New Proposed Federal Legislation Takes Aim at Concerns Regarding Perceived “Looting” of Health Care Systems by Private Equity Investors

On June 11, 2024, U.S. Senators Ed Markey and Elizabeth Warren from Massachusetts, introduced proposed legislation titled The Corporate Crimes Against Health Care Act (“CCAHCA”), aimed at addressing a perceived “looting” of health care systems by for profit private equity investors.

According to Sen. Warren, the bill was introduced to “root out corporate greed and private equity abuse in the health care system,” “prevent exploitative private equity practices,” and to specifically ensure that actions such as “looting” do not happen again by addressing trigger events and targeting real estate investment trusts.

The CCAHCA proposes to impose significant criminal penalties, compensation clawbacks, and civil penalties against executives of private equity firms and health care entities that are found to have contributed to the death or injury of a patient through a triggering event. Additionally, the bill imposes certain requirements that impact real estate investments funds (REITs) and would require annual reporting requirements for change of control transactions.

Under the CCAHCA, if following a change of control transaction, a private equity firm or health care executive’s actions contributed “triggering events” that results in the death or injury of a patient or patients under the health care corporation care then the executive could be subject to:

(1) imprisonment for not less than a year or greater than 6 years;

(2) clawback by the Attorney General or a State attorney general of all or part of the compensation received by the executive from the health care corporation or private equity firm during the preceding or succeeding 10 years, including salary, bonuses, equity-based compensation, monitoring fees, management fees, advisory fees, accelerated monitoring fees, time and service-based awards, awards based on financial metrics, severance pay and any golden parachute benefits; and

(3) civil penalties of up to 5 times the amount of any clawback.

Under the bill, a “triggering event” is defined as any of the following occurrences after a health care corporation has undergone a change of control transaction:

• the health care corporation is behind on salary payments greater than 25% of the total workforce for a period of more than 90 days;
• the health care corporation closes;
• the health care corporation is behind on rent payments for a period of more than 90 days;
• the health care corporation defaults on a loan for a period of more than 90 days; or
• any entry of an order for relief under Title 11 on behalf of the health care corporation or the commencement of any other insolvency proceeding.

The legislation contains an affirmative defense if the “applicable covered party shows by clear and convincing evidence that the covered party could not prevent the triggering event.”

The bill includes provisions that would prohibit payments from federal health care programs to entities that sell their assets to or use assets as collateral for loans with REITs. Additionally, the CCAHCA would repeal the special rule for taxable REIT subsidiaries with interest in certain health care property. The legislation also proposes to eliminate tax incentives currently available to REITs investing in qualified health care property. If enacted, the proposed CCAHCA legislation could have a chilling effect on investments and operations of health care REITs.

Finally, the CCAHCA would require health care entities, including, but not limited to: (1) hospital or health systems, (2) physician-owned physician practices, (3) physician practices owned, controlled, under common control, or under management agreement by a hospital, health system, a health plan, a private fund, a venture capital fund, a public or private corporation, (4) an ambulatory surgical center, (5) independent free standing emergency department, (6) behavioral health treatment facility, a hospice program, a home health agency, a provider of service or renal dialysis facility that furnishes renal dialysis services or an assisted living facility, to publicly report to the Secretary of Health and Human Services on an annual basis: (i) transactions entered into during the previous year, including mergers, acquisitions, changes in ownership, changes in control, transaction to form new affiliations changes in partnerships, joint ventures, and/or management services agreements; (ii) identifying information (such as name, address, tax or health plan identification numbers) of all health care providers of the entity that provides services or furnished items; and (iii) other financial information.  The proposed legislation would impose a civil monetary penalty of not more than $5 million for each incomplete report or report that contains false information. 

With only a few months left in this session of Congress, it is unlikely that the CCAHCA will be enacted. However, this proposed legislation furthers the trend of increased government oversight into and attempted control over for-profit health care investments. EBG has previously reported on the attempts by various states to require private equity investors to report transactions to state agencies and regulators, and we will continue to monitor this nationwide trend.

The authors are continuing to monitor the status of this legislation which is in early stages of development, and the situation is likely to evolve. If you have any questions related to the proposed legislation, please contact one of the authors of this post or any of the EBG attorneys you regularly work with.