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Health Care: Private Equity + Health Care = Lawsuits

Publication | 01.10.24

Private equity firms have been increasingly active in the health care provider space in recent years—which, in turn, has increased the prevalence of health care litigation.

This trend is still in an early stage, says Rochelle-Leigh Rosenberg, a partner in Crowell & Moring’s Litigation and Health Care groups. “While PE-backed health care entities have already been aggressively pursuing plaintiff-side litigation—especially against health insurers—the volume of PE-related involvement in commercial and other types of health care litigation is very much on the rise.”

It’s not surprising that PE firms see health care providers as fertile ground to grow their investments. Health care accounts for nearly 20 percent of the U.S. economy, offers ample opportunity for cost-cutting (a PE specialty), and is a very complex enterprise with abundant legal gray areas. As a result, PE sponsors have been big acquirers of nursing homes, emergency medicine staffing services, and ancillary medical practices such as anesthesia, dermatology, radiology, and lab testing.

Reimbursement disputes

Perhaps the most active type of litigation thus far involves PE-backed provider practices suing health insurers for higher reimbursement rates.

In an increasingly common scenario, PE entities purchase providers and then have them terminate existing insurance contracts so the providers can bill out of network. Reimbursement for out-of-network providers tends to be less defined—the typical legal standard is that provider fees must be “usual, customary, and reasonable”—which offers more room for litigation.

“The dollar amounts in dispute can be staggering when they involve tens or hundreds of thousands of individual service claims,” Rosenberg says. “It’s a difficult decision whether to roll the dice at trial when the dollars at stake are so high.”

The dollar amounts in dispute can be staggering when they involve tens or hundreds of thousands of individual service claims.

— Rochelle-Leigh Rosenberg

Additional types of cases

It’s likely that PE firms will be involved in additional types of litigation as their health care presence grows. Rosenberg sees these as the most likely case types:

  • Whistleblower claims: Health care-related whistleblower claims under the False Claims Act are attracting attention from state and federal agencies. Questions about PE’s impact on the quality of provider care—combined with rising general awareness of whistleblower suits— suggest that such cases, with and without government interveners, will increase. Recent case law indicates that both provider portfolio companies and PE sponsors are being named in these suits.
  • Corporate practice of medicine: Thirty-three states have CPOM laws, which allow only licensed medical professionals to own or control profits in medical practices or businesses. In a closely followed California case, American Academy of Emergency Medicine Physician Group Inc. v. Envision Healthcare Corporation, et al., a group of emergency medicine practitioners accused a PE-owned emergency room staffing company of violating the state’s CPOM law.
  • Antitrust claims: Some PE firms have created “aggregator” companies that acquire multiple players in the same service line and geographic area. Antitrust enforcers are concerned that such accumulation can harm competition. In September 2023, in Federal Trade Commission v. U.S. Anesthesia Partners Inc. et al., the Federal Trade Commission sued an aggregator for buying anesthesiology practices in Texas, allegedly to drive up prices.

Anticipating suits

Rosenberg advises potential defendants to take several steps in anticipation of suits brought against them.

First, make sure to know the applicable state and federal laws governing health care claim payments, particularly regarding out-of-network providers. Insurers should document their reimbursement policies and practices so that, in the event of litigation, they can clearly explain their methodology and why it’s fair.

In addition, potential defendants should determine whether a suing provider is owned by a PE firm, and analyze claims and medical coding to spot potentially problematic trends.

Contacts

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