The agency's new chair, unlike his predecessor, stated that the situation had little to do with private equity ownership.
The Federal Trade Commission's settlement agreement with Welsh, Carson, Anderson and Stowe highlighted the difference in perspective on private equity antitrust enforcement between the agency's outgoing and incoming chair.
While FTC commissioners voted 5-0 to accept the settlement, Lina Khan and her successor Andrew Ferguson diverged in their statements on their decision, with the former striking a critical tone of private equity and the latter downplaying its relevance in the matter.
The deal reached with Welsh Carson includes no monetary penalties or admission of wrongdoing, but freezes the private equity firm's investments in U.S. Anesthesia Partners (USAP) at current levels and reduces its board representation to a single, non-chair seat. Welsh Carson will also be required to obtain prior approval from the FTC for any future investments in anesthesia nationwide, as well as for certain acquisitions by any anesthesia group majority-owned by the company nationwide. Finally, the firm will have to provide a 30-days advance notice for certain transactions involving other hospital-based physician practices nationwide.
The agency sued Welsh Carson and USAP in September 2023 for an alleged anti-competitive scheme of rolling-up anesthesia groups in Texas.
However, a federal judge removed Welsh Carson from the case in May 2024, deeming that firm was not liable due to its minority stake in USAP.
Before reaching the settlement, the FTC threatened Welsh Carson with a separate administrative antitrust case, forcing the firm's hand.
"In a last-minute effort to claim a political victory, the outgoing FTC leadership threatened to relitigate in its captive administrative court the exact same overreaching claims that were dismissed last year by an independent federal judge unless we agreed to a settlement by Inauguration Day," Welsh Carson said in a statement. "Despite our confidence in prevailing again in any repeat of this case, we made the decision to agree to a benign notice settlement that will not affect our business in any respect and involves no admissions of wrongdoing or monetary penalties. This allows us to put a politically motivated matter behind us and avoid additional expense and distraction. At WCAS we remain most proud of our reputation and legacy of being a private equity firm of the highest integrity."
In her statement, Khan pointed to tactics used by private equity firms to prioritize their own profits over providing quality, affordable care.
“Like other private equity firms, Welsh Carson uses a complex maze of related entities and funds to carry out its business," she wrote. "Indeed, the Commission's complaint in this matter identifies no fewer than seven different Welsh Carson affiliates as defendants, including two separate private equity funds."
Ferguson, meanwhile, released his own statementin which he pushed back on the significance of private equity involvement in the case.
"The press release and the chair's statement both suggest that this case is extraordinary because it involves 'private equity' and 'serial acquisitions,' and hint at antipathy toward private equity. I write to pierce through this breathless rhetoric to make clear that this case is an ordinary application of the most elementary antitrust principles," Ferguson wrote.
"That Welsh Carson is a private equity firm is irrelevant; the antitrust analysis would be the same if Welsh Carson were, for example, an individual or institutional investor. Section 7 prohibits mergers that may substantially lessen competition or tend to create a monopoly. In most of our Section 7 cases, we are predicting the likely effects of a transaction before it takes place. Here, however, we did not have to predict anything. Welsh Carson made acquisitions. As alleged in the complaint, those acquisitions demonstrably created monopoly power and Welsh Carson wielded that power to raise prices. That is exactly what Section 7 prohibits anyone from doing. There is thus no reason for the commission to single out private equity for special treatment."
Under the Trump administration, regulatory oversight of M&A is expected to ease up, especially as it relates to private equity.
Ferguson's explanation of the decision to settle with Welsh Carson provides insight into how the FTC may hold private equity companies accountable going forward.
A new report examines the dynamics of dealmaking in the healthcare innovation landscape.
As venture funding for digital health startups has dipped in recent years, the market has created an environment where big and smaller players are vying for investments.
In 2024, there was an increased focus on earlier-stage funding, along with more modest later-stage check sizes, while larger companies made major moves to round out activity, according to a report by Rock Health.
Venture funding for U.S. digital health companies totaled $10.1 billion across 497 deals last year, continuing the decline from $10.8 billion (503) in 2023, $15.7 billion (594) in 2022, and $29.2 billion (740) in 2021.
When adjusting for inflation, 2024's total approximates to $8.3 billion, which nearly matches the $8.2 billion raised in 2019—the report's benchmark year before the pandemic fueled a heavy funding cycle.
One reason for the decreased funding levels last year was companies choosing to invest in younger startups. Sixty three percent of funding rounds were labeled, compared to 57% in 2023, and of the labeled deals, 86% supported startups raising their Seed, Series A, and Series B rounds.
