Private Equity focused on investment and operations within the Life Science industry faces significant compliance, operational and business risk due to the heavily regulated nature of the investment targets and portfolio companies. White & Case monitors trends and evolving issues quarterly in the risk categories below.
Compliance Risk
Scope: The following compliance risk priorities reflect risks across the Life Science industry, including technology services and workflow optimization, clinical trial operations, solutions and support, drug, biologic and device manufacturing, drug development and formulation, strategic regulatory and economic consulting services, packing and component manufacturing, marketing and commercialization services, and medical writing and communications.1
Artificial Intelligence
States have inconsistent laws on AI in healthcare, potentially causing conflicts without federal legislation. Federal AI policy is in flux. Our “AI Watch: Global regulatory tracker – United States” can be accessed here.
- State Regulation: States have enacted various laws regulating AI in healthcare, leading to a fragmented regulatory environment in the absence of unified federal legislation or policy. Numerous states have issued bans on government use of DeepSeek’s AI application.
- Federal Framework: Executive Order 14148 revoked dozens of Biden Administration executive actions, including the October 2023 Executive Order 14110 “Safe, Secure, and Trustworthy Development and Use of AI.”. Revisions across over 100 federal agency actions are underway. The Trump Administration policy focuses on developing U.S. AI infrastructure. An AI Action Plan by the National Security Advisor is expected by October 2025 and a February request for information seeks public input on the Action Plan. The National Institute of Standards & Technology (NSIT) announced a number of AI initiatives to advance research and develop AI standards. The Administration’s policy focus is on securing U.S. technological supremacy, reducing regulations and promoting innovation. Congressional efforts continue to pursue banning the use of DeepSeek AI applications on government devices and systems.
- FDA Focus: The FDA is concentrating on AI's role in drug development and clinical decision support, with anticipated best practices guidelines in the coming year. Numerous non-binding guidance and policy statements span medical device and drug/biologic product areas. The Digital Health Center of Excellence is evolving to become agency-wide consolidator for AI policy, not just medical devices.
Anti-Kickback, Fraud and Abuse, False Claims Act (FCA) Liability
- DOJ Focus: The DOJ continues to target fraud in the life science sector. Private Equity scrutiny remains heightened but focused primarily on healthcare services (patient care) with directly billed services. Pandemic related relief programs were also a priority focus. DOJ is examining the level of involvement and influences private equity firms exert over their portfolio companies as an element of causation within FCA liability.
- 2024 Summary: Uptick in qui tam cases where relators name the private equity sponsor as defendant. However, no DOJ resolutions have been announced naming private equity sponsors, potentially indicating that establishing investor liability under the FCA is legally challenging.
- Future Trends: These areas are anticipated to remain key enforcement priorities in 2025. Fraud enforcement is expected to increase significantly under the Trump Administration. Key confirmed and anticipated Federal agency officials have repeatedly highlighted the need for increased fraud enforcement and recovery.
- Risk Mitigation: Diligence focus should be maintained on material compliance issues and maintain proper internal controls to prevent FCA liability. Minimization of aggressive revenue targets that unduly pressure federal reimbursement claims or influence direct medical judgement or encourage adoption of programs that improperly incentivize increased referrals or orders should be considered.
Trump Administration Changes Impacting Public Health Agencies
- Personnel Changes: Significant reductions in force across HHS (CDC, NIH, HHS-OIG, FDA, etc). FDA layoffs largely spared product reviewers and inspectors. Executive Order 14210 places major restrictions on agency hiring, permitting no more than one hire for every four employee departures.
- FDA Reorganization: HHS is pursuing a restructuring proposal that creates a single product review office (Office of Product Evaluation and Regulation) and four cross-functional offices (Office of Inspections, Compliance and Enforcement, Office of Scientific and Regulatory Policy, Office of Administrative and Shared Services and Office of Strategic Programs and Innovation).
- De-Regulation: A number of Executive Orders focus on de-regulation. Agencies have been directed to identify regulations in the past five years that will be rescinded under a series of Supreme Court decisions (such as Loper Bright Enterprises v. Raimondo) and to identify all regulations that are unconstitutional, questionable or otherwise inconsistent with the Administration’s policy agenda. Executive Order 14192 requires the elimination of ten regulations for each new regulation and includes an expansive definition of “regulation” that may include guidance or policy statements. New regulations will be submitted to and reviewed by the White House, introducing a new procedural step for new regulation approval.
- Make America Healthy Again Commission: Executive Order 14212 creates a commission that will focus on health and chronic disease. The FDA commissioner will be a member.
- Foreign Aid and Global Health: Executive Orders have limited or eliminated foreign development assistance, withdrawn the U.S. from the World Health Organization, and significantly reduced NIH research grants within the U.S. under cost savings requirements.
Supply Chain and Sector Specific Tariffs
- America First Trade Policy: Imposition of baseline tariffs and reciprocal tariffs are largely impacting the life science and healthcare industry. The 10% baseline tariffs entered into effect on April 5, 2025, and the country-specific reciprocal tariffs are currently scheduled to enter into effect on July 8, 2025 (except for duties on imports from China, which are already in effect). Details on the baseline and reciprocal tariffs can be found here. The Department of Commerce has initiated an investigation into the effects on US national security of imports of pharmaceuticals and pharmaceutical ingredients under Section 232 of the of the Trade Expansion Act, which could lead to the imposition of other tariffs. Healthcare products covered by the Section 232 tariff would be exempt from the baseline and reciprocal tariffs (and certain pharmaceutical products and ingredients the Trump administration expects to cover in the Section 232 investigation are also already exempt from the baseline and forthcoming reciprocal tariffs). Details on the 232 investigations can be found here.
Drug Pricing
- IRA Medicare Price Negotiations: CMS has confirmed that all of the manufacturers of the current 15 drugs selected for Medicare price negotiations have agreed to participate in negotiation.
- IRA Changes: Congress continues to discuss IRA statutory changes, including proposals to exclude orphan drugs from price negotiations. On April 15, 2025, Trump issued an Executive Order that seeks to lower drug prices through changes to the Medicare price negotiation process, transparency and evaluation of drug acquisition costs (that could eventually lower 340 billion hospital drug prices) and instructs the FDA to accelerate approval of generics and biosimilars and improve drug importation programs.
Conclusion
The Life Science Private Equity sector faces significant compliance, operational and business risks due to the heavily regulated nature of its investment targets and portfolio companies. The first quarter of 2025 emphasizes that the evolving landscape of AI regulation, anti-kickback, fraud and abuse enforcement, and changes under the Trump Administration necessitate vigilant risk monitoring and mitigation strategies by investors. By maintaining a focus on material compliance issues and proper internal controls, private equity firms can navigate these challenges effectively and continue to drive innovation and growth within the Life Science industry.
1 Healthcare provider services, payor and insurance optimization and services, direct patient care businesses etc. create different compliance risk profiles and are monitored separately.
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