Advisories August 21, 2023

Health Care Advisory: How Is Congress Trying to Regulate Private Equity in Health Care?

Executive Summary
Minute Read

Our Health Care Group investigates congressional efforts to require new transparency disclosures to the IRS from private equity firms invested in health care.

  • The amendment would have been made to the Health Care Price Transparency Act in the House Ways and Means Committee
  • Some entities enrolled in Medicare or Medicaid would have been affected by greater disclosure requirements to the IRS
  • Expect more discussion about disclosure when Congress returns from the August recess

On July 26, 2023, the House Ways and Means Committee held a legislative markup of H.R. 4822, the Health Care Price Transparency Act of 2023, seeking to bring additional price transparency to the health care industry by requiring some entities to publish pricing and other information. During the hearing, a venture capital and private-equity-related disclosure amendment was filed by Bill Pascrell, a long-serving Democrat from New Jersey.

This amendment would require “any specified medical care provider” to file a tax return containing information not normally found on a tax return, including gross receipts received as reimbursement from federal health programs, insurers, or other receivables in connection with providing medical care. A specified medical care provider is a corporation or partnership that is enrolled in Medicare, Medicaid, or, per the text, “in the course of any trade or business which includes the provision of medical care, employs any individual who is so enrolled or certified.” This definition will require some entities owned by venture capital and private equity to comply because they have employees who are enrolled in Medicare or Medicaid. However, in some states, lay corporations cannot directly own or operate providers due to state corporate practice of medicine restrictions. In these states, management services organizations are often used, and it is not clear how these arrangements would be impacted because the language does not clearly contemplate such arrangements.

It would also require reporting information about locations, real estate that is owned or leased, adjusted taxable income, debt, sale of equity interests, and other financial and real-estate-related information of specified medical providers. The Secretary of the Treasury is given the authority to require reporting additional information, and the filed information would be made available to the public as soon as practicable. The failure to correctly file any single return could result in penalties of up to $1 million.

During consideration of this amendment, the sponsor commented that the “octopus tentacles of private equity” have caused health care prices to increase and resulted in staff layoffs, particularly in nursing homes. He asserts that transparency is necessary to help prevent increasing health care costs. He expressed dismay that the provisions passed by the Energy and Commerce Committee are not in this markup. Bipartisan legislation from May 2023 from the House of Representatives’ Energy and Commerce Committee creates a private equity reporting requirement to the Secretary of Health and Human Services, which is covered in our earlier advisory.

After discussion, the amendment at the Ways and Means Committee was rejected on party lines. The debate about this amendment can be found starting at the 2:15 mark here, where the committee posts archived hearings.

While the amendment was defeated, the conversation about disclosure is certainly not over. It will resume in the fall after the August recess as the two sides seek to negotiate legislation about health care costs and transparency on the House floor. This legislative action is paralleled by scrutiny in the Senate. On June 1, the Senate Finance Committee held a hearing, “Consolidation and Corporate Ownership in Health Care: Trends and Impacts on Access, Quality, and Costs.”

Congress returns to Washington in September, and the outlook for legislation affecting private equity is still not clear. While there is typically bipartisan agreement about increasing transparency in many facets of health care, legislative activity to date indicates there is generally disagreement between Republicans and Democrats about the role private equity should play in health care and whether it has an impact on health care costs.

Entities with ownership that could be affected by this legislation or similar legislation should continue to actively monitor its status and be prepared to address potential impacts to remain in compliance should Congress decide to require additional disclosures about ownership or revenue information.

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Alex Wolfe
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