In healthcare transactions, people often think that antitrust is a big corporation’s problem. However, smaller companies need to think about these issues, too.

There have been recent developments on both state and federal levels, calling for greater regulation in the healthcare space. More statutes have been put in place to catch smaller transactions statewide, and in 2021, the Federal Trade Commission and Department of Justice were ordered to take a close look at antitrust in the healthcare industry. 

In the last couple of years, multiple criminal cases have been brought against individual healthcare providers and corporate entities alike. Oftentimes, these people don’t even realize that certain actions can subject them to criminal liability. 

Luckily, there are specific measures you can take to mitigate risk and ensure that you maintain antitrust compliance. From your pipeline strategy and business goals to team training and education, analyzing through an antitrust lens can help you avoid issues and efficiently secure a deal.

In this episode of The Professor’s Corner, host Geoff Cockrell interviews Holden Brooks, Partner of McGuireWoods’ Antitrust, Trade, and Commercial Litigation Department, to discuss the best practices to manage antitrust risk in the healthcare space. 

As an expert in antitrust law, Holden details new developments and regulations to help prepare you for deals and avoid antitrust risk — no matter the size of your business.  

Featured Guest

Name: Holden Brooks

What she does: Holden is a Partner of McGuireWoods’ Antitrust, Trade, and Commercial Litigation Department. Her practice focuses on mergers, complex litigation, civil and criminal enforcement, and counseling across industries with significant experience in the area of healthcare.

Organization: McGuireWoods

Words of wisdom: “I think there are a lot of ways that providers can get in trouble in that market allocation area, because I think there's always a sense that they're professionals, that making decisions about who's going to do what is part of practicing medicine in a collaborative way. But the antitrust division really is looking at that in the same way they would in any other industry where there's an effort to reach agreement about how you're going to compete or not compete.”

Connect: LinkedIn

Notes From The Professor’s Corner

Top takeaways from this episode

★ There are common antitrust myths regarding smaller companies. The biggest risk for healthcare businesses — even smaller ones — entering into transactions is that they don’t know what they don’t know. There are specific state requirements and federal enforcements that have recently developed. For example, in Nevada, Washington, and Connecticut, there are state statutes and sophisticated Attorney General offices that can catch smaller transactions. Ultimately, a greater amount of smaller deals in the healthcare space are being scrutinized.

★ Managing antitrust risk requires time in the pipeline stage. You can get great ROI if you’re smart about your pipeline, and this is the first step to help you manage risk. If you can create an acquisition strategy that doesn’t involve consolidation in anything within an antitrust-relevant market, then you can still harness the scale without incurring antitrust risk. 

★ Certain behaviors can tie into criminal aspects of antitrust. Within the last couple of years, there have been multiple criminal cases brought against individual healthcare providers and corporate entities. These criminal behaviors include price fixing, dividing the market by geography, or dividing the market by drugs. Sometimes, people have no idea they’re executing criminal behaviors. So, it’s important to get educated and train your team to understand the guardrails. 

Episode Insights

[01:19] The myth around antitrust issues: Holden explains why everyone needs to think about antitrust issues — not just big companies.

[02:06] State and federal statutes: Holden discusses the recent changes in specific state and federal statutes and how they could affect small roll-up deals. 

[05:39] Managing antitrust risk: Spend more time in the pipeline stage and highlight the positive motivations behind a transaction.

[08:42] Criminal aspects of antitrust: The different ways that individual healthcare providers and corporate entities can get in trouble.

[12:27] Educating your people on antitrust topics: Holden details what investors and businesses should do to get educated, train their people, save time and money, and ultimately avoid liability. 

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This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

This is The Professor's Corner, a McGuireWoods series exploring business and legal issues prevalent in today's private equity industry. Tune in with McGuireWoods partner Geoff Cockrell, as he and specialists share real world insight to help enhance your knowledge.

Thanks for joining. This is Geoff Cockrell bringing another edition of our Corner Series, where we talk with deal makers and practitioners around a number of issues that relate to private equity investing in healthcare. Today, I'm thrilled to be joined by my partner Holden Brooks, practices in the antitrust arena, and we're going to talk through some of the antitrust issues that can show up either in healthcare private equity transactions, or in the operation of healthcare businesses. But Holden, maybe give a quick introduction of yourself and your practice.

Sure. So I'm really happy to be here. I'm new to McGuireWoods, and I'm really thrilled to be part of the team. I am a partner in the antitrust group based out of the Chicago office. I've been an antitrust lawyer my whole 20-year career and have done probably 75 to 90% of my work in the healthcare space, and in particular, in the healthcare provider space, over the last 10 to 15 years. So this is a topic that's near and dear to my heart.

So Holden, in healthcare transactions, folks often think of antitrust as a big kids problem, meaning big companies, multiple hundreds of millions of dollars in value, and they need to think about antitrust stuff, but not small players. I know that's not true, but can you talk through why that's not true and why everyone needs to be thinking about antitrust issues?

