor Duffy and Jennifer Driscoll

In their May 23, 2024 press release discussing serial acquisitions and roll-up strategies, they focused on:

• Healthcare transactions involving for-profit (e.g., private equity) entities, and;
• Serial acquisition (or roll-up) strategies that, in the agencies’ view, can allow acquirers to amass “significant control over key products, services, or labor markets without government scrutiny.”

Healthcare organizations and corporate owners/investors in health care should be aware of this challenging environment and consider strategies to mitigate exposure to direct scrutiny by the agencies.

Merger guidelines

The federal agencies laid the groundwork for their recent enforcement initiatives when they released the updated Merger Guidelines in December 2023. This document includes eleven separate guidelines that the agencies follow in assessing market activity and upholding antitrust laws. The guidelines are comprehensive, but of particular interest for healthcare organizations are the following points:

• The agencies may examine an “overall pattern or strategy of serial acquisitions” that it determines could constitute “consolidation through acquisition,” and consider the cumulative effect of such a strategy or pattern.
• The agencies believe mergers that “increase the risk of coordination” among firms in a relevant market may violate antitrust laws, with concerns expressed regarding “tacit coordination” and market structures conducive to such coordination.

Requests for information related to healthcare markets

As explained in their March 5, 2024 press release, the agencies, along with the Department of Health and Human Services, issued a request for information (RFI) “conducted by health systems, private payers, private equity funds, and other alternative asset managers that involve health care providers, facilities, or ancillary products or services,” including transactions that might not be reportable to the Agencies under current law.

The RFI was issued as part of “a cross-government public inquiry into private-equity and other corporations’ increasing control over health care.” The agencies confirmed that they will use comments received to “inform [their] enforcement priorities and future action,” as well as additional rulemaking.

In a May 23, 2024 press release, the federal agencies announced another joint public inquiry and RFI “to identify serial acquisitions and roll-up strategies” that they allege have led to consolidation which harms competition.

The agencies are specifically concerned with “corporate consolidation strategies” that involve targeted acquisitions of smaller firms in separate transactions. Such transactions may not meet thresholds for reporting to the agencies under current law. The Agencies acknowledge that this RFI is meant to complement the March 5 health care-specific RFI.

Each RFI public announcement included quotes from FTC Chair Lina Khan and Assistant Attorney General Jonathan Kanter, who leads the Justice Department’s antitrust division, affirming that these inquiries have support at the highest levels of the agencies.

These RFIs also come on the heels of the FTC’s much-publicized inclusion in the September 2023 case, FTC v. U.S. Anesthesia Parts., Inc., involving a private equity (PE) firm in an enforcement action targeting a PE-backed anesthesia practice’s alleged “roll-up” strategy and anticompetitive conduct.

Notably, in May 2024, a federal district court judge granted that PE firm’s motion to dismiss from the lawsuit, while declining to dismiss the suit’s allegations against the anesthesia practice. Among the factors mentioned in the opinion in the case, the court found that the firm was a non-controlling minority investor because it only held a 23% interest in the underlying practice and was entitled to appoint only two of the practice’s fourteen board members.

Conclusion

Healthcare organizations (both nonprofit and for-profit) and investors should be aware of the ongoing attention on transactions by the federal government, and the federal agencies’ increasing interest in expanding scrutiny of transactions that previously may have flown under the radar. Particular attention should be paid to governance and control over subsidiary and portfolio companies.

Conor O. Duffy is a partner at Robinson & Cole LLP and a member of the firm's health law group and data privacy + cybersecurity team. Jennifer M. Driscoll is co-chair of the antitrust + trade regulation team at Robinson & Cole LLP.