FTC Chief Gears Up for a Showdown With Private Equity

By Harris Meyer, a Chicago-based health care and law reporter who has written for Health Affairs, KFF Health News, Medscape, Modern Healthcare, and many other publications. Originally published at KFF Health News.

A recent Federal Trade Commission civil lawsuit accusing one of the nation’s largest anesthesiology groups of monopolistic practices that sharply drove up prices is a warning to private equity investors that could temper their big push to snap up physician groups.

Over the past three years, FTC and Department of Justice officials have signaled they would apply more scrutiny to private equity acquisitions in health care, including roll-up deals in which larger provider groups buy smaller groups in a local market.

Nothing happened until September, when the FTC sued U.S. Anesthesia Partners and the private equity firm Welsh, Carson, Anderson & Stowe in federal court in Houston, alleging they had rolled up nearly all large anesthesiology practices in Texas. In the first FTC legal challenge against a private equity purchase of medical practices, the federal agency targeted one of the most aggressive private equity firms involved in building large, market-dominating medical groups.

In an interview, FTC Chair Lina Khan confirmed that her agency wants to send a message with this suit. Welsh Carson and USAP “bought up the largest anesthesiology practices, then jacked up prices and entered into price-setting and market-allocation schemes,” said Khan, who was appointed by President Joe Biden in 2021 to head the antitrust enforcement agency, with a mandate to combat health care consolidation. “This action puts the market on notice that we will scrutinize roll-up schemes.”

The large and growing volume of private equity acquisitions of physician groups in recent years has raised mounting concerns about the impact on health costs, quality of care, and providers’ clinical autonomy. A JAMA Internal Medicine study published last year found that prices charged by anesthesiology groups increased 26% after they were acquired by private equity firms.

“Now we’re seeing that scrutiny with this suit,” said Ambar La Forgia, an assistant professor of business management at the University of California-Berkeley, who co-authored the JAMA article. “This suit will cause companies to be more careful not to create too much local market power.”

The FTC’s lawsuit alleges that USAP and Welsh Carson engaged in an anti-competitive scheme to gain market power and drive up prices for hospital anesthesiology services. The FTC also accuses USAP and Welsh Carson — which established the medical group in 2012 and has expanded it to eight states — of cutting deals with competing anesthesiology groups to raise prices and stay out of one another’s markets.

USAP now controls 60% of Texas’ hospital anesthesia market, and its prices are double the median rates of other anesthesia providers in the state, according to the lawsuit. Learning that USAP would boost rates following one acquisition, a USAP executive wrote, “Awesome! Cha-ching,” the civil complaint said.

In a written statement, Welsh Carson, which also holds sizable ownership shares in radiology, orthopedic, and primary care groups, called the FTC lawsuit “without merit in fact or law.” It said USAP’s commercial rates “have not exceeded the rate of medical cost inflation for close to 10 years.”

The New York firm also said its investment in USAP “has allowed independent anesthesiologists to deliver superior clinical outcomes to underserved populations” and that the FTC’s action will harm clinicians and patients. Welsh Carson declined a request for interviews with its executives.

“This is a pretty common roll-up strategy, and some of the big private equity companies must be wondering if more FTC complaints are coming,” said Loren Adler, associate director of the Brookings Schaeffer Initiative on Health Policy. “If the FTC is successful in court, it will have a chilling effect.”

Since the FTC filed the USAP lawsuit, Khan said, the agency has received information from people in other health fields about roll-ups it should scrutinize. “We have limited resources, but it’s an area we are interested in,” she said. “We want to focus on where we see the most significant harm.”

In physician acquisition deals, PE firms typically use mostly borrowed money to acquire a controlling interest in a large medical group, pay the physician owners a substantial upfront sum in exchange for sharply cutting their future compensation, and install a management team. Then they seek to acquire smaller groups in the same geographic market and bolt them onto the original medical group for more bargaining clout and operating efficiencies.

The PE firm’s goal is to garner at least 20% dividends a year and then sell the group to another investor for at least three times the purchase price in three to seven years. Critics say this short-term investment model spurs the investors and medical groups to boost prices and cut staffing to generate large profits as fast as possible.

“Private equity is trying to extract value quickly and sell the company for a profit, so there’s a lot more incentive to increase prices quickly and extract higher revenue,” La Forgia said.

In the two years after a sale, PE-owned practices in dermatology, gastroenterology, and ophthalmology charged insurers 20% more per claim on average than did practices not owned by private equity, according to a JAMA study published last year.

There are similar concerns about hospital systems acquiring physician practices, which also have raised prices. “The evidence shows that both private equity and hospital acquisitions of physician practices are bad for consumers, and scrutiny should be applied to all acquirers,” Adler said.

