The U.S. Federal Trade Commission (FTC) has filed a lawsuit against U.S. Anesthesia Partners Inc. (USAP) and its equity firm backer, accusing them of participating in a “multi-year anticompetitive scheme” that drove up anesthesia service prices in Texas.
In 2012, New York-based private equity firm Welsh, Carson, Anderson & Stowe established USAP, which has since become a dominant provider of anesthesia services in Texas.According to the FTC lawsuit filed on September 21 in the U.S. District Court for the Southern District of Texas, Welsh Carson aimed to take advantage of the critical nature of anesthesia services in modern surgery. Despite dwindling choices and rising prices, hospitals, patients, employers, and insurers are obligated to pay for these services.
Welsh Carson’s strategy involved eliminating competitors through acquisitions and collaborations, rather than competing on merit. This allowed USAP to raise prices and generate millions of extra dollars for itself, Welsh Carson, and their executives.
The lawsuit alleges that USAP and Welsh Carson engaged in a “multi-year anticompetitive scheme” to consolidate anesthesia practices in Texas, drive up prices for anesthesia services, and increase their own profits.USAP is a major anesthesiology provider in the United States, with a significant presence in Texas, Florida, and Colorado. It serves over 2 million patients annually. According to Bloomberg, Welsh Carson manages $31 billion in assets, with healthcare being one of its primary investment areas.
The Alleged Strategy
The FTC lawsuit claims that USAP and Welsh Carson implemented their consolidation strategy using a series of “illegal tactics.” These tactics involved three steps.
First, USAP and Welsh Carson employed a tactic called “roll-up,” which involved acquiring nearly every major anesthesia practice in Texas. The scheme encompassed over a dozen practices, 1,000 doctors, and 750 nurses, according to the FTC.
Second, USAP entered into price-setting arrangements with independent anesthesia practices in Houston and Dallas to support its “roll-up” tactic.
Under these agreements, USAP allegedly charged higher prices for services that the independent practices offered at lower costs. The additional revenues generated from this arrangement were shared between USAP and the independent practices, as stated in the lawsuit.
Third, USAP entered into a “market allocation” agreement with another large anesthesia services provider, effectively eliminating competition in its market territory.
As a result of this consolidation strategy, USAP has become the dominant provider of anesthesia services in Texas, particularly in major metropolitan areas like Houston and Dallas.
“No rival comes close to matching USAP’s size. As of 2021, USAP was at least four times larger than the second-largest group in Houston; six times larger than the second-largest group in Dallas; and nearly seven times larger than the second-largest group in all of Texas,” the lawsuit states.
“Furthermore, USAP is one of the most expensive anesthesia providers in Texas, with reimbursement rates double the median rate of other providers.”
The FTC argues that USAP’s anticompetitive conduct has allowed it to establish monopoly power, resulting in Texas citizens paying tens of millions of dollars more for anesthesia services.
The agency claims that USAP and Welsh Carson’s actions violate the Clayton Act and the FTC Act.“The FTC now seeks to end Defendants’ unlawful scheme, prevent its recurrence, and restore competition throughout Texas.”
Welsh Carson Response
In response to the lawsuit, Welsh Carson issued a statement to Axios, calling it “unwarranted” and warning that it would harm clinicians and patients. The firm argues that USAP’s commercial rates have not exceeded the rate of medical cost inflation for nearly a decade.
“The FTC’s decision to pursue a civil action against a minority investor of a physician-owned company is unprecedented and disregards well-settled principles of law. Unfortunately, this is consistent with the series of recent lawsuits that the FTC has filed using litigation to pursue radical policy theories,” Welsh Carson stated.
Dr. Derek Schoppa, a practicing USAP physician in Texas and a USAP board member, expressed concerns about the potential impact on patients’ access to quality anesthesia care and the hospitals and health systems serving underserved communities in Texas.
“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,” Dr. Schoppa said in an email to The Epoch Times.