Sure. I would say that the biggest risk right now for people entering into transactions is that they don't know what they don't know. And there's a lot of development. There's a lot of new development happening in the regulatory area around healthcare transactions, including as you say, at the smaller transaction value level. And so there are few fronts to be watching.

One of them is what's going on in the state where your deal is happening, because there are increasingly state statutes that require a notification to the state AG for an antitrust review. So just for example in Nevada, and in Washington, in Connecticut, there are state statutes that can catch smaller transactions. And those AG offices are really very sophisticated with respect to both healthcare and antitrust and they will give things a serious look.

The other thing is just that we have really robust federal enforcers in place right now, and they are really focused on healthcare. So if you go back to President Biden's executive order from the summer of 2021, he basically said to the Federal Trade Commission and DOJ, "I want you to take a close look at healthcare. I think that this is an area where antitrust can make a big difference." And so I think they have generally taken that mandate very seriously.

And although you're correct that only deals over a certain valuation threshold will be part of the HSR process, it does not mean that these federal enforcers don't have jurisdiction to look into whatever they want. And so I think you are going to see more of these small deals be scrutinized. Some of the tea leaves that people are reading on that front. There have been some recent guidance documents issued by the FTC and DOJ indicating that they know that roll ups are happening in the healthcare space.

So they are aware that there is consolidation within service lines, within geographic markets that's happening below the HSR threshold. And they've basically made very public statements about the fact that they intend to scrutinize those deals that posed the risk of competitive harm as they become aware of them.

The other thing that's going on in that space, and this actually started under the Trump administration is that the federal trade commission is doing a retrospective analysis of what's happened in 15 states in connection with consolidation in the physician practice space and in terms of hospitals buying up physician practices and also hospital mergers. So they have subpoenaed data from a bunch of different commercial payers. They're constructing a huge database that's going to enable them to look at the relationship between managed care rates and consolidation. And I think they are going to use that as a justification for looking into and blocking more of these small roll up deals.

I tend to think of that as two different categories. There's bad behavior, which we'll talk about in a little bit where you classic example [inaudible 00:05:01] bad behavior topics. But then there's also the aspect of the government trying to coerce market concentration that can lead to monopolistic power and monopolistic behavior. So on the market concentration aspect of it... Because you're right. We see a lot of consolidation where significant premise is moving into a particular market and then buy the [inaudible 00:05:25]. So what are the levers for policing that when you're below the HSR threshold and how often do you see the government, state or federal intervening on those behaviors that involve market concentration?

Well, I believe in spending a little bit of time at the pipeline stage to manage antitrust risk. I think that has great return on investment. So that's my first advice always. Which is to be smart about your pipeline. And if you can create an acquisition strategy that does not involve consolidation in anything that would be a plausible antitrust-relevant market, then I think you can still harness the scale that we're going for in a lot of, for instance physician practice transactions, without incurring that antitrust risk. Right? So that's one thing is just having a really basic understanding of how to use that lever, I think is the first step.

The second step is really understanding when you're thinking about your business goals, even if you are acquiring businesses that are in the same plausible relevant market is number one, how can we create documents that give a clear picture of the pro-patient pro-quality pro-efficiency motivations behind this transaction instead of documents that feature forecasts of how much are going to be able to raise commercial rates as a result of the transaction. That's just the first thing that any enforcer is going to look at. And so I think that-

Holden maybe just stop there for one second. So combining those ideas of looking at your pipeline and the paper trail is the idea that even in transactions that are below the HSR threshold, because if you're above the HSL threshold, you can be asked for those documents that are relating to what was the rationale for the deal, what was the communications among the parties as it relates to the rationale, is the thought that folks that are involved in consolidation should approach even transactions that are much smaller, they should be looking at them through the same filter that the government would be looking at them if they were above HSR line. Is that a basis?

A hundred percent? That is a hundred percent. So I am aware of even state investigations of consolidation within a particular service line within a particular area and those civil investigative demands, that's the lingo for the subpoena-type document that you would get, are incredibly broad. And they will look not only at those key documents, they have the right to ask for whatever they want to and including text messages and other information on personal devices, et cetera. So I think you're exactly correct that people in small deals should be proceeding as if their communications about that transaction could be subject to review.

I think there's a tendency to do that as and above the HSR line topic. And the reality is that, especially if you're looking at consolidation in a particular market, you need to be looking at that below the HSR line as well. Maybe changing gears a little bit, you and I talked a bit about some criminal aspects of antitrust. Can you just talk a little bit about how the enforcement posture has changed, and then delve into some of the behavior that can connect to that kind of criminal sense?

Sure. This is really something that I think is really important for people to understand in the provider sector. Because for many years, for decades, there was no criminal antitrust enforcement against healthcare providers and just in the last two and a half years or so, we've seen multiple criminal cases brought against individual healthcare providers and the corporate entities as well. Really significant civil follow-on cases as well. So the kind of conduct that they will go after on the provider side are very similar to what they'll go after in the other industries that have typically been targeted by criminal enforcement.