Another factor in funding trends is smaller check sizes for companies that raised later-stage rounds. Median deal sizes for Series C and D fundraises in 2024 were $50 million and $55 million, respectively, compared to $62 million and $58 million in 2023.
There were also fewer mega deals, or fundraises over $100 million, which made up 21% of last year's funding versus 32% in 2023, 38% in 2022, and 56% in 2021.
Still, deployable capital is being concentrated at the top by the heaviest hitters, the report highlighted. Andreessen Horowitz and General Catalyst were the digital health's top investors last year, based on disclosed investor syndicates, and captured 20% of committed LP capital in the venture market, according to PitchBook.
"David and Goliath dynamics in digital health came into sharper focus in 2024, aligning with broader venture and healthcare industry trends and reflecting the natural layers within technology stacks," the Rock Health report's authors wrote. "We believe a balance of big and small players will be needed to preserve diversity of thought and innovation in healthcare."
The industry is seeing new highs in areas of dealmaking that illustrate recovery is ongoing.
Although hospitals' and health systems' margins have largely stabilized, dealmaking trends reveal that many organizations are still dealing with financial challenges.
Health systems are divesting at a record rate due to financial distress, forcing larger organizations to increasingly seek out partnerships, according to a report from Kaufman Hall.
The analysis found that 45 of the 72 announced transactions in 2024 (62.5%) involved a divestiture, more than doubling the mark of 31.1% for 2023 to set a new high for the industry.
Nearly a third of the deals (30.6%) featured a financially distressed party, topping the previous record of 27.7% from 2023.
It isn't just smaller hospitals that are making up these types of transactions either. The average seller size by annual revenue involved in financially distressed deals last year was $401 million, which nearly doubled the high of $219 million from 2022. The total transacted revenue for those moves was $8.8 billion, compared to $2.3 billion for the previous year.
Meanwhile, mega-mergers are evolving to include more deals between a larger organization and a party of significantly lesser size, the report highlighted. Examples of this in 2024 included Risant Health's acquisition of Cone Health, HATCo's planned acquisition of Summa Health, Nuvance Health's planned merger with Northwell Health, and Sanford Health's merger with Marshfield Clinic Health System.
“While these may not all involve financially distressed organizations, it does suggest that large organizations are not immune to financial and operational challenges—a trend to monitor in 2025," Anu Singh, managing director in the Mergers & Acquisitions Practice at Kaufman Hall, said in a statement.
A major focus of health systems pursuing divestitures currently is market realignment. In 2024, a record 62.5% of transactions featured market reorganization, which is allowing regional health systems capable of taking advantage of these sales to achieve growth.
Analysts also noted that transformative partnership models, such as the ones led by General Catalyst's HATCo and Kaiser Permanente's Risant Health, should have a greater presence going forward as health systems search for innovative ways to tackle industry challenges.
Increased M&A activity in general is expected this year due to a potentially loosened regulatory climate. A recent report by PwC forecasted that a pro-business stance by the new presidential administration could cool regulatory pressure, clearing the way for more deals to be pursued and completed.
A new report by the Biden administration examines the negative impact of two oft-criticized trends in the industry.
Three federal agencies have issued warning on the potential damage unchecked consolidation and private equity ownership can wreak on healthcare.
Following a year-long investigation, the Federal Trade Commission (FTC), the Department of Justice, and HHS released a report that highlighted concerns regarding the consequences of increased consolidation and private equity investment on patient care.
The report comes after a tri-agency collaboration was announced in December 2023 and a request for information (RFI) was released in March 2024. It contains over 2,000 comments submitted from patients, physicians, health systems, insurers, industry associations, labor unions, and academic researchers.
The comments, as well as the agencies, posit policy considerations that create more ownership transparency, strengthen regulatory enforcement, and lower reporting thresholds for M&A.
"The results from this RFI indicate plainly that the American public is dissatisfied with ongoing trends in the health care sector," the report stated.
Provider consolidation continues to trend upward, the agencies noted. In 1990, 65% of Metropolitan Statistical Areas in the country were considered highly concentrated for hospital services. That number rose to 90% in 2016.
Often as a result of integration, higher prices are charged to insurers and patients, while care quality drops.
Provider M&A that involves private equity can come with its own set of challenges and repercussions. The report said that private equity's presence in healthcare is widening, with more than 40% of the country's emergency rooms estimated to be run by staffing companies owned by private equity firms, as an example.