The company denies any violations of U.S. competition laws and rejects the claim of having “outsized market power” that enables it to charge higher prices.
UnitedHealth Group Inc., the largest insurer in the United States, has complained about the increased anesthesia prices resulting from USAP and Welsh Carson’s practices.
“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,” an executive from UnitedHealth said, according to the FTC lawsuit.The FTC’s decision to sue Welsh Carson, the private equity sponsor, is noteworthy as the agency typically targets companies it believes have violated antitrust laws. This move indicates that the FTC is serious about addressing the issue. Anesthesia is one of the first specialties to attract private equity investment, and there are other highly consolidated physician markets that the FTC may now focus on, such as North American Partners in Anesthesia, which acquired American Anesthesiology three years ago to create one of the largest anesthesia groups in the United States.
“This indicates the FTC is not fooling around,” said Yashaswini Singh, a health economist at Brown University who studies private equity, in an interview with Stat. “Maybe USAP is a convenient first one to go after because anesthesia is one of the first specialties that attracted private equity.”
Overall, the FTC’s lawsuit against USAP and Welsh Carson aims to put an end to their alleged unlawful scheme, prevent its recurrence, and restore competition in the anesthesia services market in Texas.
How did Welsh, Carson, Anderson & Stowe and USAP allegedly exploit the critical nature of anesthesia services in their anticompetitive scheme?
U.S. Anesthesia Partners Inc. (USAP) and its equity firm backer, Welsh, Carson, Anderson & Stowe, are facing a lawsuit filed by the U.S. Federal Trade Commission (FTC) for their alleged involvement in a “multi-year anticompetitive scheme.” The lawsuit accuses the companies of driving up anesthesia service prices in Texas.
USAP, established in 2012 by Welsh Carson, has become a dominant provider of anesthesia services in Texas. The complaint, filed on September 21 in the U.S. District Court for the Southern District of Texas, claims that Welsh Carson sought to exploit the critical nature of anesthesia services in modern surgery. Despite the dwindling number of choices and rising prices, hospitals, patients, employers, and insurers are obligated to pay for these services.
Welsh Carson’s strategy involved acquiring and collaborating with competitors instead of competing on merit. This approach allowed USAP to increase prices and generate substantial profits for itself, Welsh Carson, and their executives. The lawsuit alleges that USAP and Welsh Carson engaged in a “multi-year anticompetitive scheme” to consolidate anesthesia practices in Texas, leading to inflated prices for anesthesia services and higher profits for the companies.
USAP is a major anesthesiology provider in the United States, with a significant presence in Texas, Florida, and Colorado. It serves over 2 million patients annually. The allegations made by the FTC highlight the potential harm caused by anticompetitive practices in the healthcare industry, particularly when it involves critical services such as anesthesia.
The outcome of this lawsuit will be closely watched by industry stakeholders and regulators, as it could set an important precedent in addressing anticompetitive practices in the healthcare sector. The case underscores the importance of a competitive marketplace that promotes fair pricing and accessibility to essential healthcare services.
Antitrust enforcement plays a crucial role in ensuring a level playing field for businesses and protecting consumers from monopolistic behavior. If proven guilty, USAP and Welsh Carson could face significant penalties and be held accountable for their alleged anticompetitive actions. Furthermore, the findings of this case could lead regulatory authorities to examine the anesthesia services market more closely and take necessary measures to promote competition and prevent price gouging.
In an era where healthcare costs continue to rise, it is imperative to maintain competitive markets to ensure fair pricing, quality care, and access to essential services. The FTC’s lawsuit against USAP and Welsh Carson serves as a reminder of the need to foster competition and prevent anticompetitive practices in the healthcare industry, ultimately benefiting patients and consumers.
The outcome of this case will shape the future landscape of anesthesia services in Texas and could potentially influence practices in other states. It highlights the importance of vigilant regulatory oversight and the commitment to maintaining fair competition in the healthcare sector.
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