Private equity firms are pouring investment dollars into hospices at a record pace. Meanwhile, lawmakers and regulators all the way to the White House are going after these companies.
Despite a slowdown in the palliative care M&A market during the first quarter of 2022, private equity firms remained aggressive on deals. About 30% to 50% of home health and palliative care deals in 2021 involved private equity, according to mergers and acquisitions consultancy The Braff Group.
With that growing influence comes a close examination of their impact on patient care, federal policymakers said. Even President Joe Biden called out private equity investors during his State of the Union address this year.
“As Wall Street corporations take over more retirement homes, the quality of those homes has gone down and costs have gone up. It ends on my watch,” Biden said. “Medicare is going to set higher standards for nursing homes and ensure your loved ones get the care they deserve and expect.”
Although the president’s remarks focused on nursing homes, investors across the healthcare continuum should take note. A number of agencies and some lawmakers have also begun to tighten oversight of these companies.
Federal rules are changing
The U.S. Securities and Exchange Commission (SEC) in January proposed changes to reporting requirements for advisers to large hedge funds and private equity funds.
If made final, the new rules would require such individuals to file reports within one business day on events that could indicate potential harm to investors or signal broader financial risks.
Current SEC rules require these advisers to report their private equity assets under management when they reach or exceed $2 billion. The proposal would lower that threshold to $1.5 billion and require companies to provide more information used for risk assessment and regulatory enforcement.
Another key financial regulator, the U.S. Federal Trade Commission, is also sharpening its eye on private equity, based on recent actions and statements by commission leaders.
Stakeholders have raised similar anti-rust questions about private equity firms investing in healthcare, as well as the perceived lack of oversight.
“Private equity firms operate under the public and regulatory radar. Most healthcare private equity acquisitions do not have to be reported to antitrust or financial regulatory authorities under current law,” said one. report of the American Antitrust Institute recently stated. “And, even when transactions are reportable, the complex structure of private equity funds masks the competitive impact of these transactions. As a result, private equity firms operate in healthcare without any effective oversight.
Give stakeholders a fair shake
While the presence of for-profit institutions in a mission-driven industry may raise suspicion, caution should be exercised when painting an entire sector of investors and their portfolio companies with a brush. wide.
Bad actors exist in all areas of healthcare, as do organizations committed to getting it right. And it should be mentioned that individuals remain innocent until proven guilty, including companies.
“We would like to be judged on our results, and that’s what we’re going to hang our hats on. So we’re kind of preparing to be in the crosshairs, because we understand that’s popular,” David Schuppan, senior partner at private equity firm The Vistria Group, told Hospice News during its Elevate 2021 conference. in Chicago. “Judge us on what we do, not how we fund our deals, and we’re glad that’s the basis of comparison.
Injections of private capital can help hospices grow their portfolio, which often means better access for patients.
Investment dollars can also allow a hospice to increase its technology infrastructure, including data analysis tools and other solutions, according to a report by the Kenan Institute for Private Enterprise.
Additionally, the companies offer business advice to hospices, hiring and supply chain assistance, as well as advice on mergers and acquisitions, according to David Jackson, CEO of the PE Choice-backed hospice provider. Health at Home.
“I think it’s an easy target for the political atmosphere that we’re in to push on private equity. But what they bring us when I look at the organizations that are backed, you just see a certain level infrastructure that drives better outcomes,” Jackson told Elevate. “As long as organizations continue to focus on compliance and quality of care, they will succeed.”
The Department of Justice joins the fray
Regardless of the position on the role of private equity in healthcare, regulators are paying greater attention to the activities of these companies.
Just weeks ago, Andrew Forman, assistant deputy attorney general in the United States Department of Justice’s (DOJ) antitrust division, said the cabinet-level agency would “strengthen law enforcement.” antitrust around a variety of private equity issues.
Specifically, the DOJ will examine “roll-up” transactions, in which companies buy out smaller companies in transactions in the same markets with dollar amounts below reporting requirements. These deals can create a regional monopoly while slipping under the radar of regulators, according to Forman.
The DOJ also plans to investigate whether private equity firms “either blunt the target company’s incentive to act as a maverick or disruptor in healthcare markets, or bring the company targets to focus only on short-term financial gains and not on advancing innovation or quality,” Forman said.
Private equity investment is unlikely to slow
Private equity investors should remain bullish on palliative care. Several PE-backed companies and hospices told Hospice News they have no plans to slow down palliative care agreements in 2022, contributing to a trend that has been building for several years.
At this point, Amedisys (NASDAQ: AMED) executive vice president and chief financial officer Scott Ginn said in May that private equity firms represent the fiercest competition for hospice and healthcare assets. at home in the mergers and acquisitions market. Ginn made the comments during a presentation at Bank of America Securities’ annual healthcare conference in Las Vegas.
Given these factors, an increasing number of patients are cared for by PE-owned hospices.
An estimated 16% of people enrolled in Medicare hospice received care from a privately owned or publicly traded hospice company in 2019, up from 11% in 2012, a recent report study reported.
Congress is also asking questions
Prominent lawmakers such as Sen. Elizabeth Warren (D-Mass.), Senate Finance Committee Chairman Ron Wyden (D-Ore.) and Rep. Bill Pascrell (DN.J.) have also begun probing the role of the private equity in the healthcare space. Last year, much of the focus was on investing in nursing homes, but Congress’ eyes are starting to turn to hospice care.
Wyden, Warren and Sen. Sherrod Brown (D-Ohio) in August wrote a letter to Kindred at Home President and CEO David Causby, requesting information about the company’s interactions with its former private funders, citing quality concerns.
Private equity firms Welsh, Carson, Anderson & Stowe (WCAS) and TPG Capital in 2018 acquired a combined 60% stake in Kindred at Home in partnership with Humana Inc. (NYSE: HUM).
Humana then bought out its investment partners to gain full ownership of Kindred at Home in a $5.7 billion deal.
To date, lawmakers have not accused any of these companies of wrongdoing, but they are watching private equity firms more closely. This is likely to grow in intensity and scope – and will not be limited to antitrust issues.
More and more private equity investors and other parent companies that own hospices are coming under scrutiny in False Claims Act cases.
Since 2013, at least 25 privately-owned healthcare organizations have settled False Claims Act claims totaling $570 million, according to to research by the Private Equity Stakeholder Project, an industry watchdog group.
“There are risks for parent companies. This is actually a very hot issue in False Claims Act litigation right now,” Chris Sabis, a member of the law firm of Sherrard, Roe, Voigt & Harbison, told Hospice News. . “Courts have said that actions by parent companies to provide certain financial incentives to achieve certain goals – and to establish company-wide documentation policies that appear to favor terminal illness findings – are sufficient. to incur potential liability.”