FTC sues PE-backed anesthesia provider for monopolistic roll-ups, price setting

Federal regulators have accused a major Texas-based anesthesia provider and its parent private equity firm of a decade-long, three-pronged scheme to suppress competition and drive up prices.

In a complaint filed in federal district court and accompanying release, the Federal Trade Commission (FTC) said that U.S. Anesthesia Partners Inc. (USAP), and Welsh, Carson, Anderson & Stowe’s alleged scheme “has cost Texans tens of millions of dollars more each year in anesthesia services than before USAP was created.”

FTC said the companies’ alleged actions—a roll-up scheme, price-setting agreements with other practices and a market allocation arrangement with another large competitor—meet the bar for unlawful monopolization, unlawful acquisitions, a conspiracy to monopolize, unfair methods of competition and unlawful restraints of trade.

“Private equity firm Welsh Carson spearheaded a roll-up strategy and created USAP to buy out nearly every large anesthesiology practice in Texas,” FTC Chair Lina Khan said in a release announcing the lawsuit against USAP and Welsh Carson. “Along with a set of unlawful agreements to set prices and allocate markets, 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.”

Within an hour of the FTC’s announcement, USAP released a statement refuting the regulator’s filing and promising to “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,” Derek Schoppa, M.D., 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.”

Welsh Carson created USAP in 2012 after noticing that Texas’ “fragmented” anesthesiology market consisted of several relatively small physician practices, the FTC said. Since then, USAP has acquired over a dozen Texas anesthesiology practices with more than 1,000 doctors and 750 nurses across Houston, Dallas, San Antonio, Austin, Amarillo and Tyler.

“USAP’s acquisitions have hit Texans’ wallets hard,” the regulator wrote in its lawsuit (PDF). “With each deal, USAP raised the acquired group’s prices to USAP’s (often much) higher price. As one insurance executive summarized, USAP and Welsh Carson used acquisitions to ‘take the highest rate of all … and then peanut butter spread that across the entire state of Texas.’"

From there, the FTC said USAP entered arrangements with other independent anesthesia groups to charge high prices for services, then split the additional revenues with the other physician groups.

“Despite USAP’s own executives recognizing that these price-setting arrangements are ‘odd from a compliance standpoint,’ two of them remain in use today and USAP has signed or pursued multiple others,” FTC wrote.

Finally, the FTC alleged that USAP and Welsh Carson worked with another unnamed large anesthesia services provider to “stay out of USAP’s territory.”

The combined tactics made USAP the largest anesthesia service provider in multiple major metro areas and allowed it to secure reimbursement rates double the median rate of other Texas anesthesia providers, the regulator said.

“In other words, thanks to its anticompetitive conduct, USAP has been able to extract monopoly profits while simultaneously growing its monopoly power,” the FTC wrote. “Defendants’ scheme was so successful that Welsh Carson has already begun ‘deploying a similar strategy to consolidate’ multiple other physician practice specialties.”

Welsh Carson was founded in 1979 and has raised $31 billion in lifetime capital, according to its website. It lists 100 investments with healthcare companies “that add value to the system by reducing costs and improving the quality of care,” as well as 105 investments in B2B tech companies.

USAP’s business extends beyond Texas into Florida, Colorado, Nevada, Washington, Kansas, Indiana, Tennessee, Maryland and the District of Columbia. Nationwide, it includes more than 4,500 clinicians.

In its refuting statement, USAP said that it or other anesthesia practices could not have “power” over health plans that often “dwarf USAP and any physician group in size, revenue and profits.” The company said that its commercial prices have “increased modestly over the years and, when adjusting for inflation, have remained essentially flat.”

The company defended its business model of “clinically independent and locally governed” practices and asserted that USAP “competes with both large and small anesthesia groups and individual anesthesiologists across the state.”

“Over the last decade, our collaborative partnerships with facilities and health systems have led to improved outcomes with positive impacts on the overall costs of care to the hospital systems, health plans, and patients we serve,” J. Scott Holliday, D.O., another USAP board member, said in the statement. “We are confident we will prevail in this misguided litigation.”

USAP has also created a webpage dedicated to the lawsuit, which includes a FAQ denying the FTC’s claims and promising no changes to its services or business.