The agencies cited case studies of private equity firms leaving hospitals in financial ruin after taking out profits. Just this month, Prospect Medical Holdings filed for Chapter 11 bankruptcy, which a Senate report found was due in large part to its former private equity owner, Leonard Green & Partners, extracting $424 million in dividends and preferred stock redemption while engaging in a $1.55 billion sale-leaseback deal.
"PE ownership in health care appears to present new and unique risks related to and apart from consolidation," the tri-agency report said.
Respondents to the RFI urged for policies that clamp down on anti-competitive consolidations and more transparency of private equity acquisition activity, such as expanding the CMS nursing home ownership transparency rule.
Commentators also suggested that the financial threshold for reporting M&A to the FTC or DOJ be lowered past the $119.5 million it currently sits at.
"It is clear from the commentors that the Agencies’ past actions have not sufficiently addressed the harms inflicted by anti-competitive activity in the health care sector, and more effective and vigorous antitrust enforcement is necessary to stop or reverse the trend of consolidation," the report stated.
The health system's financial unraveling has similarities to the much-maligned collapse by Steward Health Care.
The spotlight on private equity ownership in healthcare is burning even brighter after Prospect Medical Holdings' descent.
The California-based for-profit health system filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Northern District of Texas after its former private equity owner extracted value and saddled it with significant debt.
In its filing, Prospect declared between $1 billion and $10 billion in assets and liabilities, along with more than 100,000 creditors.
The company, which operates 16 hospitals across California, Connecticut, Pennsylvania, and Rhode Island, said in an announcement on its website that the move will allow it to "refocus on its core strength and return to fulfilling its mission of operating community hospitals in California." Prospect also stated it plans to keep its hospitals, medical centers, and physicians' offices open during the restructuring process.
It's been a struggle for Prospect to divest its hospitals. The system's deal with Yale New Haven Health for three Connecticut facilities has been stuck in a lawsuit due to the buyer's concerns over conditions and missed payments.
Meanwhile, Prospect has seen two separate deals to offload Crozer Health fall apart, with the first coming in 2022 with ChristianaCare Health System and the most recent coming in recent months with CHA Partners.
By filing for bankruptcy, Prospect said it will work with Pennsylvania to find a buyer for Crozer Health and speed up the sale of two Rhode Island hospital to the Centurion Foundation, which has been slowed by worries over mismanagement.
"Divesting our operations outside of California will ensure that they receive necessary financial support so that the communities that rely on those facilities will maintain continued access to highly coordinated, personalized, and critical healthcare services long into the future," Prospect CEO Von Crockett said in a statement.
Another private equity disaster
Prospect has gone down a similar path to the one Steward Health Care received criticism for due to the role private equity ownership played.
Dallas-based Steward filed for Chapter 11 bankruptcy as well and put all 31 of its U.S. hospitals up for sale, with previous private equity owner Cerberus Capital Management receiving much of the blame.
In the case of Prospect, private equity firm Leonard Green & Partners owned the system from 2010 to 2021. A bipartisan report from the Senate Budget Committee released this month highlighted how Leonard Green "wielded substantial influence" over Prospect's financial decision-making and collected $424 million of the $645 million in dividends and preferred stock redemption that Prospect paid out to investors.
The report also outlined how Prospect became financially distressed through a $1.55 billion sale-leaseback with Medical Properties Trust. The maneuver provided the system with immediate capital but left it with debt from rent payments. Medical Properties Trust said in a release that Prospect has not paid any rent since last June.
Leonard Green and Prospect's "primary focus was on financial goals rather than quality of care at their hospitals, leading to multiple health and safety violations as well as understaffing and the closure of several hospitals," the Senate report stated.
As Prospect works to "regain its financial footing," according to Crockett, the deterioration of two private equity-backed health systems in the past year is further placing regulation of hospital ownership at the forefront of lawmakers' minds.
The retail pharmacy giant's financial recovery "will take time," CEO Tim Wentworth cautioned to investors.
Walgreens' first quarter earnings beat Wall Street expectations, signaling that the company is heading in the right direction after falling into financial turmoil.
The retail pharmacy operator logged a net loss of $265 million in the quarter, compared to a loss of $67 million a year ago, but also saw its sales increase by 7.5% over the same period in 2024 to $39.5 billion.
CEO Tim Wentworth stated that the results were driven by the stabilization of its core retail pharmacy business, along with managing operating costs and addressing reimbursement models.
"Our first quarter results demonstrate that we are executing against our long-term strategic priorities," Wentworth told investors on an earnings call.
Walgreens, like other companies in the retail pharmacy space, has struggled with challenges related to low reimbursement and dampened consumer demand. The company's financial troubles have been heightened by the losses it has been incurring with its primary and specialty care offerings.
