Saturday, June 15

FTC Sues Anesthesia Group Backed by Private Equity, Claiming Antitrust

After vowing to tackle consolidation in the health care industry, the Federal Trade Commission filed an antitrust lawsuit on Thursday that challenged the growing practice of private-equity firms backing companies that amass medical practices and dominate local markets.

The suit targeted a large doctors’ group that operates anesthesia practices in several states, claiming the group and the private equity firm advising and financing it were consolidating doctors’ groups in Texas so they could raise prices and increase their profits.

The agency brought the civil lawsuit in federal court against U.S. Anesthesia Partners and Welsh, Carson, Anderson & Stowe, a private-equity firm in New York.

“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,” said Lina M. Kahn, the chair of the F.T.C., in a statement. “The F.T.C. will continue to scrutinize and challenge serial acquisitions, roll-ups and other stealth consolidation schemes that unlawfully undermine fair competition and harm the American public.”

The case is significant because it focuses on a business strategy that has become increasingly common in health care. Private equity firms have been helping companies to buy more doctors’ practices in various medical specialties, and those purchases have allowed them to control a large share of certain local markets.

The suit is also unusual because it was also brought against the private equity investor, which now owns a minority stake in U.S. Anesthesia Partners, and not just the company.

A recent study from researchers at the Petris Center at the University of California, Berkeley, and the Washington Center for Equitable Growth, a progressive think tank in Washington, found that private equity-funded consolidation had led to price increases in gastroenterology, dermatology and other medical specialties.

The F.T.C. has said it considers this type of health care merger to be an enforcement priority, a sign that this case may be the first of several scrutinizing the growth of private equity in the industry. The firms have argued that their businesses do not violate federal antitrust law.

The suit argues that Welsh Carson and U.S. Anesthesia Partners have expanded their reach across Texas with an explicit goal of using market share to raise prices its doctors and nurses would be paid by insurers.

Brian Regan, the head of Welsh Carson’s health care group who sat on the board of U.S. Anesthesia Partners, was quoted in the lawsuit as telling lenders who were financing a key deal that the firm planned to “build a platform with national scale by consolidating practices with high market share in a few key markets” and to improve “negotiating leverage” with insurers.

After learning of the strategy, an executive in a practice the firm bought in Austin, Texas, responded, “Awesome! Cha-ching,” according to the suit.

The suit also accused U.S. Anesthesia Partners of conspiring with another large anesthesia company to stay out of its markets in Texas. The name of that company was redacted from the legal filing.

Two of the largest acquisitions in U.S. Anesthesia Partners’ history were previously reviewed and approved by the F.T.C.

Welsh Carson and U.S. Anesthesia Partners disputed the F.T.C.’s claims and said they would fight the lawsuit.

“The F.T.C.’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,” said Dr. Derek Schoppa, a Texas physician and board member of U.S. Anesthesia Partners, in a statement.

The company said its commercial prices in Texas had only “increased modestly over the years,” remaining “essentially” flat after being adjusted for inflation.

Amy Stevens, a spokeswoman for Welsh Carson, said the private equity firm was “disappointed” by the suit. “Unfortunately, this is consistent with the series of recent lawsuits that the F.T.C. has filed using litigation to pursue radical policy theories,” she said in a statement. “We are confident we will prevail.”

Fiona Scott Morton, a professor of economics at Yale and the former chief economist for the Justice Department’s antitrust division, said the case highlighted how many small mergers could have the same effect as a large one.

“If each individual transaction is small but there’s lots of them, you end up with a cumulative effect,” she said. “It’s important not to get caught up in evaluating one transaction at a time and missing the forest for the trees.”