News & Insights


October 10, 2022

Health Headlines– October 10, 2022

Twenty-One State Attorneys General and the District of Columbia Back HHS’s Plan to Hold Hospitals and Other Providers Liable for Discriminatory Use of Clinical Algorithms – On October 3, 2022, the Attorneys General for California, New York, and Massachusetts, in collaboration with Attorneys General from 18 other states and the District of Columbia (State Attorneys General) submitted a comment letter expressing its support for various proposals aimed at mitigating discrimination in healthcare as set forth in the August 4, 2022 proposed rule issued by HHS. This includes HHS’s first-time effort to address discrimination in clinical algorithms.

Section 1557 of the Affordable Care Act, codified at 42 U.S.C. § 18116, prohibits “covered entities” from discriminating based on race, color, national origin, age, disability, or sex in health programs or activities.  Section 1557 defines “covered entities” to include hospitals, health clinics, health insurance issuers, state Medicaid agencies, community health centers, physician’s practices, and home health care agencies—that is, any healthcare entity or organization that receives federal financial assistance (e.g., Medicare and Medicaid).  On August 4, 2022, HHS issued a proposed rule delineating several changes to the agency’s regulations implemented under § 1557, including the agency’s proposal to hold liable for the first time covered entities’ discriminatory use of algorithms in clinical decision-making. 

HHS explained that many clinical decision-making tools use race and ethnicity as an input variable rendering their output explicitly “race (or ethnicity)-based.” According to HHS, some providers and covered entities may overly rely on race-based algorithms for clinical decision-making potentially resulting in less favorable treatment for certain groups of patients as compared to others, which may, under certain circumstances, result in “demonstrable harm.”  The proposed rule makes clear that it covers a wide range of clinical algorithms (e.g., flowcharts, clinical guidelines to complex computer algorithms, decision support interventions and models) used in an equally wide number of ways extending in healthcare settings (i.e., everything from diagnosing to administrative operations, and everything in between).  HHS requested that interested stakeholders and others submit comments to the agency’s proposed rule on or before October 3rd. 

As noted above, the October 3, 2022, comment letter submitted by the Attorneys General from California, Massachusetts, and New York, on behalf of themselves and the Attorneys General from 18 other states and the District of Columbia expressed their support for the adoption of a regulation addressing algorithm-based discrimination.  The State Attorneys General described it as a “welcome” proposal, observing that the “proposed regulation appropriately puts covered entities on notice of the relevance of Section 1557 to clinical algorithms, and is likely to increase the healthcare sector’s attention and investment into clinical review and auditing of these types of processes.”  The State Attorneys General noted their agreement with HHS that the determination that the proposed regulation does not represent a new prohibition, but a “clarification and communication” to covered entities of their responsibility regarding one specific form of discrimination.  Perhaps most notable is the comment letter’s statement that State agencies can and will address issues of algorithmic bias in ways that are more specific or broader than HHS and, in some cases, states may decide to offer broader protection to vulnerable groups than federal law provides. 

The State Attorneys General’s comment letter comes on the heels of a press release issued by California Attorney General Rob Bonta announcing that his office had sent letters to 30 hospitals across California requesting information (RFI) about how healthcare facilities and other providers are identifying and addressing racial and ethnic disparities in commercial decision-making tools.  The scope of information that the Attorney General’s RFI seeks is extensive and wide-ranging, requesting information on all commercially available or purchased decision-making tools, products, software systems, or algorithmic methodologies currently in use at the hospital for various functions, including clinical decision support as well as population health management, utilization management, operating room scheduling, and payment management.  The deadline for hospitals to submit this information to the Attorney General is October 16, 2022.  Notably, the California Attorney General’s press release warns that this RFI is just the first step to determine whether commercial healthcare algorithms have discriminatory impacts based on race and ethnicity.


As both HHS’s proposed rule and the State Attorneys’ General’s comment letter make clear, covered entities are on “notice” that they are responsible for ensuring that their use of clinical algorithms does not result in discrimination and that their failure to do so may result in liability under federal and state antidiscrimination laws.  Given the broad range of algorithmic tools used by healthcare providers, hospitals, laboratories, pharmacies, and other covered entities, they should heed this warning and take proactive measures to assess their use of these tools and implement processes and procedures to mitigate the risk of liability.

Reporters, Tamra Tyree Moore, Washington, D.C., + 202 626 5458,; Isabella E. Wood, Atlanta, + 1 404 572 3527,; Ariana Fuller, Los Angeles, + 1 213 443 4342,; and Amanda Hayes-Kibreab, Los Angeles, + 1 213 443 4375,

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OIG Issues Advisory Opinion Regarding Pharmaceutical Companies’ Proposed Arrangement to Provide Cost-Sharing Subsidies – On October 5, 2022, OIG posted Advisory Opinion 22-19 in response to a nonprofit corporation’s (Requestor) request to analyze a proposal for certain pharmaceutical companies (each, the Funding Manufacturer) to subsidize: 1) cost-sharing incurred by eligible Part D enrollees when filling prescriptions for the Funding Manufacturers’ Part D oncology drugs, 2) additional funding, such as health insurance premiums, including Medicare Part D premiums for certain Medicare beneficiaries, and select programs to promote oncology screening and health equity, and 3) Requestor’s operating costs (collectively, the Proposed Arrangement).  OIG concluded that the Proposed Arrangement would present more than a minimal risk of fraud and abuse under the federal Anti-Kickback Statute (AKS) but would not violate the Beneficiary Inducements Civil Monetary Penalty law (CMP). 