So one of them is price fixing. That's where you are agreeing on the rates that you're going to charge in the provider context. Obviously that's the rates that you're going to charge to commercial payers. One of them also would be market allocation. That's where you're saying, "Hey, I'm not going to go to this service line if you don't go into this service line. And therefore we'll have a neat little monopoly in that area." Or dividing the market by geography, dividing the market by drugs. Just a certain type of drug that you'll administer, or a certain type of equipment that you will or won't operate, et cetera.

So I think there are a lot of ways that providers can get in trouble in that market allocation area, because I think there's always a sense that they're professionals, that making decisions about who's going to do what is part of practicing medicine in a collaborative way. But the antitrust division really is looking at that in the same way they would in any other industry where there's an effort to reach agreement about how you're going to compete or not compete.

On the idea of these kind of collusion type premises that I envision a smoke-filled room where people are conspiring very specifically about whether it's price fixing or market division. Is it always that specific or can folks wander into the arena of that kind of exposure with conduct that carries that inference, even if the behavior doesn't feel quite as sinister as I would imagine?

To be honest with you, one of the worst moments of my career is sitting across a table from someone who did something and they had no idea was going to subject them to criminal liability saying "If I had known it was illegal, I never would've done it." I think that's what we're seeing in healthcare right now. Is that people believe that they are pursuing strategies that just make sense, that seem to have a business justification from their point of view. Maybe they're aware of other people in their professional community who are doing the same thing, and so they go forward with it.

And in fact, it's something that will be taken very seriously by the enforcers. So this is why I really do feel that just a little bit of education is really important to have right now in healthcare about just the contours of the antitrust laws and being able to demonstrate that you at least made a good faith effort to understand what the guardrails are.

And so from the perspective of either an investor or as a provider business, what is the best way to go about sensitizing your people to these sorts of topics?

Well, I think if you're an investor, it should become a new subsection of your due diligence list. Number one is to understand where some of this conduct that people might not have realized was illegal has been going on. So one of them on the buyer side is just to understand where that risk might lie in a target business. But if you're operating the business there, it's really very easy to set up and maintain a pretty simple antitrust compliance program.

It usually involves getting a policy in place, adding a policy to your deck of policies, and then having some pretty light training at the leadership level, and then I also recommend it one step below the leadership for really key areas in a provider business. So managed care, procurement, HR, marketing, business development, and for a lot of clients, I even do it for the physicians as well. Because particularly where you have entrepreneurial practices, where the physicians are out and they're in the community and they are business-minded, et cetera, they are your business development team or an arm of it that also needs to understand the contours of the antitrust law.

So it can be done for not very much money, not very much time. And it would have again, a huge return on investment to be able to avoid that liability.

And I would add as a deal guy myself, it's often sensitizing the deal professionals at private equity funds to not walk themselves into either footfalls or bad paper trails, of being mindful as we talked of before, that the things that you say can be... Someone else is going to look at it at some point potentially, and they may be approaching it from a different perspective and view it likely or [inaudible 00:14:22].

So being careful about what we talked about and to not create a one-sided and negative paper trail, and then be careful about what you see and have access to on a bigger deal where often, the folks are very sensitized to not getting access to... If this was an acquisition in the same market, you're not getting access to payer contracts, so that can raise the inference if the deal doesn't go through that you're using that information for anti-competitive purposes. But on smaller deals people are often careful about those things. So I think it's a training both as you're mentioning from a compliance process perspective, but also making sure that the deal people that are actually doing these things before they've had any conversations with counsel, just sensitize them to the areas where they can get in trouble.

Exactly. And I think the way to sell that to your business teams is that they are going to save an immense amount of time and an immense amount of money by being smart about antitrust upfront. Because when you do have... Unfortunately one of these unintentional footfalls or whatever, there's a bad document, there's something that gives rise to an inference of something improper. It can really delay your deal by months and can cost a tremendous amount in legal fees while a regulator investigates that conduct. And so being able to avoid those sideshows is really very important just from a timetable point of view and just getting the deal done point of view.

Well Holden, I want to thank you for joining us for this episode. These are super interesting topics and important ones that come up in deals and in managing healthcare companies all the time. So thanks again for joining us for this episode of The Corner Series.

Well, thank you so much for having me.

Thank you for joining us on this installment of The Professor's Corner. To learn more about today's discussion, please email host Geoff Cockrell at gcockrell@mcguirewoods.com. We look forward to hearing from you. This series was recorded and is being made video by McGuireWoods for informational purposes only. By accessing this series, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in this installment.

The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This series should not be used as a substitute for competent legal advice from a licensed professional attorney in your state, and should not be construed as an offer to make or consider any investment or course of action.