An effort to bring more transparency to private equity purchases in the health care space was shelved by its sponsors on April 17, at least until next year.
Sen. Cathy Kipp, a Democrat and prime sponsor of the bill, said at the bill’s committee hearing that they started to look at the bill because of a letter she received from one of her constituents. In that letter, her constituent told her of how add-on fees had resulted in the more than tripling of the cost of a routine office visit, from around $175 to $650.
Then, a few months after receiving the letter, Kipp received an email from a local hospital system that they were joining the same hospital system that had increased the prices. More recently, she was also made aware of another, similar situation.
“The largest medical practice in my community was taken over by another large medical practice, and they are, apparently, about to be potentially absorbed by a local hospital,” Kipp said. “And doctors are fleeing left and right, they can’t keep people employed, people are losing their doctors, people are losing their medical care, and those are the reasons we were bringing this bill.”
She said all this bill does is require transparency. “All this bill did is say, ‘Hey, if you’re going to do a merger or acquisition in the medical space, we need to know as the attorney general’s office, what you’re doing. Because we want to know if we’re going to be left with higher prices, if we are going to be left with health care deserts, if we are entering the area of antitrust,’” Kipp said.
The growth of private equity in health care extends beyond Colorado. According to a study from the University of California, Berkeley, nearly 5,800 physician practices were owned by private equity in 2021. Less than 1,000 were owned by private equity in 2012. It also found that 22% of for-profit hospitals were owned by private equity in 2021.
This growth in acquisition has caught the attention of lawmakers across the country, with several states passing legislation to either make the process more transparent or to regulate it.
John Saran, a health care attorney and a partner at Holland & Knight, has been tracking the growth of this legislation across the country. He said that there were a lot of similarities in the bills across the country, and that a lot of the shared components are similar to a draft bill published by the National Academy for State Health Policy, which describes itself as a “nonpartisan organization committed to developing and advancing state health policy innovations and solutions.”
“If you think about how these bills kind of break down, it’s transaction reporting, ownership reporting, corporate practice of medicine and restrictive covenants,” Saran said. “And if you look at their model act, it’s basically that.”
He noted that the headlines tend to focus on the really bad things that happen when private equity comes into health care. “But that’s just one portion of the overall industry. Every industry has actors doing not great things, but then you have actors that do great things, and everything in the middle,” Saran said.
Saran said that what’s driving the push for the laws across the country is the desire for awareness of transactions falling outside of traditional review processes due to the size of the transaction, or lack thereof. “You have the federal [Hart-Scott-Rodino premerger notification] process for national deals, but that’s only going to trigger when you deal size a certain size, so if you’re below the threshold, no one knows about it,” Saran said.
Saran told Law Week that the increase in filing requirements and regulations around investment in the health care space could have consequences.
“I want lawmakers to make the best decision, the most well informed decision, and a lot of times if they just quickly pass something to be reactive to an issue, it can cause unintended consequences for other providers in the state,” Saran said.
He views certain types of requirements as potentially more onerous for deals than others, and he noted that for companies enrolled in Medicare and Medicaid, certain reporting requirements already exist. “If you’re in health care, you know that these are the types of things that you have to do,” Saran added.
“I think the more onerous type of requirements that actually affect investment and affect models is when you start to tie up transactions with notice requirements, document submissions, turning health care companies into like mini public companies in their state where they have to file financials and disclose all arrangements,” Saran said. “And all that’s now public and not confidential, that’s where you start to get into effects on the marketplace.”
He said that it can change people’s thought process on whether they want to be involved in investing in health care.