Startups

Who can buy a health system?

With VC giant General Catalyst intending to buy a health system, it got us wondering: Who exactly is allowed to purchase a health system?
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· 3 min read

Navigate the healthcare industry

Healthcare Brew covers pharmaceutical developments, health startups, the latest tech, and how it impacts hospitals and providers to keep administrators and providers informed.

Mergers and acquisitions among hospitals and health systems are on the rebound following a steep drop during the pandemic.

Most hospital and health system transactions take place between two health systems, such as a large system acquiring a smaller system or two large systems combining. But in October, venture capital (VC) giant General Catalyst announced its intent to purchase and operate a health system.

The unconventional deal got us at Healthcare Brew wondering: Who exactly is allowed to buy a health system? Turns out…everyone is.

“There [are] no legal restrictions on the nature or type of organization that buys a healthcare system or a hospital,” said Erin Fuse Brown, a law professor at Georgia State University.

And though General Catalyst may become the first VC firm to buy a health system, it’s “not without precedent” to see non-healthcare entities purchasing one, Brown said.

Private equity (PE) firms have bought hospitals “for quite some time,” she said.

A couple decades ago, Brown said, it was very common for PE firms to buy a hospital or health system, but these days, firms have turned their attention to other parts of the healthcare market, like physician groups and telehealth providers.

An organization doesn’t need experience running a health system—or even operating in the healthcare field—to own a health system, according to Brown.

There are still many regulatory processes a VC firm, like any other purchaser, would be required to follow, Brown added.

On the state level, for example, if General Catalyst (or another for-profit VC firm) were to purchase a nonprofit health system, it would likely be required to notify the attorney general, who would make sure there were no financial conflicts of interest and that the nonprofit’s charitable assets were protected.

There are also federal rules and regulations surrounding antitrust concerns, particularly if the proposed transaction is worth more than $111.4 million—a threshold that triggers reporting requirements to the Federal Trade Commission and US Department of Justice, Brown said.

But ultimately, “there aren’t specific hospital purchasing rules at the federal or state level that are specific to the nature of the buyer,” according to Brown.

In short, any company or organization can buy a health system, and the rules of the transaction are the same whether the purchasing entity is another healthcare provider, a PE or VC firm, or another organization type.

Navigate the healthcare industry

Healthcare Brew covers pharmaceutical developments, health startups, the latest tech, and how it impacts hospitals and providers to keep administrators and providers informed.