Four: The Corporate Transparency Act - The CTA is a law aimed at preventing money laundering, and it applies to companies regardless of industry, so it includes healthcare companies. Many businesses now are registered as limited liability companies, and many more large businesses are privately owned now compared to past decades when public companies were more popular (a point that will become important as discussed below), so the Treasury is looking for ownership transparency.

HCB News: Is private equity good for healthcare?
BG: We think the “War on Private Equity in Healthcare” is based on a fundamental misunderstanding of investment and innovation in healthcare. Here’s why: There are four types of equity available to grow companies – public market equity from stock exchanges like the NYSE or Nasdaq, private market equity like private equity funds or venture funds, non-profit equity (i.e., charitable fundraising by non-profit healthcare companies), and government equity (i.e., taxpayer dollars used by the government to support healthcare providers).
What’s important is to realize that in 2001, Congress passed a law called Sarbanes-Oxley (SOX), which made it much more difficult for companies to go public and much more expensive for companies to remain public. SOX was a reaction to the shocking scandals of Enron and Worldcom, but SOX had an unintended effect – while the government was trying to protect the public from bad investments, instead the government protected the public from almost all investments. The result of SOX was that the number of companies on the public stock exchanges plummeted. Between 1982 and 2002, the US created approximately 7000 new public companies; since then, the US has created only about 2,500-3000 new public companies. The Wilshire 5000 stock index now only has about 4,300 stocks listed on it – because that’s about all the sizable public companies there are.

What does this mean? The only equity money readily available to grow companies for the last 20+ years has been private equity, and without those private equity dollars, the healthcare industry would have serious difficulty adapting and innovating. So, the government is blaming private equity for a problem that the government created – a lack of public market investment in healthcare (and every other industry). Public companies have much more transparency than private companies, and the “Transparency Tempest” is the result of living in an environment where many more companies are private instead of public – the government now wants back the transparency that it had with public companies.

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