With its market value recently dipping under $8 billion after exceeding $100 billion in 2015, Walgreens is reportedly considering a sale to private equity firm Sycamore Partners, according to the Wall Street Journal.
In the meantime, the company has found enough of a footing with its finances to provide reason for optimism going forward.
"While we are pleased with our first quarter results, there is more work to be done as we aim to strengthen our balance sheet and to ensure longer-term positive cash flow generation," Wentworth said. "We remain committed to achieving a retail pharmacy-led turnaround, underpinned by a sustainable economic model. Our turnaround will take time, but as the quarter's results demonstrate, we are executing with urgency and believe the actions we're taking will be the basis for sustained value creation over the long term."
One area Walgreens has made headway is with its reimbursement models. Wentworth told investors that the company has completed all its contract negotiations for calendar 2025 and had success in adjusting contracts to better align reimbursement with cost of goods.
"We are also expanding discussions about being compensated for additional services beyond dispensing and promoting alternative payment models," Wentworth said.
In terms of managing its footprint and costs, Walgreens closed 70 stores in the first quarter and plans to close another 450 for the year.
The company has been shrinking the presence of VillageMD clinics as well while it explores selling part or all of the primary care business. In the second quarter of last year, Walgreens reported nearly $6 billion in net loss from its investment.
However, VillageMD's sales have trended up, leading to a 9% year-over-year growth in the first quarter to $1.6 billion.
"We are underway with a sale process for Village Medical while continuing to evaluate the best options for Summit-CityMD," Wentworth said. "We are encouraged by the leadership of new CEO, healthcare veteran Jim Murray. To be clear, our ultimate intent to exit is unchanged, and we remain committed to redeploying any proceeds to reduce our net debt and improve the health of our balance sheet."
The improved performance of VillageMD and Shields allowed Walgreens to bring its operating loss in the U.S. healthcare segment down to $325 million in the first quarter, compared to $436 million last year.
Investors have reason to be more confident in pursuing and completing deals in the next 12 months.
The new year is expected to bring with it a more favorable environment for dealmaking within health services.
Thanks to plenty of capital available to corporate and private equity investors, the potential for further interest rate cuts, and policy by the incoming presidential administration driven by a pro-business stance, M&A activity should continue to rise in 2025, according to a report by PwC.
Health services deals actually declined last year, totaling 1,373 through November 15, which was a 9% drop-off from the 1,506 transactions in 2023. Still, 2024's figure was nearly 70% higher than the pre-pandemic trends of 828 deals in 2019 and 814 moves in 2020.
“Dealmakers within health services continue to demonstrate the sector’s resilience despite regulatory uncertainty and broader reimbursement headwinds," Nick Donkar, PwC's US Health Services Deals Leader, said in the report.
Deal value, meanwhile, trended up last year with $69 billion recorded, compared to $63 billion in 2023. Megadeals, or transactions greater than $5 billion in value, remain on the decline as 2024 saw $17 billion in megadeals value. That number hit a high of $115 billion in 2021 before falling to $54 billion in 2022 and $23 billion in 2023, demonstrating the cooling effect of the regulatory climate on larger deals, PwC said.
The report also highlighted the increased hold period for investments, which is set to spur a flurry a moves to create returns.
The year-to-date 2024 average hold period of health services portfolio companies for global private equity investors is 5.5 years, outside the traditional three to five-year investment model. Private equity investors are expected to be motivated to cash in on those assets and pour the resources into new ventures.
On the policy side, while there is a wait-and-see approach to how the incoming administration acts, the current sentiment is that it shouldn't hinder dealmaking.
"The Trump administration’s stance on antitrust issues will be closely monitored in the first months of the administration and investors are cautiously optimistic that the administration will relax enforcement actions and have a more deferential view towards markets," the report stated.
Hospitals leaders share their tips for creating alignment after completing a merger or acquisition.
For CEOs, the work on a merger doesn't stop the moment a deal is closed. Post-merger, leadership must integrate hospitals, cultures, operations, and systems to deliver on the value of the move.
In HealthLeaders' The Winning Edge for Transforming Through M&A, Aspirus Health CEO Matt Heywood and University Health CEO Ed Banos outlined steps for organizations to take in the wake of a merger.
An ever-changing environment is placing greater importance on pursuing integration and getting it right, say hospital CEOs.
In the first webinar of HealthLeaders' The Winning Edge series, Aspirus Health CEO Matt Heywood and University Health CEO Ed Banos discuss how health systems can pursue M&A to achieve growth in several areas, from reaching new markets to advancing technology.
