The FTC has finally brought a lawsuit against a private equity firm based on a "roll-up scheme" in the healthcare space. The FTC filed its complaint in federal district court in Texas, alleging that Welsh, Carson, Anderson & Stowe (Welsh Carson) and U.S. Anesthesia Partners, Inc. (USAP) engaged in a "multi-year anticompetitive scheme to consolidate anesthesiology practices in Texas, drive up the price of anesthesia services provided to Texas patients, and boost their own profits."

This action is in line with the antitrust agencies' rhetoric and promise to challenge roll-ups or serial acquisitions in the private equity space. However, a few things are worth noting:

  • The lawsuit is not in the context of a proposed acquisition, but rather the result of a conduct investigation and alleges that the anticompetitive scheme involves not only the serial acquisition of practices in Texas, but also additional conduct through price-setting agreements with the remaining independent practices in Texas, as well as entering an alleged market allocation agreement to keep a significant competitor out of USAP's territory.
  • Further, there was a public litigation filed in 2021 between USAP and United Healthcare regarding physician rates and certain antitrust implications which received a high-level of media attention, which may have also garnered the FTC's attention.
  • Finally, the FTC alleges that the parties have an incredibly high market share in several markets (~70% by revenue and ~60% of cases for hospital-only anesthesia services).

As a result, this does not mean that private equity firms who have engaged in multiple acquisitions should expect an immediate challenge. It appears that the FTC brought this particular action given the very high market shares combined with other anticompetitive conduct on their radar (through agreements with competitors and the public litigation with United) in addition to the roll-up strategy.

However, this reiterates the importance of private equity firms keeping their house in order:

  • Roll-up or serial acquisitions could be scrutinized, but the likelihood of agency investigations is greater with the presence of any price fixing allegations, side agreements with other providers / competitors, or non-compete issues which could bring attention to a private equity firm's acquisitions.
  • Further, this action provides an important reminder that private equity firms should be ever mindful of document creation and phrasing regarding how roll-up acquisitions are discussed and highlight the benefits and efficiencies that will result based on such acquisitions.
  • Finally, even if an agency initiates a challenge but the case ultimately settles, a private equity firm that enters into a consent decree to ameliorate agency concerns could be faced with strict restrictions, including a 10-year notice provision of any acquisitions in a similar space, regardless of deal reportability (as was seen in the FTC's consent decree with JAB in the veterinary space in October 2022).

The antitrust team will continue to track this action and is putting together a more detailed summary.

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