The Proposed Arrangement

  1. Cost-Sharing Subsidies: The Proposed Arrangement would establish a different cost-sharing structure from that enacted by Congress as part of the Medicare Part D program, whereby a Part D enrollee would receive subsidies from Requestor in the amount of: (i) $35 per month for branded drugs and $10 per month for generic drugs; and (ii) either 10% or 25% of the total coinsurance that would otherwise be owed for branded drugs during the catastrophic phase of coverage.  The applicable Funding Manufacturer would pay all remaining cost-sharing obligations that a Part D enrollee would otherwise have to pay for that Funding Manufacturer’s Part D oncology drugs.
  1. Additional Funding: Funding Manufacturers would subsidize costs such as health insurance premiums and select programs like oncology screening.  Unlike the cost-sharing subsidies, the premium subsidies would be available to beneficiaries regardless of whether they use any Part D oncology drug manufactured by a Funding Manufacturer.
  1. Operating Costs: Funding Manufacturers would finance all of Requestor’s operating costs, which Requestor anticipates could total approximately $20 million per year.

Legal Analysis

OIG concluded that the Proposed Arrangement, as a whole, would present more than a minimal risk of fraud and abuse under the AKS.  First, OIG concluded that the cost-sharing subsidies of the Proposed Arrangement are designed to remove financial barriers so that eligible Part D enrollees will purchase the Funding Manufacturers’ drugs.  Although Requestor has certified that it would make available a list of all covered products in a neutral fashion and not advertise or promote products in connection with the Proposed Arrangement, OIG noted that prescribers would learn over time which products are subsidized under the Proposed Arrangement and could prefer those products over the alternative options.  OIG determined that the cost-sharing subsidies are thus designed to induce the purchase of the Funding Manufacturers’ drugs, which would effectively redesign and abrogate the cost-sharing requirements implemented by Congress and create the potential for increased costs to Federal health care programs.

OIG also concluded that subsidies for additional funding and operating costs would implicate the AKS but refused to elaborate on a full analysis of these features separately because these contributions would be tied to the cost-sharing subsidies, such that the Proposed Arrangement should be analyzed as a whole. 

Additionally, OIG considered whether the Proposed Arrangement would violate the CMP by influencing Part D enrollees’ selection of a particular provider, practitioner, or supplier.  As an initial matter, OIG noted that neither Requestor nor the Funding Manufacturers are a provider, practitioner, or supplier.  Then OIG concluded that, because the cost-sharing subsidies would be available to any pharmacy willing to accept the subsidies without regard to a Part D enrollee’s choice of provider, practitioner, Part D plan, or supplier, the remuneration that would be offered by Requestor likely would not influence a beneficiary’s selection of a particular provider, practitioner, or supplier.  OIG found that the Proposed Arrangement would not present grounds for the imposition of sanctions under the CMP.

As is typical, OIG stated that Advisory Opinion 22-19 is limited in scope to the Proposed Arrangement and may not be relied upon by anyone else other than Requestor.  The OIG Advisory Opinion is available here.

Reporter, Kristy Lundy, Atlanta, +1 404 572 4645,

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King & Spalding Client Alert:  Health Care Private Equity in the Crosshairs – We have been closely following the signs of increased government scrutiny of private equity investment in health care services companies. The latest evidence of the increased attention has focused on the impact of private equity investment in nursing homes and its possible impact on quality of care, adequacy of staffing levels, and cost of care.  While the administration’s recent focus has been on nursing homes, similar claims are being advanced regarding the impact of private equity investment in physician practices, behavioral health and other health care service companies. There have been several recent developments which we think are noteworthy and merit attention. 

Biden Administration Agenda

In President Biden’s State of the Union address in March 2022, he commented on private equity ownership of nursing homes, stating “[a]s Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up. That ends on my watch.” President Biden’s comments follow a February 2022 fact sheet published by his administration. The factsheet highlighted research concluding that private equity-owned nursing homes have residents with significantly worse outcomes and may lead to increased Medicare costs. The Biden Administration’s announcement also set forth various reforms to improve the quality of care in nursing homes and increase the accountability for substandard care, including through increased transparency in corporate ownership of nursing homes to facilitate enhanced accountability and oversight. Part of the Administration’s efforts to increase transparency require HHS and other federal agencies to examine the role of private equity and real estate investment trusts in the nursing home sector and inform the public when corporate entities are not serving the residents’ best interests.

