Increased Scrutiny of Private Investment in Health Care

What It Means for Investors and Innovators

by Amy M. Joseph and Jeremy D. Sherer

August.22.2024 | 1 minute read

Investor-backed health care companies find themselves under the regulatory microscope—a trend with the potential to delay deals and affect a company’s strategy and growth.

Some states have expanded their review of investor-backed health care transactions. U.S. regulators are zeroing in on investor-based operators or affiliates. And legislators in California and elsewhere are seeking to tighten rules around the corporate practice of medicine.

Investor-backed health care companies seeking to scale and enter new markets should familiarize themselves with this evolving landscape. So should investors conducting diligence on potential investments.

Here are three things investor-backed health care companies should consider doing to navigate an era of increasing scrutiny:

1. Assess your company’s compliance infrastructure.
   • Focus on state and federal anti-kickback and self-referral laws, billing and marketing practices and Corporate Practice of Medicine Laws.
2. Avoid any appearance of investor involvement in delivering care.
   • In any business model that involves health care delivery, clinicians must use independent professional judgment to make clinical decisions.
3. Factor in additional time for proposed transactions.
   • Transactions may take longer to get to closing due to additional diligence or filings, with filing requirements varying by state.

Investor-backed health care companies should monitor legislative and regulatory developments to determine whether and how those developments may affect factors like their investment strategy or pacing of transactions.

Want to learn more? Ask one of the authors.

Want to dive deeper? Check out a more in-depth analysis of the increasing scrutiny of private investment in health care companies around the United States.