FTC sues private equity firm over Dallas company’s anesthesiology ‘roll-up’

The Federal Trade Commission sued Dallas-based U.S. Anesthesia Partners Inc. and its private equity backer Welsh Carson Anderson & Stowe LP, alleging they engaged in a scheme to monopolize the market for anesthesiologists in Texas.

In a complaint filed Thursday in Texas federal court, the agency said Welsh Carson systematically bought up more than a dozen anesthesiology practices, becoming the dominant provider of the services in Texas, including in Houston and Dallas. The company then increased prices and secured promises from other providers that they would stay outside the market, the FTC alleged.

U.S. Anesthesia Partners said in a statement that it will “vigorously defend itself against the FTC’s misguided allegations.”

“The FTC’s intended outcome threatens to disrupt and restrict patients’ equitable access to quality anesthesia care in Texas and will negatively impact the Texas hospitals and health systems that provide care in underserved communities,” Dr. Derek Schoppa, a practicing USAP Physician in Texas and a USAP Board member, said in the statement. “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.”

The case filed in Houston marks one of the FTC’s first targeting a common private equity tactic known as “roll-ups,” where a firm acquires numerous businesses in the same sector to create a single large player. Such deals usually are small enough to fall under the threshold for antitrust review, leaving regulators unaware when private equity-backed companies amass dominant positions.

“Private equity firm Welsh Carson spearheaded a roll-up strategy and created USAP to buy out nearly every large anesthesiology practice in Texas,” said FTC Chair Lina Khan in a statement. “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.”

Executives at USAP and Welsh Carson said internally they were focused on “captur[ing] significant synergies” with the acquisitions, according to the FTC’s complaint.

“Following one acquisition, a USAP executive put it more bluntly: ‘Cha-ching!’” the complaint said.

UnitedHealth Group Inc., the US’s largest insurer, complained about the increased prices, the agency said.

“You’ve basically taken the highest rate of all in one distinct market and then peanut butter spread that across the entire state of Texas,” a UnitedHealth executive wrote.

USAP is one of the largest anesthesiology providers, serving more than 2 million patients a year. The company has a large presence in Texas, Colorado and Florida.

Welsh Carson has $31 billion in assets, according to data compiled by Bloomberg, and primarily invests in health care and technology.

Khan has said her agency is “looking closely at the role of private equity,” noting research that shows its investments in nursing homes have led to higher death rates.

Private equity funds raise money from institutions and wealthy investors to buy large stakes in companies and, typically, overhaul their management. After several years, the private equity firms generally sell the company or take it public. The industry has trillions of dollars in assets under management.

The health care industry has been a particular favorite of private equity. Last year, private equity transactions accounted for about 40% of healthcare mergers and acquisitions, according to Levin Associates, which tracks health care deals. A 2020 study published in the Journal of the American Medical Association found that anesthesiology practices were a particular focus on private equity buyouts – accounting for about 20% of deals, more than any other physician practice group.

U.S. Anesthesia’s statement said its commercial prices – which are negotiated with health plans – have increased “modestly over the years and, when adjusting for inflation, have remained essentially flat.”

“Texas is an extremely competitive environment in healthcare, generally, and in anesthesia, in particular. USAP competes with both large and small anesthesia groups and individual anesthesiologists across the state,” according to the company. “The FTC alleges that USAP’s acquisitions in Texas gave USAP outsized market power, which impacted prices to health plans. In actuality, no anesthesia practice has ‘power’ over health plans.”

Leah Nylen, Bloomberg