Critics warn that private equity roll-ups of medical groups can jeopardize quality of care, too. Chris Strouse, a Denver anesthesiologist who served on USAP’s national board of directors but left the company’s Colorado group out of disapproval in 2020, cited patient safety issues arising from short staffing and mismanagement. He said USAP would schedule shifts so that three or four providers would hand off to each other a single surgical procedure, which he said is risky. In addition, USAP frequently asked anesthesiologists to work the day after working a 24-hour on-call shift, he said. “The literature shows that’s outside the safety range,” he said. As a result, many providers have left USAP, he added.

The FTC has long been lax in monitoring roll-ups of physician groups, in part because federal law does not require public reporting of these deals unless they exceed $111.4 million in value, a threshold adjusted over time. Lowering the threshold would require congressional action. As a result, regulators may be unaware of many deals that lead to gradual market concentration, which allows providers to demand higher prices from insurers and employer health plans.

Recognizing that problem, the FTC proposed in June to beef up its reporting requirements for companies planning mergers, in hopes of spotting previous acquisitions of smaller groups that could lead to excessive market power and higher prices. In addition, in a draft of their merger review guidelines, issued in July, the FTC and the Department of Justice said they would consider the cumulative effect of a series of smaller acquisitions.

“The ways PE firms are making serial acquisitions, each individual acquisition is under the radar, but in aggregate they roll up the whole market,” Khan said. “Between the merger reporting form and the new merger guidelines, we want to be able to better catch unlawful roll-up schemes. … This would enable us to stop roll-ups earlier.”

But Brian Concklin, a lawyer with the law firm Clifford Chance, whose clients include private equity firms, said the FTC’s proposed reporting requirements would hamper many legitimate mergers. “The notion that they need all that information to catch deals that lessen competition seems overblown and false, given that the vast majority of these deals do not lessen competition,” he said. “It will be a substantial burden on most if not all clients to comply.”

Researchers and employer groups, however, were encouraged by the FTC’s action, though they fear it’s too little, too late, because consolidation already has reduced competition sharply. Some even say the market has failed and price regulation is needed.

“Providers have been able to extort higher prices on services with no improvement in quality or value or access,” said Mike Thompson, CEO of the National Alliance of Healthcare Purchaser Coalitions. “The FTC stepping up its game is a good thing. But this horse is out of the barn. If we don’t have better enforcement, we won’t have a marketplace.”

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


    1. JTMcPhee

      When there was still a public health function in the Golden Billion world, there used to be efforts to extirpate “social diseases” like smallpox and syphilis and polio and tuberculosis.

      To my mind, private equity is a particularly virulent social disease.

      But the billionaire virions have hijacked and degraded the immune system of the political economy. And like all pathogens, the VCs don’t care if they kill the host as they proliferate.

      Good luck rebuilding the social equivalent of T cells and B cells and macrophages.

      A hopeless cynic might observe that the current concentration of power validates the notions of social Darwinism and Puritan theology — “GOD gave me my money!”

      Of course it does not help that the rest of us have succumbed to the Gompers variant, “MORE!” https://www.cambridge.org/core/journals/journal-of-the-gilded-age-and-progressive-era/article/abs/uncovering-the-contradictions-in-samuel-gomperss-more-reading-what-does-labor-want/A3AC43F747B772791464BBDF1F7E43C5

      So maybe it’s encoded in our genes.

      “God bless us, every one!”

    2. Rubicon

      We’ve been following the deleterious behaviors by Big Private Equities. Not only are they heavily involved in the US health care system, they have their hands in HVAC heating/cooling systems. It seems they are buying into the manufacturers of HVAC Systems, by selling them at much higher prices to small HVAC companies in many towns, and cities. Result: citizens are paying much higher prices now.

      Another avenue of profit-making for Private Equities is to gobble up a number of veterinarian clinics in the US. Their “management” of these clinics includes: reducing staff, installing part-time young vets w/ massive college debts (loans) and hiring low wage techs with very little experience in working with pets. A well regarded veterinarian in our area knows ALL about these clinics. Many of her tech workers used to work in those private equity clinics. They hated working there. Result, the well regarded vet has hired a number of those folks. To date, those techs are FAR Happier working for her.

      We think the same is going on in American dental offices, but it’s difficult finding actual proof Private Equities are involved. It must other Financiers who are investing in those offices. One dental clinic in our area is called XXXXXXX, but the same name is used in many other clinics across the US. The result is the same as private equities: reducing staff workers, part-time tech staff, hiking the costs of pharmaceuticals, lowering wages for new vets.

      1. thucydides

        The exact pattern described about vet clinics and HVAC has also happened in the consolidation of physical therapy clinics.

        1. JTMcPhee

          And “nursing homes” and hospices and “funeral homes.” So — PE-owned obstetricians to bring the mopes into the world, all the looting during life, then steal the last bits at the end of life.

