Federal antitrust enforcers at the US Department of Justice (DOJ) and Federal Trade Commission (FTC) continue to take an aggressive stance in healthcare. Two recent developments underscore the trend.
First, in early June 2022, in remarks at the ABA’s Antitrust in Healthcare Conference, the DOJ Antitrust Division criticized consolidation in the healthcare industry. In particular, Deputy Assistant Attorney General (DAAG) Andrew Forman called out the role of private equity as a force that has an undue focus on short-term profits and aggressive cost cutting, which will cause the DOJ to look less favorably on private equity firms in healthcare transactions in the future.
DAAG Forman identified four areas the agency is “thinking more about” when it comes to the role of private equity in healthcare, although it is not yet clear where this “thinking” will lead:
- So-called “roll-ups” where private equity firms consolidate in a series of small transactions. This concern is not limited to the DOJ. In fact, in mid-June the FTC announced a consent decree in a veterinary clinic transaction that imposed a 10-year pre-notice and preapproval requirement for future deals by a private equity investor and the divestiture purchaser. The FTC’s announcement cited the concern over “stealth roll-ups” as part of the reason for the notice provisions.
- Private equity transactions that reduce competition by taking out disruptive firms or causing a provider or company to focus “solely on short-term financial gains and not on advancing innovation or quality”
- Interlocking director violations under Section 8 of the Clayton Act
- Hart-Scott-Rodino (HSR) filing deficiencies by private equity firms
In addition to these concerns, DAAG Forman outlined the DOJ’s enforcement priorities in healthcare transactions, which include (1) enforcement where there is a loss of head-to-head competition, exploitation of competitive sensitive information, and reduced innovation; (2) a focus on the impact that a concentration of data could have on rivals, such as creating new barriers to entry and revealing competitively sensitive information about rivals; (3) evaluating labor markets impacts, especially where it concerns the role and scope of noncompetes that limit worker mobility; and (4) scrutinizing potential remedies where the parties have not proactively addressed the risks that a given remedy may later become ineffective.
Second, the DOJ has continued to investigate and prosecute wage-fixing and no-poach arrangements as well as investigate noncompete and nonsolicitation agreements in healthcare.
In April 2022, a Morgan Lewis trial team won against the DOJ in a rare antitrust jury trial and secured a complete acquittal for a corporate client charged along with its former CEO in a purported no-poach arrangement. The DOJ has publicly stated that it plans to continue its investigations and prosecutions of so-called labor market violations.
The FTC has taken a similar stance, as both agencies have become increasingly aggressive in investigating contractual noncompete and nonsolicitation agreements, either on their own initiative (typically arising from a complaint from a market participant) or in the context of HSR-reportable transactions. State AGs are also investigating these topics with increased frequency.
These developments signal continued scrutiny of healthcare transactions and industry practices. And, as recent history makes clear, the federal antitrust enforcers continue to show that they are more willing to act on their concerns than in the past.