The current Federal Trade Commission (FTC) has dedicated itself to indulging the obsessions and idiosyncrasies of a certain type of technocratic progressive instead of consumers’ interests. As detailed in a recent House Judiciary Committee report, the agency leadership’s bid to remake American antitrust law has become mired in its own administrative incompetence and ideologically blinkered aggression. One FTC staffer reported that often, FTC leadership’s “stated objectives sound more like progressive buzzwords than actual direction.” Staffers also said that (in the committee’s words) “direction from senior leadership on specific cases amounted to nothing more than telling staff to bring a case, even if the case was unwarranted.” The FTC has now turned its sights on private equity’s role in healthcare.
Chair Lina Khan has long distrusted relationships between private equity and healthcare. In September, the agency threw basic corporate law principles to the wind, suing private equity firm Welsh Carson Anderson & Stowe, over the acquisition practices in Texas of U.S. Anesthesia Partners, a company in which Welsh Carson held a minority investment. In March, Khan announced a joint probe with the Department of Justice to examine the nexus as well as “corporate profiteering in health care” per se.
The FTC has not even attempted to hide its biases. At a March public workshop on private equity and healthcare, the agency convened a panel of uniformly skeptical experts, a bias highlighted by the American Investment Council (AIC). But, as AIC flagged last week, the FTC subsequently held “a more balanced, research-driven closed-door briefing,” whose findings and conclusions the agency refuses to make public. Economists at this second event disputed the FTC’s assumptions, the AIC says. However, the agency saw fit for public consumption only those expert opinions that confirmed its biases.
To be sure, private equity acquisitions (like any other category of acquisition), may violate antitrust law. Such deals may in some cases lead to consumer harms, and businesspeople involved may in some cases make dubious judgements, leading to post-acquisition debacles. None of this, however, pertains uniquely to private equity — or to the healthcare industry.
Likewise, the slew of healthcare facilities that have floundered in the wake of private equity acquisitions (the primary evidence in the progressive case against private equity) reflect larger industry dynamics — not fund managers’ unique perfidy. Staff downsizing and facility closers plague facilities with many ownership models, including nonprofits. “[C]losures and consolidations are endemic to the crisis-wracked rural hospital landscape, regardless of ownership,” reports John Canham-Clyde, an investigative journalist. The myopic mythmaking surrounding private equity’s role in an otherwise troubled industry renders thoughtful analysis impossible. From a governance perspective, Canham-Clyde argues, “a set of proposals targeting one specific corporate structure that controls relatively small slices of physician and hospital services for financial regulation has no chance to meaningfully improve” American healthcare.
The progressive narrative also ignores private equity’s tremendous healthcare investments. By siphoning capital from those who have too much to those who in need of it — a necessary task in any advanced economy — private equity makes available goods and services that otherwise could not reach market. This is, in the healthcare industry, often a literal matter of life and death. Private equity’s investments in the sector exceed $70 billion, according to a recent report. This amount includes billions of dollars supporting facilities in perennially healthcare-challenged rural America.
Subjecting any industry to regulatory burdens disincentivizes participation in it. The right kind of scrutiny, which pursues a legitimate government interest with means grounded in sound economics, keeps markets operational. The product of such scrutiny (well-functioning markets, free of grift and abuse) justifies the attendant regulatory costs many times over.
But the FTC is engaged in something else entirely: It has deployed dubious economics to further a grudge against a disfavored industry. For taxpayers, this means federal funds siphoned to the FTC’s sensationalist scapegoating. For many patients — especially for those in rural areas, with poor and or sparse care options — the FTC’s crusade will likely end in worse healthcare as risk-averse private-equity funds scoot away from the industry. Economists cannot fully quantify such costs.
It is impossible to determine how many struggling hospitals FTC overreach will dissuade funds from saving with a cash infusion. This fact will do nothing for patients who, absent the agency’s ideological fever, could have gained access to new, or higher quality, private-equity-backed medical facilities.
