Healthcare transactions have been “robust” over the past decades, but the past five years or so have been “a particularly active period” with a “spike” coming in 2020 and into 2022 as pandemic effects eased, Tom Hawk, a partner at King & Spalding, said Tuesday during a webinar sponsored by the law firm.
He specializes in healthcare mergers and acquisitions, other transactions and regulatory compliance matters in the firm’s healthcare practice.
“The most recent spike of activity was largely due to a market increase in investment in the space from private equity sponsors,” Hawk said.
Legislators have looked at changes driven by those investments, “and they’ve wanted to tap the breaks in some jurisdictions,” he said.
According to King & Spalding, some areas of concern for lawmakers and regulators are cost increases, surprise billing and anticompetitive behavior and monopoly power, as well issues related to quality of care and resident/patient and consumer data privacy. States generally have laws requiring attorney general or court review of nonprofit sales.
Over the past decade, Hawk noted, some state legislatures have pushed for broader requirements that parties involved in healthcare mergers and acquisitions would need to submit to a regulatory review process, such as transaction terms, the identity of parties involved and the buyer’s plans for operations after closing.
Increased regulations could negatively affect healthcare private equity transactions, however. For example, according to Hawk, requirements to obtain approval could jeopardize closing certainty. Additionally, he said, upstream investors might be discouraged from investing in healthcare properties. Public disclosure of strategic plans and operational details could put the parties at a competitive disadvantage and they might not want to make certain provisions public, he added.
At the macro level, Hawk noted, “mega-mergers involving systems with operations in several states may be more difficult to execute.
There could be a potential reduction in access to funding for capital projects under state regulations, and private equity investors “may shift their focus to states with fewer regulatory hurdles,” he said.
July 9, 2021, President Biden issued an executive order meant to step up competition among American companies. He called on the Federal Trade Commission and the Department of Justice to “vigorously enforce” antitrust laws.
“Robust competition is critical to preserving America’s role as the world’s leading economy,” the president said at the time.
The healthcare sector was specifically called out in the executive order, which claimed that “hospital mergers can be harmful to patients.”
“The DOJ, after receiving the order, revoked its guidance on antitrust enforcement in healthcare, so parties cannot use that anymore or rely on it, flying blind in many cases,” Hawk said.
As McKnight’s previously reported, a proposed rule to make nursing home ownership more transparent could instead scare off private equity investments, leaving facilities without much-needed capital. The rule, proposed by the Centers for Medicare & Medicaid Services in early February, defines a private equity company as a “publicly traded or non-publicly traded company that collects capital investments from individuals or entities and purchases an ownership share of a provider.”
Hawk noted that the public comment period for the CMS proposal closed on April 14, and the rule could be finalized “with a few additional revisions” within the next few months.
“It’s an area to keep an eye on in the coming months,” he said.
