On April 3, 2024, Senators Ed Markey (D-Mass) and Elizabeth Warren (D-Mass) released draft legislation titled the “Health Over Wealth Act” (the Proposed Bill). This Proposed Bill is another attempt to regulate private equity’s role in the healthcare sector – attempting to provide corporate transparency, government oversight, and regulation of for-profit investment in healthcare.

Background

As King & Spalding has noted in prior Health Headlines articles and client alerts, the Biden Administration has placed an increased focus on private equity’s role in the healthcare sector, including scrutiny of private equity acquisitions of healthcare providers.

Members of Congress, including both Democrats and Republicans, have also expressed interest and concerns with private equity investment in healthcare. Earlier this month, the Senate Homeland Security and Governmental Affairs Committee, chaired by Senator Gary Peters (D.-Mich), issued subpoenas to three of the nation’s largest private equity firms seeking information about hospital emergency department staffing businesses. In December, the Senate Budget Committee launched a bipartisan investigation led by Senators Sheldon Whitehouse (D.-R.I.) and Charles Grassley (R-Iowa) into two hospital systems associate with private equity firms.

Further, certain states have taken the initiative to pass their own oversight laws specific to private investment in the healthcare sector, with most of such laws requiring pre-closing notices and filings prior to the completion of a healthcare transaction. These laws generally provide for more in-depth disclosures as compared to traditional state-level review processes for licensing-related change of ownership filings. As of April 2024, twelve states have implemented versions of such laws and other states have similar legislation pending.

Health Over Wealth Act

The Proposed Bill includes four primary goals: (1) instituting federal reporting requirements for private equity investors (and other privately owned healthcare providers); (2) establishing “risk-mitigation” protocols aimed at reducing purported negative impacts from private ownership in healthcare providers; (3) requiring additional licensure requirements to be satisfied prior to a direct or indirect investment in a healthcare entity by a private entity; and (4) establishing a “task force” to “monitor” change in the healthcare marketplace.

1. Reporting Requirements for Private Investment in Healthcare Entities

Under the Proposed Bill, private equity-backed and other for-profit owned providers would be required to annually report the following to HHS:

• debt;
• leadership of the health care entity;
• political spending by the health care entity;
• every asset purchased;
• real estate, mortgage and lease payments;
• number of payments to staffing firms; executive salaries and board membership of the for-profit owner and each health care entity;
• number of health care facilities owned by the for-profit company that have closed in the previous year;
• health care costs charged to patients and public and private health plans;
• conversion of non-patient care areas into patient care areas;
• health worker wage or benefit reductions;
• complaints of, or citations for, violations of state and federal antidiscrimination law, wage and hour law, and whistleblower complaints; and
• any other information that is deemed by the Secretary of HHS to be relevant for evaluating the impact of for-profit ownership on the provision of health care, health care quality, and safety.

2. Risk Mitigation

Under the Proposed Bill, each for-profit corporation that owns a health care entity would be required to:

• establish an escrow account to cover operating and capital expenditures for 5 years, in case of closure or reduction of services;
• obligate a minimum capital investment in any owned health care entity; and
• carry out other activities HHS determines to ensure mitigation of the impact of closure, reduction in services, or reduction in quality or safety of care.

3. Licensing Requirements for Private Investors in Healthcare Entities

If enacted, HHS would have a process pursuant to which HHS may issue licenses to private equity firms to invest in or purchase a health care entity. HHS may charge fees for such licenses and may revoke such licenses and require divestiture for failure to comply with the Act.

4. Task Force to Monitor Healthcare Marketplace

The Proposed Bill would also require HHS to establish a task force comprising members that would include academic experts and researchers; representatives from organizations with purposes including consumer protection, antitrust, and health care; hospital and health care staff; and patients to:

• monitor changes in the healthcare marketplace;
• limit the role of private equity and consolidation in health care; and
• address changes or patterns in the marketplace that that increase, continue, or exacerbate disparities based on sex, sexuality, race, nationality, age, disability, immigration status, socioeconomic status, or location of residence.

Key Takeaway

While it remains unclear if this Proposed Bill will gain traction in Congress, it is the most detailed federal proposal to date to regulate private equity in the healthcare sector. King & Spalding expects such efforts to continue through the election cycle. The recent efforts in Congress to investigate private equity in healthcare indicate there is a degree of bipartisan support.