Key takeaways:
- Federal antitrust agencies are now enforcing the antitrust laws in serial deals and "roll-up" acquisitions that may have a cumulative impact, even though those deals may not appear significant on an individual basis.
- The intersection of health care and private equity continues to be a major area of focus for federal antitrust enforcers. Caution is warranted even where the investor holds only a non-majority stake of its health care investment.
- Health care companies and their investors should work with experienced antitrust counsel to evaluate both the procompetitive and anticompetitive effects of their strategic business decisions, especially with regard to pricing and growth strategies.
The Federal Trade Commission (FTC), under the leadership of Chairperson Lina Khan, has for the past several years signaled its intent to ramp up enforcement of the antitrust laws in the health care and private equity spaces. Last week, the FTC gave teeth to these policy proclamations and sued both U.S. Anesthesia Partners, Inc. (USAP) and its investing private equity firm Welsh, Carlson, Anderson & Stowe (Welsh Carlson) in the Southern District of Texas. The FTC's complaint alleges an anticompetitive scheme by both defendants to consolidate anesthesia practices in Texas through a "roll-up" acquisition strategy that allowed USAP to become the dominant provider of anesthesia services in the area. Until now, such "roll-up" acquisitions have largely not been subject to review under the antitrust laws because they are relatively small when considered individually.
The lawsuit challenges USAP's "roll-up" strategy, pursuant to which it bought over a dozen practices in Texas, starting with one acquisition of a large practice in each geographic area, followed by a series of "tuck-in" acquisitions. Importantly, the FTC alleges that the "roll-up" deals violate the antitrust laws whether considered individually or in the aggregate. "The FTC 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," Khan stated in a corresponding press release. The FTC contends that USAP supported this acquisition strategy by entering price-setting arrangements with other independent anesthesia groups, and that Welsh Carlson struck a market allocation deal with another large anesthesia services provider to keep the competitor out of USAP's territory.
Throughout its complaint, the FTC emphasizes USAP's monopoly power in Texas markets, which allegedly gave the company leverage over commercial payors to increase reimbursement rates and drive up prices for insurers and payors. Notably, the complaint bolsters its allegations with "off-hand" comments from USAP's and Welsh Carlson's internal emails and board presentations, which the FTC argues underscores their intent to focus on leverage and profits. For instance, the complaint cites one executive's email commentary stating, "Cha-ching!" following an acquisition.
Significantly, the FTC's action brings to life two of the agency's recent policy goals. First, the lawsuit names as a defendant Welsh Carlson, the private equity firm that currently owns a non-majority stake in USAP. The complaint and press release emphasize the firm's involvement, alleging that Welsh Carlson sought to eliminate competition in the "fragmented" Texas market and garner record profits for its executives and investors. This complaint examines private equity's connection to health care consolidation, suggesting that it will probably not be the last such case. Second, the FTC, true to its word, is now enforcing existing federal antitrust laws in serial acquisitions, rather than single transactions, which were its historic focus. The lawsuit signals that the FTC will scrutinize strategic serial deals and "roll-up" acquisitions, even when those deals may not appear significant when viewed individually. This case follows on the heels of the FTC's and Antitrust Division of the Department of Justice's draft merger guidelinesand proposed changes to the HSR Form, outlining their intent to look more closely at serial acquisitions that have a cumulative impact under the antitrust laws.
This suit signals to both health care companies and their investors that now is the time to reconsider their growth strategies and business models. It is critical that companies work closely with experienced antitrust counsel in evaluating both the procompetitive and anticompetitive effects of their strategic business decisions including, but not limited to, payor and other contract negotiations. Reed Smith can help navigate this process and will continue to monitor the FTC's implementation of its strategy at the intersection of health care and private equity. For more details on our global antitrust and health care practices, please visit the Reed Smith website.
This article is presented for informational purposes only and is not intended to constitute legal advice.
