Three Biden administration agencies released a joint report Wednesday highlighting a rise in consolidation and private equity investments across the healthcare sector, which they tied to quality concerns and heightened unaffordability.
The report stems from a December 2023 White House directive and a request for information (RFI) issued by the Department of Justice (DOJ), the Federal Trade Commission (FTC) and the Department of Health and Human Services (HHS) three months later. It outlines policy considerations involving greater ownership transparency, lowered reporting thresholds and stronger regulator enforcement.
“The results from this RFI indicate plainly that the American public is dissatisfied with ongoing trends in the healthcare sector,” the report reads.
The agencies’ report (PDF) incorporates more than 2,000 submitted comments from patients, care workers, industry organizations, labor unions and academic researchers.
At a broad level, the report categorized the public comments into five themes:
- Higher prices and reduced patient access stemming from provider consolidation.
- Process changes and quality reductions resulting from healthcare mergers and acquisitions, particularly in deals backed by private equity.
- “Mixed reviews” from physicians who worked with private equity firms, ranging from pay and quality complaints to acknowledgement that investor-backed management services organizations can preserve independent physician practice.
- Calls for greater transparency in private-equity-led transactions.
- Patient and provider frustrations with private health insurers, particularly those that are vertically integrated.
The first of those themes, provider consolidation, claimed the most discussion. The agencies wrote that the issue was most pronounced in the hospital sector, where 65% of metropolitan statistical areas were considered highly concentrated in 1990 but increased to 90% by 2016. They also highlighted widespread horizontal and vertical consolidation in the form of multihospital health systems with owned physician practices and substantial ambulatory footprints.
“The primary effects of that consolidation are well known both to industry and policy experts, and they were voiced vociferously by respondents to the RFI: the consolidation of healthcare providers, whether involving hospitals, physicians or other corporate entities, has led to higher prices, reduced access and lower quality care,” the agencies wrote.
Insurers have also targeted physician practices and other entities to achieve vertical integration, and, as of 2024, about three-quarters of health insurance markets are considered highly concentrated, according to data cited in the report.
“Equally important” to the consolidation responses were those addressing private equity, which “seems to have struck a nerve in the public,” the agencies wrote.
The report cited academic research pointing to raised prices and aggressive cost-cutting, though the evidence on care quality changes was more “nuanced” with some studies acknowledging level care quality alongside changes to staffing and patient mix following a transaction.
It also highlighted a slew of “problematic” financial strategies and tactics private equity firms use to strengthen their market position, such as roll-up acquisitions, and to extract wealth from a healthcare organization, such as hospital asset sell-offs, property sale leasebacks and dividend recapitalizations.
While these concerns were prevalent in the received comments, the agencies’ report specifically outlined two case studies on private-equity-backed health systems to illustrate their point: Steward Healthcare and its investor Cerberus Capital Management, and Lifepoint Health and ScionHealth with their investor Apollo Global Management.
Steward declared bankruptcy last May and has been required to sell off and close its hospitals, though Cerberus reportedly made $800 million after saddling the unprofitable system with debt and exiting in 2020.
LifePoint and ScionHealth were previously a single entity but were split up in 2021, which allowed Apollo “to effectively exercise control over all [222] hospitals through two separate and not-wholly-owned subsidiaries, freeing themselves from potential antitrust concerns.” The systems have acquired large amounts of debt and sold their real estate to an investment trust, leading to reports of worsened conditions, working conditions and facility closures.
Both the responses to the RFI and a review of relevant academic data suggest that policymakers should be taking a firmer stance on these issues, the agencies wrote.
“It is clear from the commentors that the Agencies’ past actions have not sufficiently addressed the harms inflicted by anti-competitive activity in the healthcare sector, and more effective and vigorous antitrust enforcement is necessary to stop or reverse the trend of consolidation,” they wrote.
Transparency efforts similar to those enacted by the Centers for Medicare & Medicaid Services surrounding nursing homes were suggested by some, alongside other transparency requirements focused on pricing and staffing. Respondents also praised policies active in 15 states that require their attorney general or other regulatory body to review healthcare deals, the agencies wrote.
Further, many respondents “voiced support for FTC and DOJ actions that counteract the market control of dominant health systems, including the proposed noncompete rule that would help healthcare workers pursue labor opportunities in consolidated markets and bringing enforcement actions to halt hospital mergers and industry rollups.”
“HHS, DOJ and FTC must continue to monitor and address these issues, welcome partnerships with states and Congress to prevent harm from further consolidation, and collaborate with public and private partners in identifying effective remedies,” the report concludes.
The discussion of private equity in care surfaced again just this week when another health system with investor ties, Prospect Medical Holdings, filed for bankruptcy over the weekend. The system had just been named in a critical bipartisan Senate Budget Committee report a week earlier over the negative influence of its majority owner, Leonard Green & Partners.
Healthcare consolidation has also received some bipartisan focus in the legislature, though it remains to be seen whether the Biden administration’s harsher rhetoric on the issue will persist into the Trump administration. Current FTC Chair Lina Khan is slated to step down, and her successor, Andrew Ferguson, has positioned himself as more receptive to mergers and less keen on “legally dubious” consumer protection cases.