On Sept. 21, 2023, the Federal Trade Commission (FTC) sued U.S. Anesthesia Partners, Inc. (USAP) and its private equity sponsor, Welsh, Carson, Anderson & Stowe, asserting they crafted a “multi-year anticompetitive scheme” to consolidate anesthesiology practices in Texas by “rolling up” and monopolizing the market for anesthesiology in Texas.
The FTC filed the complaint in the U.S. District Court for the Southern District of Texas, alleging that Welsh Carson created USAP in 2012 in order to acquire large anesthesia practices as part of a plan to increase prices and drive profits. According to the complaint, USAP acquired over a dozen practices, handles anesthesiology services for over 2 million patients around the U.S., and now dominates anesthesia services in Texas, including in the Dallas and Houston markets.
The complaint further alleges that Welsh Carson and USAP also entered into price-setting agreements with independent anesthesiology practices and allocated markets under an agreement with a significant competitor.
“Private equity firm Welsh Carson spearheaded a roll-up strategy and created USAP to buy out nearly every large anesthesiology practice in Texas. 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,” noted FTC Chair Lina M. Khan. “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.”
This latest FTC action comes at a time when the FTC and Department of Justice have withdrawn two antitrust policy statements related to enforcement in health care markets: Statements of Antitrust Enforcement Policy in Health Care, published in August 1996, and Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program from October 2011. The status and timing for new health care guidelines is unclear.
Additionally, the FTC and the Department of Justice have proposed a major overhaul of their merger guidelines. The agencies put a draft update of the Merger Guidelines out for public comment in July. Significantly, the draft Merger Guidelines expressly focus on small acquisitions that may be part of a rollup strategy, noting that “[w]hen a merger is part of a series of multiple acquisitions, the agencies may examine the whole series.” This represents a potentially significant change. The agencies received more than 3,000 comments on the proposed new guidelines during the public comment period. It is not clear when the final guidelines will be issued.
Based on recent enforcement actions, including USAP, dealmakers should assume stricter scrutiny than under prior regimes.
In a separate initiative earlier this year, the FTC announced a proposed rule that would prohibit employers from imposing noncompetes on their workers. In announcing the new rule, the FTC declared their perspective that noncompetition covenants constitute a pervasive and often coercive tactic to hold down wages, inhibit innovation and halt entrepreneurs from initiating new businesses. Over the course of this year, the FTC has been taking public comment on the proposed rule, which is based on the FTC’s preliminary finding that noncompetes constitute an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act. While this new proposal would not apply to other forms of employment restrictions, such as nondisclosure agreements, the FTC has noted that other employment restrictions could fall under the new rule to the extent that they function as de facto noncompetes. A number of groups, including the Chamber of Commerce, have questioned FTC’s authority under the Federal Trade Commission Act to promulgate binding regulations related to “unfair methods of competition.” The new rule, if and when it becomes final, is likely to face litigation.
While state legislatures around the country (like Colorado and New York) have been tackling noncompetition covenants, most have included carve-outs for high earners and for protection of legitimate intellectual interests, particularly where developed by the departing employee, as well as noncompetes restricting a seller in connection with the sale of a business. It is unclear whether the FTC will permit these carve-outs from the proposed noncompete ban. Without these tools, businesses will need to identify other approaches to securing intellectual property from unfair competition and protecting the goodwill that they acquire upon an acquisition of a business.
While the FTC may yet permit carve-outs to its noncompete ban, it has articulated an aggressive stance against health care mergers generally and private equity-backed rollups specifically. Dealmakers should proceed with caution in navigating a challenging regulatory environment for competition issues.
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