Tune in to hear the panelists offer their insight on trends driving dealmaking and what M&A strategies have allowed their organizations to grow.
HealthLeaders' The Winning Edge for Transforming Through M&A identified key areas that organizations should strategize for.
Mergers and acquisitions will always be a vital strategy for providers to achieve growth and sustainability, but the context shaping the dealmaking landscape continues to change.
Hospitals and health systems right now are dealing with a volatile environment consisting of inflationary pressures and business adversity risk, forcing CEOs to be thoughtful, yet willing, in pursuing integration.
In HealthLeaders’ The Winning Edge for Transforming Through M&Athis week, University Health CEO Ed Banos and Aspirus Health CEO Matt Heywood discussed current trends and success factors for organizations considering consolidation.
Here are three areas leaders at the highest level are accounting for in their M&A strategy:
Balancing financial health and patient care
The reality of hospital M&A is that while it may be necessary for the viability of some organizations, it can also potentially have a negative impact on patients and communities.
A recent study published in the Journal of the American College of Surgeons found that quality of care was either lower or unchanged 77% of the time after integration, whereas 93% of cases showed increased prices.
The problem, however, is that organizations can't provide the kind of care and access that is necessary for their community without ensuring the bottom line is strong enough to keep the doors open.
"In our organization, our motto is to be a strong, vibrant organization first and foremost Then, if that means we make tough choices, then we need to make tough choices," Heywood said. "We need to make sure that our services are there for our community. They just may have to be there sometimes in a different location or in a different manner."
That can make M&A a bit of a balancing act, but diversifying is a way for hospitals to alleviate some of the financial burden and serve patients in a better manner at the same time, according to Banos.
For example, University Health has implemented and grown its Hospital at Home business, which has decompressed a lot of patients that don't need to be in hospitals but are still sick enough to require care.
Banos said: "When you're looking at a merger and acquisition, what is the business that they can bring you that is going to help fund some of the uninsured commitments that we have as a public institution so that you make money on the good so that you can help pay for the underinsured?"
Outpatient investment
A significant trend that is influencing M&A activity currently is the push by providers towards offering more outpatient sites of care.
Organizations like Community Health Systems and Ardent Health have targeted the acquisition of urgent care centers recently to leverage their profitability and cost-friendlier models in comparison to inpatient care.
Kaufman Hall's most recent National Hospital Flash Report showed that outpatient revenue per calendar day jumped 7% month over month in October, outpacing inpatient revenue's increase of 1%.
"Driving the cost down is very, very important and when you can treat a patient in an ambulatory setting or even through population health and public health, you can try and manage illness and well-being before it becomes an acute issue," Banos said. "We know that in the long run will prevent high-cost admissions for sure on your underinsured or uninsured."
Focusing M&A investment on outpatient services may not make sense for every organization though. For Wausau, Wisconsin-based Aspirus Health, the rural market it serves requires a higher acuity capacity to deal with an aging population and their severity of illnesses, according to Heywood. That's leading to a greater emphasis on hospital beds, not less.
"It was a little surprising for us as we were heavily for years pushing to the outpatient market as everybody's talked about and now we're finding that the aging population is starting to overwhelm people's perspectives of how many beds are needed and we're actually having to try to catch up on that," Heywood said.
Advancing technology
M&A also affords organizations an opportunity to adopt or improve digital health solutions.
For both Banos and Heywood, that technology-forward mindset post-merger starts with the EHR and EMR platforms.
"We've really invested into 'let's utilize as much of our EMR as we can to the full extent,'" Banos said. "If there's something out there that Epic rolls out, we want to be one of the first ones to do it and we try doing that all the time. That, when we go and take over a practice or dialysis center or a freestanding emergency room, really has helped us because they see that they don't have the dollars to invest in that."
When you're using a platform like Epic which can have multiple versions, you want to optimize it by having any future partners on there as fast as possible and on the same maximized version, Heywood stated.
Then, organizations can replace add-ons with upgrades by Epic when it rolls them out to ensure they're sticking to one platform as much as possible, making it easier to keep up to date.
"What we want to do is get our platforms tight and we want to get them right and we want to keep them upgraded. The minute we have an acquisition or a partner, we want to get them on those structures," Heywood said.
Beyond the EHR and EMR platforms, Banos recognizes the value of implementing various technologies in different settings, such as AI in diagnostics and robotics for floor cleaning.
"We're trying to use everything we can to help," Banos said. "While it might be a little expensive now, we know in the long run it's going to be a better solution going forward."
