Last week, the Federal Trade Commission (FTC) approved a final consent order with a private equity firm focused on health care and technology to resolve allegations of anticompetitive practices in two anesthesiology markets in Texas.
The FTC’s charges against New York-based Welsh, Carson, Anderson & Stowe centered on the firm’s portfolio company, U.S. Anesthesia Partners (USAP), which was accused of engaging in a "roll-up" strategy to acquire nearly every large anesthesia practice in Texas, thereby suppressing competition and driving up prices.
For health care entities and private equity firms, the consent order suggests how the federal agency will treat and scrutinize roll-up strategies in the future, thereby calling into question many private equity firms’ consolidation strategies.
Background
After an investigation, the FTC concluded that Welsh Carson and USAP systematically acquired anesthesia practices in Texas, creating a dominant provider with significant pricing power. According to the FTC complaint, this roll-up strategy involved acquiring major anesthesia groups in Houston and Dallas, leading to increased prices for hospital-only anesthesia services. The FTC’s complaint alleged violations of the Sherman Act and the Clayton Act, asserting that these acquisitions substantially lessened competition and constituted unlawful monopolization.
In addition to filing an administrative complaint at the FTC, the agency also sought an injunction to block the transaction in federal district court against Welsh Carson and USAP. The federal court dismissed the complaint against Welsh Carson but the administrative action against Welsch Carson continued until the approval of this order. Both the administrative action and the federal district court case are proceeding against USAP.
Terms of the Final Order
The final consent order imposes several restrictions on Welsh Carson for a period of 10 years.
- Limitation on USAP Involvement: Welsh Carson is prohibited from increasing its ownership or control over USAP and must reduce its board representation to a single, non-chair seat.
- Notification Requirements: Welsh Carson must notify the FTC of specified future acquisitions and investments in anesthesia and other hospital-based physician practices.
- Prior Approval of New Investments: Welsh Carson and its funds must obtain FTC approval prior to investing in or acquiring any anesthesia business in the United States; and any anesthesia business in which Welsh Carson funds have a combined controlling interest (such as a portfolio company owned by a Welsh Carson fund or several funds) must obtain prior approval of an investment or acquisition of any anesthesia business in the same state or metropolitan statistical area.
- Compliance and Reporting: Welsh Carson is required to submit compliance reports to the FTC, detailing measures taken to adhere to the order.
Implications for Private Equity and Health Care Firms
The FTC’s action highlights its aggressive posture towards roll-up strategies that potentially threaten competition. At the time the final order was published, the current FTC chair wrote that the settlement with Welsh Carson "is a routine law enforcement matter embodying a traditional approach to competition law." When combined with a recent Department of Justice gun-jumping case against another private equity firm, it is apparent that this administration will not be giving private equity firms any benefit of the doubt. The order should serve as a reminder to obtain antitrust counseling related to strategic acquisitions and roll-up strategies, particularly in the health care industry.
[View source.]
