Independent medical practices and hospitals are being swallowed up at a growing rate and the Biden administration doesn’t like it one little bit. On July 9, 2021, the president issued an Executive Order (EO) instructing the Department of Justice (DOJ), Federal Trade Commission (FTC), and other federal agencies to vigorously enforce antitrust laws across all markets, including health care. But a hostile government policy has done little to slow consolidation.

Enforcement Attention Shifts to Private Equity Funds

Along with big hospitals and health systems, private equity (PE) funds have been a driving force in healthcare consolidation. Globally, there were a record 14,730 PE-driven M&A deals worth $1.2 trillion in 2021; health care was the second leading sector for PE investments. So, the DOJ is now focusing its sights on PE. On June 3, the government ratcheted up the pressure when Deputy Assistant Attorney General Andrew Forman told lawyers attending the American Bar Association (ABA) Antitrust in Healthcare Conference in Washington that the DOJ is thinking about “enhancing antitrust enforcement” regarding PE activity in the healthcare sector.

While acknowledging PE’s potential to play “an important role in our economy,” Forman suggested that “certain private equity transactions and conduct suggest an undue focus on short-term profits and aggressive cost-cutting.” In the healthcare space, such an approach can create not only anti-competitive behavior but also “disastrous patient outcomes,” he said. Forman listed four areas of concern:

1. Roll-Ups

The DOJ will increase scrutiny of what are called PE “roll-ups,” a strategy of acquiring and merging multiple smaller companies in the same industry and then consolidating them into a large company. Critics of roll-ups see it as a sneaky strategy of eroding competition and building monopolies on a gradual and cumulative basis with no single transaction attracting attention.

2. Incentives

Another concern is whether PE transactions skew priorities and incentives by inducing firms that would otherwise act as market disruptors and mavericks to shelve innovation and focus on short-term, financial gain. After all, getting acquired by a PE fund is a good way for founders of small, innovative firms to get rich.

3. Interlocking Directorates

Interlocking directorates is a means of stifling competition by having the same person or different persons appointed by the same company, to serve as officers or directors of one or more competing companies. It’s also illegal under Section 8 of the Clayton Act. Forman said the DOJ intends to take “aggressive action” to enforce Section 8.

4. HSR Filing Violations

 A federal law called the Hart-Scott-Rodino Act (HSR) requires acquiring entities to file information about and get the DOJ and FTC to approve certain mergers, acquisitions, and joint ventures before the transaction closes. According to Forman, the DOJ has recently learned of “HSR filing deficiencies” relating to PE deals. The DOJ will take appropriate actions to ensure that PE funds are taking their HSR obligations “seriously enough,” he added. 

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Here’s a summary of the key new M&A diagnostic deals that were announced and/or closed in June 2022: 

Mergers, Acquisitions, & Asset Sales