Yesterday, the Federal Trade Commission (“FTC”) filed suit in federal district court alleging that U.S. Anesthesia Partners, Inc. (“USAP”), and the private equity firm Welsh, Carson, Anderson & Stowe (“Welsh Carson”), which created USAP, executed a multi-year anticompetitive scheme to consolidate anesthesiology practices in Texas, drive up the price of anesthesia services provided to Texas patients and boost their own profits.

In its complaint, the FTC states that this involved a three-part strategy to consolidate and monopolize the anesthesiology market in Texas.

• First, the FTC alleges that USAP and Welsh Carson executed a roll-up scheme, systematically buying up nearly every large anesthesia practice in Texas to create a single dominant provider with the power to demand higher prices.

• Second, according to the FTC, USAP and Welsh Carson further drove up anesthesia prices through price-setting agreements with remaining independent practices.

• Third, USAP sidelined a significant competitor by striking a deal to keep it out of USAP’s territory.

The FTC alleges that this anticompetitive strategy and resulting dominance has led to Texans paying tens of millions of dollars more each year in anesthesia services than before USAP was created. According to the FTC, USAP has been able to extract monopoly profits while simultaneously growing its monopoly power.

In the complaint, the FTC asserts that Welsh Carson created USAP in 2012 after observing that anesthesiology in Texas was made up of small practices competing against one another, which allowed insurers to negotiate lower prices for themselves, for their clients and ultimately for patients. Welsh Carson saw an opportunity to profit by eliminating this competition.

Further, according to the complaint, since its creation, USAP has acquired more than a dozen anesthesiology practices in Texas. As it bought each one, the FTC alleges that USAP raised the acquired group’s rates to USAP’s higher rates — resulting in a substantial mark-up for the same doctors as before. This roll-up strategy has made it the dominant provider of anesthesia services in Texas and in many of the state’s metropolitan areas, including Houston and Dallas. USAP’s size and prices now dwarf those of its rivals.

The FTC’s complaint alleges that USAP sought to further drive-up prices by:

• Entering or maintaining price-setting arrangements that allowed USAP to charge its own prices for services that were provided by independent anesthesia groups at key hospitals in Houston and Dallas.

• Entering into a market allocation arrangement pursuant to which USAP and Welsh Carson secured a promise from another large anesthesia services provider to stay out of USAP’s territory.

The FTC alleges that USAP and Welsh Carson’s conduct amounts to unlawful monopolization, unlawful acquisitions, a conspiracy to monopolize, unfair methods of competition and unlawful restraints of trade, and as such violates Section 5(a) of the FTC Act (prohibiting unfair methods of competition) and Section 7 of the Clayton Act (prohibiting mergers and acquisitions where the effect may be substantially to lessen competition, or to tend to create a monopoly).

The FTC requests that the court issue a permanent injunction and such equitable relief as may be necessary to “remedy the impact of USAP and Welsh Carson’s anticompetitive conduct and to prevent the recurrence of such conduct.”

Private equity firms have been acquiring and “rolling-up” physician practices in recent years. This is the first case that the FTC has brought against both a private equity firm and the involved physician group.

In recent years, the FTC has repeatedly expressed its concern about private equity and its involvement in the consolidation of health care practices.Most recently, in August 2022, the FTC entered into a consent decree with private equity firm JAB Consumer Partners, pursuant to which the FTC imposed strict prior approval and prior notice requirements on JAB’s future acquisitions of specialty and emergency veterinary clinics as a condition of JAB’s proposed $1.1 billion acquisition of specialty and emergency veterinary services provider SAGE Veterinary Partners, LLC and also required it to divest veterinary clinics in California and Texas.

We will continue to monitor this case and will provide more detailed information shortly.