On December 6, 2023, Senate Budget Committee Ranking Member Chuck Grassley (R-Iowa) and Chair Sheldon Whitehouse (D.-R.I.) announced a new bipartisan investigation into private equity ownership in hospitals—just ahead of a new plan by the Biden-Harris Administration to crack down on anticompetitive practices in health care.

Under the Biden plan, announced December 7, the Department of Justice (DOJ), the Federal Trade Commission (FTC), and Department of Health and Human Services (HHS) will seek input on how private equity is affecting the health care of Americans and the agencies will work together to identify potentially anticompetitive transactions. HHS will appoint a Chief Competition Officer and the DOJ’s Antitrust Division and FTC will name Counsels for Health Care to spearhead these efforts. Furthermore, HHS—through the Centers for Medicare and Medicaid Services (CMS)—is taking unprecedented action to identify ownership of hospitals, nursing homes, hospice providers, and home health agencies.

These developments build on past and ongoing efforts by the federal agencies to identify what the federal agencies consider to be anticompetitive and anti-consumer practices by businesses, including private equity firms, health insurers, and health systems.

Congressional Investigation into Private Equity Ownership of Hospitals—Background

The bipartisan congressional investigation into private equity ownership in hospitals stems from an inquiry Senator Grassley made in March of 2023 to an Iowa hospital after a disturbing assault by one of the hospital employees on nine patients. The hospital where the assaults took place was formerly nonprofit but was sold to a private equity firm in 2010. 

Grassley and Whitehouse wrote to an officer of the hospital and to various companies with ownership interests on March 17, 2023, seeking information relating to various transactions. The senators followed up December 6, with additional questions; the newly announced investigation into private equity ownership in U.S. hospitals grew out of the senators’ dissatisfaction with the information and documents they have received to date. The Republican senator from Iowa and Democratic senator from Rhode Island now seek to determine whether and to what extent private equity ownership of hospitals may impact quality of care for patients.

“Since coming under private equity ownership, many hospitals…have experienced significant staffing reductions and substandard health care, and have been stripped of valuable assets, including their real estate, leading them saddled with debt,” Grassley’s office wrote in a news release. “To assess the impact of these transactions and address their harmful effects, the senators are asking for documents and detailed answers about related-party transactions and the degree to which the private equity firms are calling the shots at these hospitals.”

What Private Equity Stakeholders In Hospitals Can Expect

Private equity owners of hospitals should be prepared to provide full and complete responses to congressional inquiries. At least 386 hospitals in the United States are owned by private equity firms, according to the Private Equity Stakeholder Project.

Grassley and Whitehouse are currently requesting detailed information including but not limited to specific transactions, business relationships, ambulance services, care delivery, billing practices, net income goals, charge-per-patient goals, staff-to patient ratios, staffing contracts, resigned/terminated/furloughed staff, and third-party staffing.

From officers of a private equity firm and a hospital operator, for example, the senators have sought:

• identifying information about the hospitals acquired—including the name and location of hospital, primary areas of care, and number of beds/patients served;
• the exact dollar amount that the private equity firm invested in the operator and each individual hospital, along with supporting documents including contracts, written agreements, memoranda of understanding, proofs of investment, investment thesis documents; memoranda regarding the acquisition or investment, and operational or administrative procedure manuals;
• the number of licensed health care professionals; available staff-to-patient ratios; available ratio of outpatient-to-inpatient charges; and available data from patient experience surveys, along with supporting documents;
• information regarding the authority, individually and collectively, to manage hospital care delivery, billing practices, hospital chargemaster, net income goals, charge per patient goals, staff-to-patient ratios, and charge to cost ratios; and to enter into staffing and other contracts;
• contracts/agreements regarding liability at hospital facilities;
• information/documents relating to decision-making in hiring executives and medical directors; nondirector medical and nonmedical staff; in vetting candidates; and vetting third party contractors;
• documents used to measure the quality of medical care;
• information on legal proceedings relating to patient care/staff conduct;
• documents prepared/provided in connection with applications for Change of Effective Control;
• amount received in COVID-19 stimulus aid; information as to why federal stimulus aid was needed, and a description of how the funds were allocated and spent;
• documents regarding the hospital operator’s financial position as well as its awareness of concerns among health care workers regarding staffing or other shortages;
• a list of third-party contractors used for staffing, including names, addresses, type of staffing used, years used, and hospitals where used;
• information and documents regarding specific transactions, including a sale-leaseback transaction and a divesting of ownership;
• detailed information about controlling ownership in other hospital operators, including name of hospital, location, primary areas of care, and number of beds/patients served;
• exact dollar amount of profits and dividends resulting from the PE firm’s ownership stake in the hospital.

Potential Regulations and Enforcement: What Private Equity Stakeholders In Health Care Facilities Can Expect

In addition to the congressional probe into private equity ownership of hospitals, the Biden-Harris Administration has taken numerous steps to increase federal oversight over health care facilities. Early this year, for the time first time, HHS through CMS made available ownership data for all Medicare-certified hospice and home health agencies publicly available. The goal of the Administration is to make ownership information transparent and to identify common owners that have histories of poor performance, and evaluate how it affects health care quality, outcomes and costs.

Last month CMS finalized a rule that requires disclosure of ownership, managerial and other information regarding Medicare skilled nursing facilities (SNFs) and Medicaid nursing facilities, commonly known as nursing homes. The final rule was issued as a result of CMS’ increasing concern regarding the quality of care at nursing homes, particularly nursing homes owned by private equity companies and other types of investment firms.

Private equity firms and other stakeholders should pay close attention to the ongoing efforts by government agencies to increase quality of care and transparency regarding ownership. The Senate Budget Committee Inquiry and the White House announcement represent important developments in governmental scrutiny of private-equity ownership of health-care facilities. While it remains to be seen whether these developments will actually translate into future regulations and potential enforcement, they nonetheless demonstrate a high level of concern by authorities about the growth of private equity in health care and potential negative impacts on patient health. While horror stories of patient abuse such as the incident in Iowa may be at the extremely negative end of potential outcomes, the exacting detail in the senators’ subsequent questioning shows that any and all transactions and actions following the sale of a health care facility to private equity owners, however well intentioned, will likely be highly scrutinized. Whether contemplating or concluding such a transaction, owners should be prepared for this spotlight, including having considered the questions included above and seek the advice counsel on how to navigate these concerns.

Epstein Becker Green Staff Attorney Ann Parks contributed to the preparation of this post.