FTC Healthcare Roll Ups

Since Chairman Khan took office at the Federal Trade Commission (and in conjunction with President Biden’s inauguration) target (In an effort to curb soaring health care costs), the current FTC is committed to enforcement actions against health care consolidation and price increases. Over the past two years, the FTC has adopted new competitive tools to accomplish this objective. suit Last week, we filed a lawsuit against a private equity firm and its related professional practices, alleging violations of Sections 1 and 2 of the Sherman Act and Section 7 of the Clayton Act. and Section 5 of the FTC Act. The complaint alleges that the two companies’ series of acquisitions “constituted a multi-year anti-competitive scheme to consolidate Texas anesthesia practices, increase the prices of anesthesia services provided to Texas patients, and increase their own profits.” It is claimed that[1]

complaint

In a 106-page complaint filed in the U.S. District Court for the Southern District of Texas, the FTC alleges that private equity firm Welsh Carson Anderson & Stowe (“Welsh Carson”) and its acquisition vehicle US Anesthesia Partners, Inc. (“USAP”) has completed a series of “roll-up” acquisitions of anesthesia practices in Texas and Sections 1 and 2 of the Sherman Act and Clayton, which substantially reduced competition. engaged in additional conduct in violation of Article 7 of the Act’s anti-merger prohibition; or tend to create a monopoly, and the overall rollup strategy and business practices are considered to be an unfair method of competition in violation of Section 5 of the FTC Act.[2] Specifically, the FTC cited a series of roll-up acquisitions aimed at increasing the company’s bargaining power with commercial insurers, as well as “multi-year countermeasures” that included pricing agreements with other anesthesia providers. It alleges that he was involved in a “competitive scheme.” Market allocation agreements aimed at “sidelining” important rivals.[3]

The complaint alleges that the companies acquired a large Houston anesthesia business as the basis of a roll-up strategy and then pursued a series of “tuck-in acquisitions” to gain influence with insurance companies and drive up anesthesia rates. claims.[4] The complaint further alleges that Welsh Carson and USAP continued to implement this strategy and subsequently increased prices through a series of additional acquisitions throughout Texas, including Dallas, Austin, Tyler, Amarillo, and San Antonio.[5]

The FTC alleges that this rollup system expanded into the Dallas market and eventually throughout Texas, leading to additional anticompetitive practices, including entering into pricing agreements and engaging in market allocation. The case comes after two years in which antitrust authorities have increased their focus on serial acquisitions, including the focus of the FTC. Section 5 Policy Statement And that Revised draft merger guidelinesI’ve written about this before.

The FTC has expressed concern about companies engaging in M&A activities that may not individually violate antitrust laws, but that cumulatively tend to create the competitive harm that antitrust laws are intended to prevent.[6] Notably, the complaint alleges that Wales Carson and USAP have acquired “nearly every large anesthesia practice in Texas,” amassing monopoly power in the Houston, Dallas, and Austin metropolitan areas. ing.[7] The complaint further states that this practice has led to price gouging and that USAP’s pricing power in the market for commercially insured hospital-only anesthesia services is “unsustainable due in part to the lack of close alternatives for patients undergoing procedures requiring anesthesia.” It is possible.”[8]

The FTC notes that the market for commercially insured hospital-only anesthesia services is limited by limited operating room capacity and available schedules, onerous postsecondary education and training requirements, switching costs, and It claims that the industry is characterized by high barriers to entry, including contracting practices with and the use of medical institutions. The doctor is prohibited from competing by her USAP. The FTC’s complaint alleges that these barriers help protect USAP’s market share in major Texas cities.[9] The FTC said each acquisition increased USAP’s bargaining power with insurance companies and “solidified” its high prices.[10] The complaint alleges that USAP was able to increase its own prices through this practice, but that other anesthesia businesses across Texas followed suit and “threatened to increase reimbursement rates by selling operations to USAP.” He also demanded a price increase.”[11]

The complaint also alleges that USAP’s pricing agreements with other anesthesia practices at University Medical Center and its market allocation agreement with another large anesthesia service provider contributed to price increases, inhibited competition, and harmed consumers. He also claims that he is giving.[12]

In line with the revised draft merger guidelines, the complaint preemptively rejects any procompetitive justification or efficiency arising from the alleged conduct, stating that USAP “already has a strong reputation for quality and… There is little, if any, improvement.” When you join USAP, you get services. ”[13] The FTC claims that USAP and Wales Carson’s “integrated strategy” has been effective in making USAP “the leading provider of anesthesia services in Texas and many of its major metropolitan areas, including Houston and Dallas.” are doing.[14] The FTC argues that this dominance continues and that the court needs to issue permanent injunctions and structural relief against USAP and Wales Carson’s conduct to restore competition.[15]

Important points

FTC lawsuit follows immediately after FTC settlement A merger with another private equity firm would require a stock sale or other broader remedies, and antitrust regulators may revise merger guidelines so that the cumulative effect “may indicate a pattern” Following an attempt to include guidelines that focus on the regulatory review of a series of transactions or proposing “growth strategies through acquisitions” or having the cumulative effect of significantly reducing competition in a particular market. Masu.[16]

This case demonstrates the FTC’s commitment to scrutinizing both private equity and the health care industry. Although this case is an opportunity for the FTC to test its policy positions in court, it is not a purely “standalone” Section 5 “unfair competition practices” case, as traditionally thought of. “Hardcore” conduct (i.e., pricing and market allocation agreements) because it includes allegations against “hardcore” conduct.

The industry needs to be aware that even a series of transactions that do not trigger HSR filing requirements may result in retrospective investigation by antitrust authorities, depending on the degree of market consolidation. Further surveillance may occur in the medical field. Given recent public positions on this issue, we expect authorities to continue to strengthen their review and enforcement of private equity transactions and acquisitions of physician groups and specialties.