The Federal Trade Commission (FTC) announced an action on September 21, 2023, against U.S. Anesthesia Partners, Inc. (USAP) and private equity group Welsh, Carson, Anderson & Stowe (WCAS), alleging that a series of below-the-radar anesthesia practice acquisitions has allowed the defendants to gain an anticompetitively large share of the anesthesia market in Texas. The groundbreaking action is the first time in many years in which the FTC has targeted a “roll-up” for enforcement action under Section 2 of the Sherman Act. Specifically, the FTC contends that USAP and WCAS consolidated anesthesiology services in Texas by systematically buying up the largest anesthesia practices in the state (17 in total), ultimately allowing them to achieve a 40-50% market share in many of the largest Texas markets. At this size, the FTC Complaint alleges that the defendants were able to obtain higher reimbursement rates for their services, increasing prices for consumers. The Complaint also alleges that, after the “roll-up,” USAP entered into a series of price-setting agreements with the remaining independent practices in the area, exacerbating the harm caused by the defendants’ alleged conduct.
This single action delivers on the FTC’s stated intention to focus greater attention on antitrust enforcement, the role of private equity, and the impact of transactions below the level required for Hart Scott Rodino (HSR) review, not only in healthcare, but across other industries as well. Further, this action is consistent with an Executive Order from President Biden in 2021 that directed the FTC to prioritize healthcare antitrust enforcement. The Executive Order noted that one issue the FTC should focus on was whether patients were being harmed by physician mergers, and the newly announced action targets this very activity.
The action follows a recent pronouncement by FTC Chairwoman Lina Khan that the FTC intends to focus attention on the competitive effects of private equity investment in healthcare. At the Oliver Wyman Health Innovation Summit, Chairwoman Khan also noted that attention should be given to “below the radar” deals that fall below the HSR reporting requirements. The new action addresses this enforcement priority as well.
Finally, the new action is significant because it focuses on conduct that the recently announced FTC/Department of Justice’s 2023 draft Merger Guidelines describe as being potentially problematic. Specifically, the proposed new guidelines state that, in some circumstances, a series of small acquisitions may cause anticompetitive harm in the aggregate and point to private equity “roll-ups” as an example of such conduct. The FTC/DOJ’s proposed new HSR Reporting Form would also require that the merging parties provide additional information in their filings about prior acquisitions (without regard to whether they met the filing thresholds) to assist the regulators in making assessments of the competitive implications of the parties’ transactions and transaction history.
While this case is the first—in many years, if not ever—addressing all three of the FTC’s enforcement priorities in a single matter, it is likely not the last. Accordingly, those in healthcare and private equity will likely be following this matter closely to determine how best to ensure that future transactions do not raise antitrust concerns. And, because “roll-up” transactions are, of course, not unique to private equity or healthcare, all strategic buyers who engage in these types of actions should also pay close attention to this case and future actions from the FTC. Stay tuned.
