FTC Sues Medical Company for ‘Anticompetitive’ Practices, Raising Anesthesia Costs in Texas

A private equity firm bought up anesthesia practices in Texas and engaged in price-setting arrangements, the FTC says.

The Federal Trade Commission (FTC) building is seen in Washington on Sept. 19, 2006. Paul J. Richards/AFP via Getty Images

The U.S. Federal Trade Commission (FTC) sued U.S. Anesthesia Partners Inc. (USAP) and an equity firm backing it, alleging the duo engaged in a “multi-year anticompetitive scheme” that drove up prices of anesthesia services in Texas.

In 2012, New York-based private equity firm Welsh, Carson, Anderson & Stowe created USAP, which is now a dominant provider of anesthesia services in Texas.

“By doing so, Welsh Carson sought to exploit the fact that anesthesia services are critical to modern surgery; hospitals need to offer anesthesia services, and patients, their employers, and insurers must pay for them, even if choices dwindle and prices go up,” said the Sept. 21 FTC lawsuit (pdf) filed in U.S. District Court for the Southern District of Texas.

“Welsh Carson saw that eliminating competitors—by acquiring or conspiring with them, instead of competing on the merits—would give USAP the power to raise prices, raking in tens of millions of extra dollars for USAP, Welsh Carson, and their executives.”

The lawsuit accuses USAP and Welsh Carson of engaging in a “multi-year anticompetitive scheme to consolidate anesthesia practices in Texas, drive up the price of anesthesia services provided to Texas patients, and increase their own profits.”

USAP is one of the biggest anesthesiology providers in the United States, having a major presence in Texas, Florida, and Colorado. It serves over 2 million patients annually. According to Bloomberg data, Welsh Carson manages $31 billion in assets, with health care being one of its primary investing areas.

The Alleged Strategy

USAP and Welsh Carson are alleged to have implemented their consolidation strategy through a set of “illegal tactics.” This involved three steps.

First, USAP and Welsh Carson engaged in a tactic they called “roll-up,” which bought up almost every large anesthesia practice in Texas. The scheme involved over a dozen practices, 1,000 doctors, and 750 nurses, the FTC alleges. With each deal, USAP raised the acquired anesthesia practice’s prices to USAP’s higher price, the lawsuit said.

Second, USAP supported its “roll-up” tactic by entering into price-setting arrangements with independent anesthesia practices in Houston and Dallas, per the complaint.

Under the agreements, USAP is alleged to have charged higher prices for services that were actually offered by the independent practices for lower costs. USAP split the additional revenues it made from the arrangement with the independent practices, the FTC said in the lawsuit.

Third, USAP entered into a “market allocation” agreement with another large anesthesia services provider, thereby keeping competition out of its market territory.

Due to the consolidation strategy, USAP has become “the dominant provider of anesthesia services in Texas and in many of its major metropolitan areas, including Houston and Dallas,” the lawsuit noted.

“No rival comes close to matching USAP’s size. As of 2021, USAP was at least four times larger than the second-largest group in Houston; six times larger than the second-largest group in Dallas; and nearly seven times larger than the second-largest group in all of Texas.”

“It is also one of the most expensive, with reimbursement rates that are double the median rate of other anesthesia providers in Texas.”

The “anticompetitive conduct” of USAP enabled it to build “monopoly power,” the lawsuit said. With the success of USAP’s strategy, Texas citizens are now forced to shell out “tens of millions of dollars” more for anesthesia services than they did before the initiative.

The agency argues that actions of USAP and Welsh Carson amount to a violation of the Clayton Act and the FTC Act.

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

Welsh Carson Response

In a statement to Axios, Welsh Carson called the lawsuit “unwarranted,” insisting that the complaint would only “harm clinicians and patients.” The agency is “ignoring that USAP’s commercial rates have not exceeded the rate of medical cost inflation for close to ten years.”

“The FTC’s decision to pursue a civil action against a minority investor of a physician-owned company is unprecedented and disregards well-settled principles of law. Unfortunately, this is consistent with the series of recent lawsuits that the FTC has filed using litigation to pursue radical policy theories,” it said.

In an email to The Epoch Times, Dr. Derek Schoppa, a practicing USAP physician in Texas and a USAP board member, said “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.

“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.”

The company refuted alleged violations of U.S. laws about competition and the company’s “outsized market power” giving it an ability to charge higher prices.

UnitedHealth Group Inc., the largest insurer in the United States, according to Bloomberg, complained about the higher anesthesia prices resulting from USAP and Welsh Carson’s practices.

“You’ve basically taken the highest rate of all in one distinct market and then peanut butter spread that across the entire state of Texas,” an executive from UnitedHealth said, according to the FTC lawsuit.

The FTC’s lawsuit is unique in that the agency usually sues a company that it considers to have violated antitrust law. This time, the FTC has gone after a private equity sponsor—Welsh Carson—that it believes is responsible for the entire scheme, according to health care news site Stat.

“This indicates the FTC is not fooling around,” Yashaswini Singh, a health economist at Brown University who studies private equity, told Stat. “Maybe USAP is a convenient first one to go after because anesthesia is one of the first specialties that attracted private equity.”

There are several other examples of private equity-driven highly consolidated physician markets which the FTC could now begin to target, such as North American Partners in Anesthesia, which bought American Anesthesiology three years ago to create one of the biggest anesthesia groups in the United States.