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Healthcare continues to be one of the fastest changing and closely scrutinized industries in the country. In 2024, this will surely continue as regulators, lawmakers, investors and consumers react to the quickly evolving healthcare landscape.

The healthcare industry made no shortage of headlines in 2023 as new innovations like artificial intelligence (AI) and machine learning more extensively entered the market, altering the way individuals receive care. Mergers and acquisitions remained prevalent across the healthcare market, drawing increased scrutiny from lawmakers on Capitol Hill.

While there’s no way to predict exactly what will happen across the healthcare space in the year ahead, our attorneys and government relations professionals are connected and tuned in to upcoming trends around the nation. We see five key issues to monitor in 2024. Here’s what we’ll be watching:

The Impact of M&A

It’s no secret that the healthcare space has faced a challenging operating environment over the last several years. Revenue declines, staffing shortages, cybersecurity threats and evolving regulations have applied pressure to countless hospitals and health systems, leading many to pursue M&A to gain economies of scale and find a profitable path forward.

According to Jan Wenzel, Buchanan Shareholder, Healthcare, while these pressures will likely cause healthcare providers to seek additional transactions, other factors in 2024 may cause overall activity to slow somewhat. A potential economic slowdown, continued inflationary pressures, declining access to capital and a growing misalignment between valuations and seller expectations could contribute to this slowdown. Hospital mergers are not expected to exceed traditional levels in the near future as the number of buyers appears to exceed the number of sellers, and more rural facilities may close or convert to rural emergency hospitals. We also anticipate acquisitions of physician practices to slow, particularly outside of the private equity space, as doctors reconsider alternatives to selling. Also affecting M&A activity will be increased scrutiny around antitrust due to the newly published 2023 Merger Guidelines (discussed below).

However, some buyers are expected to remain active. While remaining selective, large consolidators are continuing to seek deals, and private equity interest in the healthcare space will likely remain high.

Shifting Antitrust Scrutiny

Healthcare entities of all sizes will need to consider antitrust in both deals and in day-to-day operations. At the end of 2023, the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) (together the Agencies) published their final 2023 Merger Guidelines – just five months after they published their draft. Unlike prior guidelines, the 2023 Guidelines are not specifically for “horizontal” mergers (where entities are in the same level of commerce) or “vertical” mergers (where entities have a supplier/purchaser relationship). These 2023 Guidelines are broad enough to apply to any merger or acquisition the Agencies choose to investigate. And a reminder – a merger or acquisition does not have to meet the Hart-Scott-Rodino (HSR) pre-merger notification thresholds for the Agencies to investigate.

As we shared in our reporting on the draft version, the 2023 Guidelines reflect the key themes of recent cases and advocacy efforts that reflect the Agencies’ more aggressive enforcement position. These include concerns about concentration of markets, serial acquisitions, competition in labor markets, information sharing, multi-sided platforms and practices by dominant firms that cement their position and harm competition.

“To say these 2023 Guidelines are expansive in the transactions they address would be an understatement,” said Carrie Amezcua, Antitrust & Trade Regulation Counsel. The tone of the 2023 Guidelines emphasizes early detection of mergers or acquisitions that could potentially reduce competition, stating “Section 7 was designed to arrest anticompetitive tendencies in their incipiency.” Throughout the text, the Agencies emphasize identifying potential harms, preventing reduction of competition, and predicting what could happen as the result of a merger or acquisition. There are 11 specific guidelines in all – down from 13 in the draft version. There is still much to unpack about these new guidelines and their impact on the industry. For now, read our latest advisory for some initial key takeaways.

It is not just transactions that the Agencies will be watching. The FTC’s proposed ban on post-employment non-compete agreements may still come to pass and would affect any for-profit healthcare systems. But states are also getting in on the action to protect workers, including physicians and employees of nonprofit health systems. Connecticut proposed a similar bill earlier in 2023. Indiana passed a bill prohibiting certain non-competes for primary care providers (Senate Bill (SB) 7). A proposed bill in Rhode Island (House Bill (H) 5284) would prohibit the use of non-compete agreements that exceed five years in the purchase and sale of a practice.

In addition, the FTC filed a complaint in September 2023 against a private equity company and U.S. Anesthesia Partners, Inc. for, among other things, entering into price-setting agreements and agreeing to divide up geographic areas in Texas with another company. Under this arrangement, the companies agreed not to offer services in the same geographic area. This complaint from the FTC shows that the commission is also looking at conduct related to contracting and operations that may harm consumers.

Finally, as the environment for mergers gets more difficult, entities looking to affiliate without merging will need to ensure they are not sharing competitively sensitive information that should not be shared. Doing so could also lead to antitrust liability.

