On June 6, 2024, California Attorney General Rob Bonta announced that he led a multistate coalition of eleven (11) state attorneys general in in submitting a comment letter (the “Comment Letter”) in response to the Federal Trade Commission, the U.S. Department of Justice, and the U.S. Department of Health and Human Services’ (together the “Agencies”) request for information regarding consolidation in healthcare by private equity. On March 5, 2024, the Agencies issued a “Request for Information on Consolidation in Healthcare Markets,” on the same day the Agencies hosted a public workshop regarding the impact of private equity investment in the healthcare system. 

The California-led, 30-page Comment Letter “offers the perspective of the Attorneys General of the States on the adverse effects resulting from consolidation in healthcare markets, particularly through transactions driven by private equity funds or other alternative asset managers.” Specifically, the Comment Letter identifies several state concerns regarding private equity’s role in healthcare, including consolidation and vertical integration.

The Comment Letter also alleges that the structure of private equity firms (i.e., funds that are managed by a general partner and that hold investments in portfolio companies) are a business model with incentives that may harm consumers, because, among other things, the private equity firms “Load acquired companies with high debt burdens and fees,” and “The short-term nature of private equity funds forces a focus on short-term gain.”

With respect to healthcare, the Comment Letter details the states’ concerns regarding private equity’s impact on certain sectors, including nursing homes and hospitals and advances several recommendations for increased government action, including increased transparency, banning certain contractual provisions (e.g., anti-steering) in federal contracting, and more state-federal coordination in investigating and challenging mergers and acquisitions.

The Comment Letter serves as a reminder that antitrust scrutiny of private equity in healthcare is not limited to the federal antitrust enforcement agencies, as several states (California in particular) continue to focus on the industry. Private equity firms and portfolio companies and their transaction partners should continue to be mindful of this scrutiny as they consider their investment and transaction strategies.