WASHINGTON—The Biden administration’s antitrust cops sued one of the country’s biggest anesthesiology providers on Thursday, launching
a novel assault on Wall Street ownership of healthcare companies.
The Federal Trade Commission’s lawsuit against U.S. Anesthesia Partners is one of the first
challenges of a private-equity strategy known as a roll-up, in which smaller companies in the same industry are bought up and combined to create a more powerful competitor.
USAP and Welsh Carson also violated antitrust laws by fixing prices with remaining independent anesthesiologists and reaching a deal to keep a competitor out of USAP’s turf, the FTC said. The Wall Street Journal reported exclusively in October that
the FTC was investigating USAP.
The Biden administration has ramped up enforcement of antitrust law, challenging mergers at a higher clip and suing
Alphabet
-owned Google
to break up its dominant ad-tech business. Healthcare has been a focus, with the administration directing regulators to challenge consolidation in hospitals and health insurers.
“Private-equity firm Welsh Carson spearheaded a roll-up strategy and created USAP to buy out nearly every large anesthesiology practice in Texas,” FTC Chair Lina Khan said. “Along with a set of unlawful agreements to set prices and allocate markets, these tactics enabled USAP and Welsh Carson to raise prices for anesthesia services—raking in tens of millions of extra dollars for these executives at the expense of Texas patients and businesses.”
Rollups are often used in fragmented markets that have many different, and smaller, competitors. Buying up and combining companies can yield a larger one that earns more revenue and realizes cost savings by consolidating duplicative functions and achieving greater leverage with suppliers.
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The FTC filed its lawsuit against USAP and Welsh Carson in Houston federal court.
USAP said in a statement that it would fight the FTC lawsuit and that its rates are reasonable and in line with industry practice. “The FTC’s civil complaint is based on flawed legal theories and a lack of medical understanding about anesthesia, our patient-oriented business model, and our level of care for patients in Texas,” said Derek Schoppa, a USAP board member.
A Welsh Carson representative said the firm was disappointed that the FTC decided to file the lawsuit, which ignores that USAP’s rates haven’t exceeded medical-cost inflation. “The FTC’s decision to pursue a civil action against a minority investor of a physician-owned company is unprecedented and disregards well-settled principles of law,” the representative said.
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Founded in 2012, USAP has grown by acquiring smaller anesthesiology groups and rolling them up into a consolidated entity that manages hospital contracts, billing, insurance agreements and other functions. Welsh Carson, which created the company by acquiring a large Houston practice, today owns about 23% of USAP, whose other investors include Boston private-equity investor Berkshire Partners and Singapore sovereign-wealth fund GIC.
Private-equity firms have acquired specialty healthcare providers and smaller groups that can be combined to form larger networks that have more leverage with hospitals and insurers. The anesthesiology industry’s profit margin was estimated at 12.5% in 2021, down from 14% before the pandemic, which reduced elective surgeries, according to market-research provider IBISWorld.
The FTC said USAP and Welsh Carson merged over a dozen anesthesiology practices with an eye toward eliminating competition and being able to raise prices. USAP was by far the biggest provider of anesthesia services in Houston and Dallas and charged double the median rate in Texas, according to the FTC’s lawsuit.
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Following one acquisition that would allow USAP to bill higher rates, one executive characterized the outcome as “Awesome! Cha-ching!” according to the FTC’s court complaint.
Welsh Carson has installed members of USAP’s board of directors and hired most of its original management team, the FTC said. The private-equity firm was involved in strategic decisions that led USAP to consolidate local market share and violate antitrust laws, the FTC alleged.
The FTC’s lawsuit accused Welsh Carson of employing a similar strategy to consolidate other healthcare markets such as emergency medicine and radiology. The agency’s lawsuit seeks structural remedies, such as selling off prior acquisitions.
Antitrust enforcers could in the future challenge more roll up transactions. The FTC and the Justice Department, which share antitrust authority, in July issued new merger guidelines that say private-equity firms needing approval for buyouts must disclose details on their past mergers going back a decade. The data would give the enforcers a better view into roll-up strategies.
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