Will the new administration’s federal deregulation be a boon for private equity investment in healthcare providers, or will the states be the “new sheriff in town”?
In the short time he has been in office, President Trump has made good on his campaign promises to shrink the roles and staff of many government agencies, with direct and meaningful consequences to the healthcare industry. This will likely result in reduced federal oversight regarding the role of private investments in healthcare providers and antitrust scrutiny of healthcare mergers and acquisitions.
Significantly, these new federal policies fly in the face of very recent Congressional, HHS, Federal Trade Commission and Department of Justice reports developed during the Biden administration, which raised serious “red flags” that private equity compromises patient care quality and safety and raises cost to consumers. So will these concerns now be ignored in favor of a free and unregulated market?
The answer in a growing number of states is “no.” Instead, there is real momentum at the state level to address these concerns through legislation specifically directed at investments (especially by private equity) and control of healthcare services providers in those states. These state initiatives actually revitalize and reinforce so-called corporate practice of medicine (CPOM) laws and regulations which are intended to ensure that medical services providers can freely exercise their own independent judgment and provide clinical care without influence from investors or corporate owners.
Fifteen states now have laws that regulate healthcare transactions, including 12 that were initiated during the short tenure of the Trump administration. While not entirely consistent, these laws require:
- Advance notice to state Health Departments and/or Attorneys General of certain defined Material Healthcare Transactions, usually based on a dollar threshold. For example, as discussed here, New York’s recently amended law has a $25 million revenue threshold below which pre-transaction review is not required.
- Detailed information about investors/purchasers of regulated healthcare businesses.
- An affirmative showing that the transaction will not reduce access or increase cost of care and have an ongoing reporting obligation for a period of up to five years.
These state laws will materially increase transaction costs and delay the ability to close deals in a timely manner, with the likely consequence that investors may choose to do business in states that don’t have this burden and oversight.
The role of private equity is a dynamic and important issue affecting the healthcare industry. We will continue to monitor federal and state laws, rules and regulations as they evolve.
