Backing up its recent rhetoric, the FTC has filed suit against a private equity firm based on a “roll-up scheme” in the healthcare space. The FTC filed its complaint in federal district court in Texas, alleging that Welsh, Carson, Anderson & Stowe (“Welsh Carson”) and U.S. Anesthesia Partners, Inc. (“USAP”) engaged in 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.”

This action is in line with the antitrust agencies’ rhetoric and promise to challenge roll-ups or serial acquisitions by private equity firms, particularly in the healthcare space. However, a few aspects of the FTC’s suit in this instance are worth noting:

• The lawsuit is not in the context of a proposed acquisition but, rather, apparently comes as a result of a conduct investigation, alleging that the anticompetitive scheme involves not only the serial acquisition of practices in Texas, but also price-setting agreements with the remaining independent practices in Texas, as well as entering an alleged market allocation agreement to keep a significant competitor out of USAP’s territory.
• Further, there was a public litigation filed in 2021 between USAP and United Healthcare regarding physician rates which received a high-level of media attention and may have prompted the FTC’s attention.
• Finally, the FTC alleges that the parties have a very significant market share in several markets (~70% by revenue and ~60% of cases for hospital-only anesthesia services).

The FTC’s suit is thus premised on a combination of allegations involving both market behavior and market concentration arising from a series of acquisitions. As a result, the FTC’s suit does not mean that private equity firms that have engaged in multiple acquisitions should expect an imminent investigation, let alone a challenge. However, the FTC’s suit reiterates the importance of antitrust law awareness and compliance within private equity and other firms involved in M&A activity:

• Roll-up or serial acquisitions can be scrutinized by the antitrust agencies, but the likelihood of investigations is greater to the extent there are colorable allegations of price fixing, side agreements with other providers / competitors, or other non-compete arrangements that can bring attention to a private equity firm’s acquisition history.
• Further, the FTC’s Welsh Carson suit provides an important reminder that private equity firms should be ever mindful of document creation best practices to create a clear record and avoid misconceptions regarding anticipated procompetitive benefits from acquisitions.
• Finally, private equity firms should take note that a consent decree settlement to address agency concerns with an acquisition will likely include onerous obligations and restrictions, including a 10-year notice period for any acquisitions in the same industry, regardless of a deal’s HSR reportability.

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