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Regulators Taking Aim at Hospice PE Backers


Private equity firms are pouring investment dollars into hospices at a record pace. Meanwhile, legislators and regulators as far up as the White House are taking aim at those firms.

Despite a cool down in the hospice mergers and acquisitions market during the first quarter of 2022, private equity firms have stayed aggressive on deals. About 30% to 50% of home health and hospice transactions in 2021 involved private equity, according to the M&A advisory firm The Braff Group.

With this growing influence comes renewed scrutiny about their impact on patient care, federal policymakers have indicated. Even President Joe Biden called out PE investors during his State of the Union address this year.

“As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up. That ends on my watch,” Biden said. “Medicare is going to set higher standards for nursing homes and make sure your loved ones get the care they deserve and expect.”

Though the president’s remarks focused on nursing homes, investors throughout the health care continuum should take note. A number of agencies and some lawmakers have also started to step up oversight of these firms.

Federal rules are changing

The U.S. Securities and Exchange Commission (SEC) in January proposed amendments to reporting requirements for advisors to large hedge funds and private equity funds.

If made final, the new rules would require these individuals to file reports within one business day of events that could indicate potential harm to investors or signal broader financial risks.

Current SEC rules mandate that these advisors report their private equity assets under management when they meet or exceed $2 billion. The proposal would reduce that threshold to $1.5 billion and would require firms to provide more information used for risk assessment and regulatory enforcement.

Another key finance regulator, the U.S. Federal Trade Commission, is also sharpening its gaze on private equity, based on recent actions and statements from the commission’s leaders.

Stakeholders have raised similar antirust questions about PE firms that invest in health care, as well as perceived lack of oversight.

“Private equity firms operate under the public and regulatory radar. Most private equity acquisitions in health care are not reportable to antitrust or financial regulatory authorities under current law,” a report from the American Antitrust Institute recently stated. “And, even where transactions are reportable, the complex structure of private equity funds obscures the competitive impact of those deals. As a result, private equity companies operate in health care without any effective oversight.”

Giving stakeholders a fair shake

While the presence of profit-driven institutions in a mission-driven industry can foster suspicion, one must tread carefully when painting an entire sector of investors and their portfolio companies with a broad brush.

Bad actors exist in every corner of health care, as do organizations committed to getting it right. And it bears mentioning that individuals remain innocent until proven guilty, including businesses. 

“We’d like to be judged on our outcome, and that’s what we’re going to hang our hat on. So we kind of prepare ourselves to be in the crosshairs, because we understand that that’s popular,” David Schuppan, senior partner at PE firm The Vistria Group, told Hospice News at its 2021 Elevate conference in Chicago. “Judge us by what we do, not how we finance our deals, and we’re pleased to have that be the basis of comparison.”

Infusions of private equity capital can foster growth for the hospices in their portfolio, which often means greater access for patients.

Investment dollars can also allow a hospice to augment its technology infrastructure, including data analytics tools and other solutions, according to a report by the Kenan Institute for Private Enterprise. 

Additionally, firms offer hospices business advice, hiring and supply chain assistance, as well as guidance on mergers and acquisitions, according to David Jackson, CEO of PE-backed hospice provider Choice 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 organizations that are backed, you just see a certain level of infrastructure that allows for improved outcomes,” Jackson said at Elevate. “As long as organizations continue to focus on compliance and quality of care, they’re going to be successful.”

Justice Department joining the fray

Wherever one stands on the role of private equity in health care, regulators are paying closer attention to those firms’ activities.

Just a couple of weeks ago, Andrew Forman, Deputy Assistant Attorney General of the United States Department of Justice Antitrust Division (DOJ), indicated the cabinet-level agency would be “enhancing antitrust enforcement around a variety of issues surrounding private equity.”

Specifically, DOJ will be examining “roll-up” deals, in which firms buy up smaller companies in transactions in the same markets with dollar amounts that fall below reporting requirements. These deals can create a regional monopoly while flying under the radar of regulators, according to Forman.

DOJ also plans to investigate whether PE firms “either blunt the incentive of the target company to act as a maverick or a disruptor in health care markets or otherwise cause the target company to focus solely on short-term financial gains and not on advancing innovation or quality,” Forman said.

PE investment unlikely to slow

Private equity investors are likely to stay bullish on hospice. Multiple firms and PE-backed hospices have told Hospice News that they have no intention of slowing down on hospice deals during 2022, contributing to a trend that has been building for several years.

To that point, Amedisys (NASDAQ: AMED) Executive Vice President and CFO Scott Ginn in May said that private equity firms represent the stiffest competition for hospice and home health assets in the M&A market. Ginn made these comments in a presentation at the Bank of America Securities Annual Healthcare Conference in Las Vegas.

With these factors in mind, a rising number of patients are being cared for by PE-owned hospices.

An estimated 16% of Medicare hospice enrollees received care from either a private equity-owned or a publicly traded hospice company in 2019, up from 11% in 2012, a recent study reported.

Congress also asking questions

Prominent lawmakers such as Sen. Elizabeth Warren (D-Mass.), Senate Finance Committee Chairman Ron Wyden (D-Ore.), and Rep. Bill Pascrell (D-N.J.) also have begun probing the role of private equity in the health care space. This past year much of the focus has been on nursing home investments, but congressional eyes are starting to turn towards hospice.

Wyden, Warren and Sen. Sherrod Brown (D-Ohio) in August penned a letter to Kindred at Home President and CEO David Causby requesting information about the company’s interactions with its former private equity backers, citing concerns about quality.

The 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 later bought out its investor partners to obtain full ownership of Kindred at Home in a $5.7 billion transaction.

Lawmakers to date have not accused any of these companies of wrongdoing, but they are watching PE firms more closely. This is likely to build in intensity and scope — and won’t be limited to antitrust issues. 

More PE investors and other parent companies that own hospices are coming under scrutiny in False Claims Act cases.

Since 2013, at least 25 private-equity-owned health care organizations have settled False Claims Act allegations for a total $570 million, according to research by the Private Equity Stakeholder Project, an industry watchdog group. 

“There are risks to the parent companies. This is actually a very hot issue in False Claims Act litigation right now,” Chris Sabis, member of the law firm Sherrard, Roe, Voigt & Harbison, told Hospice News. “The courts have said that parent companies’ actions in providing certain financial incentives for reaching certain targets — and setting company-wide documentation policies that seem to favor findings of terminal illness — were sufficient to provide potential liability.”

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