Recent CMS and FTC Developments

On September 26th, CMS announced its public release of data regarding the ownership of approximately 15,000 Medicare-certified nursing homes. This data was pulled from the Provider Enrollment, Chain and Ownership System (PECOS), the Medicare enrollment system and data repository that includes each owner who has a 5% or greater direct or indirect ownership interest in the provider. The Biden Administration believes that this data will allow licensing and enforcement officials to identify common owners of nursing homes across different locations to better track and address poor performance, and will facilitate agencies being able to track the performance of nursing homes with shared ownership and determine if ownership of certain nursing homes impacts the quality of care that residents receive.

Further, on October 1st, The Wall Street Journal reported that the FTC is investigating U.S. Anesthesia Partners (USAP), a company owned by private equity investors that has built a large presence in Texas, Colorado and Florida. It appears that the FTC’s review is primarily focused upon USAP’s consolidation of power and pricing increases through acquisitions of anesthesia providers in local markets. The investigation is another example of the Administration’s more aggressive antitrust enforcement policy. But the USAP investigation also evidences the regulatory scrutiny of private equity investment in health care that is expected to continue in the short and long-term.

What to Watch For

The Government Accountability Office (GAO) is investigating the ownership of nursing homes, including by private equity firms, and is reportedly slated to publish its findings this fall.  This may prompt additional scrutiny of private equity ownership in nursing home providers, including an uptick in regulatory actions seeking to hold indirect owners throughout the chain of ownership accountable for actions of the nursing home providers. This investigation comes in response to a pre-pandemic request from the House Ways and Means Committee Chairman Richard Neal (D-Mass) for increased oversight of nursing home ownership, and a second request from Rep. Bill Pascrell (D-N.J.) to the GAO in 2021 to investigate private equity investments in health care generally and their impact on quality of care and facility bankruptcies and closures following private equity buyouts. 

FCA Enforcement

In the past few years, the DOJ has also examined the role and responsibility of private equity owners of health care and life science companies in assuring compliance with applicable health care laws.  DOJ has investigated companies with PE ownership and examined whether these owners knew, or should have known, of violations of law and whether they acted to correct impermissible conduct. Enforcement efforts by the federal government under the False Claims Act (FCA) are focusing not only on private equity-owned health care companies, but also on private equity investors themselves. Recently, there have been multiple large FCA settlements with private equity investment firms. These settlements will continue to attract attention from the media and could serve as the catalyst for future litigation against private equity firms participating in the health care industry.

Why it Matters - Takeaways for Private Equity Investors

  • Diligence, diligence, diligence: Investment by private equity firms in nursing home facilities, along with other health care providers, requires diligence into quality and staffing levels of target facilities to assure that such facilities are not in the crosshairs of CMS or other regulatory agencies. If deficiencies in patient care or compliance are identified through diligence, and particularly multiple offenses by target operators, buyers need a post-closing plan with immediate action items to address the deficiencies.
  • Expect transparency: Private equity investors should also assume that there will be full transparency of their ownership interests in health care providers and should be prepared to defend their stewardship. They should also be sure that their Medicare and Medicaid ownership disclosures are current and accurate, as outdated information may be more easily identified and scrutinized as data becomes more transparent and accessible.
  • Nursing homes are not the only target: The Biden Administration’s focus on private equity investment in nursing homes will likely extend beyond nursing homes to other service sectors where quality outcomes and staffing levels may be criticized, particularly where market power is high.
  • Create a culture of compliance: Private equity investors should ensure that the facilities that they own and operate adhere to best industry practices, which include maintaining updated policies and procedures and internal controls, and ensuring that compliance issues are identified, documented, investigated, and remediated. Outside counsel can be instrumental in helping to establish proper internal controls, as well as addressing compliance issues as they arise.
  • Go on the offensive: To counter this government narrative, private equity firms focused on health care services, and their associations, need to monitor government reports on the impacts of private equity investment in health care and be prepared to demonstrate quality of care and articulate the other value-added components that their private equity investments bring, such as added capital investment, jobs, and service innovation to the health care industry.

Reporters, Richard Zall, New York, + 1 212 556 2150,; Kristin Roshelli, Houston, + 1 713 751 3263,;and Michelle Huntsman, Houston, + 1 713 751 3211,


King & Spalding Webinar: The Updated OIG Model CIAs – What All Healthcare Organizations Need to Know – The webinar will cover the recent OIG revisions to its Integrity Agreement (IA) and Corporate Integrity Agreement (CIA) model language, which impact CIA-obligated providers and reflect the agency’s evolving expectations concerning compliance program design. The panel will explore OIG’s recent changes to its model language, including changes related to the Compliance Committee’s role, extrapolation in Independent Review Organization (IRO) reviews, exclusion screening obligations, and focus on Stark and Anti-Kickback Statute compliance controls. The panel will also cover practical strategies to manage risk and promote compliance with federal healthcare program requirements.

The webinar takes place on Tuesday, October 25, 2022, at 12:00 P.M. EST. Registration is free. Additional information can be found here.