Increased Enforcement

It is likely that clinical laboratories and other healthcare providers will see increased enforcement activity in 2024. The government expended significant funds and relaxed certain payor restrictions on reimbursement pursuant to its various COVID-19 era programs and will look to recoup a portion of those amounts. Although some items and services changed due to COVID-19 and telehealth, the government will likely continue to focus on common themes such as overutilization and medical necessity. Providers with significant volume will likely be targets with heightened scrutiny related to bundling tests (i.e., COVID-19 tests all bundled with large respiratory pathogen panels), large panels, routine standing orders, issues with requisition forms and provider signatures, sale of OTC tests and more.

Many well-intentioned providers may run afoul of the Eliminating Kickbacks in Recovery Act and the Anti-Kickback Statute due to historical arrangements with marketing personnel and third-party companies. “We strongly recommend that clinical laboratories and other healthcare providers structure and vet their marketing, vendor and referral relationships to mitigate risk and government scrutiny. We recommend clinical laboratories institute broad preventative measures through policies and procedures and internal safeguards,” said Healthcare Counsel Andrew Weissenberg.

Cybersecurity Threats Become More Complex

Healthcare providers increasingly became the prime target for cyberattacks in 2023—and the year ahead does not appear much better. In 2023, healthcare organizations across the sector faced an onslaught of ransomware attacks. Ransomware groups view healthcare providers as prime targets because they are more likely to pay the ransom to keep critical medical services online and because their networks contain a trove of protected health information. As cybersecurity threats have become more sophisticated, it is imperative that organizations in the healthcare industry put in place sufficient resources to prevent and mitigate these threats. Buchanan Cybersecurity Co-Chairs Michael McLaughlin and Sue Friedberg advise that in the year ahead, providers should be reviewing their cybersecurity strategy to ensure the strength of both their cybersecurity posture and their overall resilience in the face of an attack. An effective strategy takes into account the unique challenges in healthcare, such as critical and life sustaining functions, sensitive information and records retention. It includes robust cybersecurity measures, such as employee training and awareness, regular offsite data backups, robust access controls and multifactor authentication, network segmentation and patch management. It also includes measures to ensure resilience and continuity of operations. To this end, providers should have an incident response plan in place that is tested annually through a realistic tabletop exercise based on threats to the healthcare sector. It is not a question of if a healthcare provider will suffer an attack, but when and how quickly it can get back to normal operations.

Of course, it would be impossible to discuss the challenges of cybersecurity without addressing AI and the uncertainty—and tremendous potential—of the technology to reshape many parts of the healthcare space. While AI is still in its infancy, advancements in the field are moving faster than many even thought possible. In 2024, healthcare CIOs, CISOs, and other executives should be thinking about how to safely and effectively take advantage of AI’s potential while protecting against rapidly evolving data privacy and cybersecurity threats. In the rush to embrace AI’s potential, healthcare organizations need to expect hard questions from clinicians and patients about the organization’s AI strategy. While it is not yet necessary to have all the answers, being prepared to address the organization’s AI policy, adoption plans, data privacy and protection strategy and cybersecurity measures is critical.

Federal Focus

As U.S. House Speaker Mike Johnson (R-LA) continues to settle into his new leadership role, he must grapple with a slim working majority. In early 2024, Congress will be forced to complete the federal fiscal year 2024 budget. Complicating this process is the need to advance simultaneously the federal fiscal year 2025 budget that begins on October 1, 2024.

When he was a rank-and-file member, Speaker Johnson’s record on healthcare was limited to issues around abortion and gender-affirming care. As Speaker, he will rely on committee action and committee chairs to drive the U.S. House healthcare agenda. “We anticipate both the Senate and House to discuss reforms of pharmacy benefits managers, the uses of AI in the healthcare delivery system, transparency in various healthcare sectors and efforts to provide support services for substance abuse and mental health,” said Michael Strazzella, Co-Chair of Buchanan’s Federal Government Relations Practice and its Healthcare Industry Group.

Following recent criticisms toward Medicare Advantage plans, reforms that examine prior authorization, shadow networks and the use of AI in claim determinations will be a focus of House and Senate Committees. Initiatives to curb the use of federal dollars that could be associated with specific healthcare services that fall under the “culture war” label will also likely increase as Congress approaches the November 2024 elections.

An Eye on the Horizon

As the landscape continues to shift, the importance of informed legal counsel keeping their finger on the industry pulse continues to grow. No matter what the future brings, our Healthcare attorneys will be following closely – remaining at the ready for any needs that arise for our healthcare clients.