Private equity firm off the hook in FTC's antitrust case against portfolio anesthesia provider

Private equity firm Welsh, Carson, Anderson & Stowe will not be scrutinized in court for the potentially anticompetitive practices of its portfolio anesthesia group U.S. Anesthesia Partners.

Monday, a federal judge ruled to dismiss New York-based Welsh Carson from an antitrust case brought by the Federal Trade Commission (FTC) last year.

The regulator alleges that both the firm and the anesthesia provider, starting in 2012, conducted a practice roll-up scheme that allowed USAP to suppress competition and drive up prices.

Welsh Carson and USAP had moved to dismiss the regulator’s case, arguing that they had not violated any antitrust laws, with the latter criticizing the FTC’s interpretation of its markets and pricing practices.

Judge Kenneth Hoyt, of the U.S. District Court for the Southern District of Texas, denied USAP’s motion to dismiss, writing in the order that the FTC’s allegations against the provider group were plausible.

However, the regulator did not make a sufficient case for Welsh Carson, which only has a minority and therefore noncontrolling stake in USAP, to be violating antitrust law, the judge wrote.

Holding the firm accountable in the case “would expand the FTC’s reach further than any court has yet seen fit; it would also expand liability to minority investors whose subsidiaries reduce competition,” Hoyt wrote. “This Court will not adopt this novel interpretation.”

In statements given to reporters, Welsh Carson said it welcomed the ruling while USAP said it remains confident in its position as the case moves forward.

The ruling is something of a messaging roadblock for the FTC and the Biden administration, which has launched regulatory campaigns critical of private equity’s role in healthcare.

In December, the White House instructed its agencies to launch a “cross-government public inquiry into corporate greed in healthcare,” which included a joint request for information on “private equity and other corporations’ increasing power and control of our healthcare.”

In subsequent months, public workshops were held by regulators that featured listening sessions in which speakers were critical of private-equity-backed roll-up schemes, amid which policy heads like FTC Chair Lina Khan directly highlighted the ongoing case against Welsh Carson and USAP.

“Firms of all types should be on the notice that we’re on the lookout for these strategies and will continue to deploy the full scope of our authority to protect the American public from anti-competitive and unlawful tactics,” Khan said in March.

Just last week, the U.S. Department of Justice announced the establishment of a new task force specifically focused on monopolies, collusion and related abuses of market powers within healthcare.

In the current case, the FTC alleged that Welsh Carson created USAP in 2012 in response to Texas’ “fragmented” anesthesiology market. USAP has since acquired more than a dozen practices within the state and allegedly entered arrangements with other independent groups to charge higher prices and avoid competing with each other. The regulator said the tactics have “cost Texans tens of millions of dollars more each year in anesthesia services than before USAP was created.”

Separately, in February, USAP’s Colorado branch came to a voluntary agreement with Colorado’s attorney general related to similar allegations of widespread practice purchases, which the state said led to higher rate charges and noncompete contracts for physicians. As part of the agreement, USAP—which described the state’s scrutiny as “misguided”—agreed to cut its contracts with five Colorado hospitals and modify its noncompete agreements with clinicians.