          One wonders when sovereign citizens will figure out where to aim, with all those small arms they are stockpiling, as they watch their bits of wealth being siphoned away by the vampire squids…

  1. fred

    > The FTC now asks this Court to put an end to Defendants’ unlawful scheme, prevent its recurrence, and restore competition across Texas.

    And I want the occupation of Gaza to end.

    These people are toothless. Posting this as news as opposed to prpoganda from Team Dem does you no service. I notice that there was no intro to this post.

    1. cousinAdam

      And you sir do no service to this blog by name-calling and bellyaching that Lambert didn’t write an introduction. Why don’t you go to Gaza and be useful? I’m just trying to enjoy my first cuppa (PST). Sheesh.

    2. JohnnyGL

      The FTC has been one of the very few bright spots of the Biden admin.

      However, Khan’s appointment, and her track record, has scrambled party lines. She got republican support in the senate and also opposition from some democrats who do the bidding of big tech and/or private equity.

  2. bassmule

    David Dayen in The American Prospect. From July 2022:
    “At every level of the private equity experience—from fundraising to acquisitions to exits—we either subsidize the industry’s business model, facilitate its war chest, or allow firms to separate actions from consequences. If we focused attention on turning off the fire hose of money flowing into the biggest firms, the worst elements of private equity could be a thing of the past. Here’s how.”

    Cut Off Private Equity’s Money Spigot

    1. Jeremy Grimm

      “The Investment Company Act of 1940 required investment funds to register with the Securities and Exchange Commission, with regular reporting requirements, prohibitions on certain transactions, and restrictions on leverage (the use of large amounts of debt)….The tools exist today to stop private equity, in a law written 82 years ago.” [From the article you linked to “Cut Off Private Equity’s Money Spigot”]

      The Neoliberal takeover of the u.s. political economy has been busy dismantling much much more than the social welfare laws that originated in the New Deal. The levels of destruction and pillaging our betters engineer to transfer wealth and power to themselves will leave the u.s. Empire in ruins that will rival the Roman destruction of Carthage.

    2. Rubicon

      Thank you, bassmule, for sharing that valuable information. Sadly, most every politician in small towns, up to major cities are ALL bought off by Big Money.
      We need to face reality: our government NO longer serves common citizens. All city,state,federal levels of governance is now Fully in the Hands of Big Money.

  3. chuck roast

    This post was so egregiously illuminating that it drove me back to actually scan an old Applied Microeconomics textbook. In the short discussion of monopoly power it goes: “Monopoly, as we stated at the beginning of this chapter, is relatively uncommon.” Oh, those halcyon days of the triumph of marginalism!

    Read youngsters, if you will about marginal cost, marginal revenue and Q output of widgets from the relatively uncommon monopolist. Here is a footnote following the only mention of Joan Robinson in the book. “There is an extremely large number of firms (making the same good) in a perfectly competitive industry, but only one firm in a monopoly. Obviously, many industries in the real world fall between these two extremes.” Time to have another look at the long run equilibria kids.

  4. John

    Private equity as it is structured should not exist. That ludicrous “carried interest” thingy is all but a license to steal.

  5. cousinAdam

    Kudos to the subsequent commenters for greatly improving the signal to noise ratio. My second cuppa is much more enjoyable! By way of actual contribution, I have an eye surgeon cousin whose group practice was being bought out. He made the difficult decision to go his own way and the powers that be (somewhat predictably) gave him “the hard way to go”. Besides bills and payroll piling for months until his practice was recognized by the insurance companies, it nearly wrecked his marriage with my cousin.( She had stepped up to handle billings and reimbursements.) They ultimately triumphed, but cousin Doc never wanted to recount the tribulations he had to endure (even in the early stages of the ordeal). More than a decade has passed and I wouldn’t think of broaching the topic.

  6. ambrit

    Any “true” Left would already have established clandestine “Instant Karma Kommandos” to ‘cull’ the ranks of top management in the PE world. That would be “The Market” in action, big time.
    I’m still waiting for some previously unseen ‘threshold’ to be crossed so that publically supported “action” can commence.

  7. Oh

    The PE crooks are also buying up eye doctors. In my town the eye doctor I used to go to was bought up. Charges went up immediately. I explained to the eye doctor that it’s ruining her practice but she gleefully remarked that now that she just work for the firm that bought her practice she doesn’t have worry about running the business just doing he work as an eye doctor. I wonder if they paid her off in full or will eventually stiff her?

  8. JR

    The predatory behavior of our hedge fund overlords is becoming ever clearer for all to see. While I am very, very critical of the Biden administration bc of so, so many things, I have to give kudos to Ms. Kahn and the Biden administration for giving this one a go.

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