U.S. Rep. Bill Pascrell, Jr. (D-NJ-09), the Chairman of the House Ways and Means Subcommittee on Oversight, today urged Federal Trade Commission (FTC) Chairwoman Lina Khan to increase the agency’s oversight of private equity’s exponential growth across the American health care sector.

“I write concerning the troubling exponential growth of private equity ownership across the health care sector and the adverse impact on patient care and cost. Evidence suggests that the increased role of PE in health care jeopardizes patient safety and weakens competition,” Chairman Pascrell writes Chairwoman Khan. “Accordingly, I urge the Federal Trade Commission to exercise its full range of oversight and enforcement tools to track and curtail anticompetitive PE business practices, particularly in the health care sector.”

PE health care investments have rapidly expanded over the last decade, now totaling hundreds of billions of dollars. In 2019 alone, PE firms invested more than $190 billion across more than 1,200 health care deals, representing 14 percent of all PE deals – a nearly nine percent increase since 2009. The COVID-19 pandemic has placed additional financial stresses on our health care system, which experts believe could result in more PE firm investments.

Between 2008 and 2018, private equity deals in health care more than doubled. In 2008, the U.S. saw 325 private equity deals and in 2018, that number grew to 788 deals, representing more than $100 billion in total. Private equity firms choose to enter markets that are highly fragmented, like individual physician practices, to consolidate and scale for better negotiating power. But this negotiating power allows quality of care issues and the practice of surprise billing to proliferate. Two private equity firms alone own 30 percent of the market for emergency services in hospitals. One of these groups roughly doubled its charges to patients once it took over management of an emergency department.

In March 2021, Pascrell convened a Ways and Means Oversight hearing which revealed a disturbing lack of transparency, declining standards of care, and horror stories from hospitals and nursing homes controlled by Wall Street. Pascrell expanded on the hearing’s findings in an April 2021 op-ed in the Bergen Record of New Jersey. On June 2, 2021, Pascrell asked the Government Accountability Office to examine the relationship between private equity investments and subsequent bankruptcies or closures of health care facilities across the United States. 

Rep. Pascrell has been a leading voice in Congress on forcing private equity and Wall Street to play by the rules. In April 2018, he wrote a widely disseminated op-ed for USA Today on how private equity firms destroyed Toys R Us, and warned that without proper reforms, more cherished retailers would be driven under by unregulated private equity practices.

Pascrell is also the main House sponsor of H.R. 1068, the Carried Interest Fairness Act of 2019, legislation to close private equity firms’ favorite loophole in the federal tax code. The carried interest loophole allows these Wall Street outfits to pay the lower capital gains rate on their lucrative income (15 or 20%), rather than paying ordinary income rates (up to 37%) that all other Americans pay on their earnings from work. The ability of private-equity and hedge fund financiers to use the loophole worsens income inequality, as this tiny subset of executives makes up some of the wealthiest citizens in the world.

The text of Chairman Pascrell’s letter to the FTC is provided below.

November 12, 2021

The Honorable Lina M. Khan

Chair, Federal Trade Commission

600 Pennsylvania Avenue, NW

Washington, DC 20580

Dear Chair Khan,

I write concerning the troubling exponential growth of private equity (PE) ownership across the health care sector and the adverse impact on patient care and cost. Evidence suggests that the increased role of PE in health care jeopardizes patient safety and weakens competition.1 I was encouraged by your recent memorandum highlighting, among other things, the need for greater examination of the PE business model and associated practices.2 Accordingly, I urge the Federal Trade Commission (FTC) to exercise its full range of oversight and enforcement tools to track and curtail anticompetitive PE business practices, particularly in the health care sector.

PE health care investments have rapidly expanded over the last decade, now totaling hundreds of billions of dollars. According to publicly available financial data, in 2019 alone, PE firms invested more than $190 billion across more than 1,200 health care deals, representing 14 percent of all PE deals – a nearly nine percent increase since 2009.3 The COVID-19 pandemic has placed additional financial stresses on our health care system, which experts believe could result in more PE firm investments. The dire consequences for patients of increased PE investment cannot be overstated. For example, a National Bureau of Economic Research study published earlier this year found that PE nursing home ownership resulted in the premature deaths of 20,150 residents over a 12-year period, equaling 160,000 life-years lost.

As a result of increasing market distortion and patient safety concerns, experts have urged regulators, including the FTC, to place a greater focus on PE transactions in health care markets.  Specifically, the UC Berkeley School of Public Health and the American Antitrust Institute produced a detailed white paper earlier this year highlighting significant implications of PE investments on competition across virtually the entire health care industry.  And, an October 2021 white paper from the USC Brookings Schaeffer Initiative for Health Policy suggested the surge in PE acquisitions of physician practices may be accelerating horizontal consolidation in certain office-based specialties, which can lead to higher prices and worse outcomes for patients, particularly those who have been historically marginalized.

I was pleased to see you acknowledge these worrying trends in your September 22, 2021, memorandum to FTC staff and Commissioners.  As you explained:

[T]he growing role of private equity and other investment vehicles invites us to examine how these business models may distort ordinary incentives in ways that strip productive capacity and may facilitate unfair methods of competition and consumer protection violations. Evidence suggests that many of these abuses target marginalized communities, and combatting practices that prey on these communities will be a key priority.

The Committee on Ways and Means, Subcommittee on Oversight (Subcommittee) has already been examining various issues associated with PE’s expanded role in our health care system.  The incentives driving the PE industry’s business operations pose unique concerns with respect to taxpayer-funded health care programs and the patients they support.  At a Subcommittee hearing on March 25, 2021, one witness warned that the lack of oversight regarding PE’s actions across the nursing home sector stands in tension with “a system that fosters competition among providers to provide the best care.”

            As you know, certain forms of FTC oversight related to PE firm conduct can be challenging due to transaction size.  In its recent discussion of PE and the Medicare program, the Medicare Payment Advisory Commission stated: “Many acquisitions in health care are relatively small and fall below the threshold where parties to a merger or acquisition must report their plans to federal antitrust authorities before completing the transaction.”  Nevertheless, while the individual transactions themselves may be small, the impact on health care market competition as a whole – and, ultimately, patient health outcomes – should not be underestimated. In light of this, I believe appropriate and rigorous oversight is critical. 

            Therefore, I request an update regarding how the FTC plans to exercise its existing authority to respond to the exponential growth of PE firm activity across the health care system.  I also welcome any legislative recommendations that either would assist the FTC in better oversight and enforcement with respect to such activity or would better protect patients from increased costs and decreased quality as a result of such transactions.  Finally, I would like to receive a briefing for my staff within two weeks on what the FTC can do in response to this growing problem.

            I look forward to working with the FTC as you continue advancing an ambitious agenda to vigorously promote competition and protect consumers.  Thank you for your prompt attention to and consideration of this urgent matter.  If you have any questions about this request, please contact Zachary Baron of the Committee on Ways and Means Majority staff

Sincerely,