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For the first time in history, the Federal Trade Commission (FTC) has sued both a medical group and its private equity backers, alleging anticompetitive practices that drove up the cost of healthcare.

The agency charges that U.S. Anesthesia Partners (USAP) and private equity firm Welsh, Carson, Anderson & Stowe, schemed to consolidate anesthesia practices in Texas, drive up prices for anesthesia services, and boost their own profits, according to a filed in U.S. District Court for the Southern District of Texas.

"[T]hanks to its anticompetitive conduct, USAP has been able to extract monopoly profits while simultaneously growing its monopoly power," the FTC stated in its complaint.

FTC Chair Lina Khan (formerly Twitter), noting that USAP is "" anesthesia services providers, "with reimbursement rates that are double the median rate of other anesthesia providers in Texas."

Lawrence Casalino, MD, PhD, emeritus professor of population health sciences at Weill Cornell Medicine in New York City, who has , praised the FTC's aggressiveness on the case.

"It's going to make private equity firms more careful about what they put in memos and emails," Casalino told 番茄社区app.

Adam Brown, MD, MBA, an emergency medicine physician and business expert, said the agency has been signaling for some time that it would start looking into mergers and acquisitions in the physician practice space, and that there's "clearly some promise behind their threat now."

"Its clear that [the FTC] will be looking at deals not in isolation, but in aggregate, asking what does the acquisition in total do to the entire portfolio of businesses that may be in a market," Brown told 番茄社区app. "This may be just the first of other types of lawsuits or scrutiny coming from the FTC."

Robert McNamara, MD, of Temple University in Philadelphia, who has long fought against private equity in emergency medicine, said FTC's action is likely tied to its 2022 call for public comment on mergers.

"What USAP is accused of has been the game plan for private equity in several specialties, including emergency medicine," McNamara told 番茄社区app in an email. "This case could spell the beginning of the end for private equity's unwelcome intrusion at the bedside."

'Cha-Ching!'

The complaint painted a picture of private equity's healthcare playbook, accusing New York-based Welsh Carson of observing that anesthesiology in Texas was fragmented -- a dynamic that enabled insurers to negotiate lower prices for themselves and patients, according to the FTC -- and launching a consolidation strategy.

Welsh Carson created USAP in 2012, initiating a "roll-up" in which it bought nearly every large anesthesia practice in Texas, according to the complaint. It began with the purchase of Greater Houston Anesthesiology in December 2012, followed by Pinnacle Anesthesia Consultants in Dallas in 2014, and then on to other Texas cities in 2016, including San Antonio, Austin, Amarillo, and Tyler, the complaint stated.

In total, Welsh Carson acquired more than a dozen practices, 1,000 doctors, and 750 nurses in Texas, according to the complaint.

With each deal, the FTC alleged, USAP raised the acquired group's prices to USAP's prices, which were often much higher -- a practice Welsh Carson allegedly referred to as "synergies" and as one executive bluntly put it, "Cha-Ching!"

Brown noted that this is the first time the FTC has targeted the roll-up strategy, which has long been used by private equity firms as they purchase healthcare practices, and questioned whether the strategy would draw more scrutiny going forward.

In addition to the roll-up scheme, the companies entered into or maintained price-setting arrangements with other independent anesthesia groups that shared key hospitals in Houston and Dallas, according to the complaint. Under these arrangements, USAP charged its own prices for services provided by the independent groups, and then typically shared some portion of the mark-ups, FTC alleged.

The FTC noted that USAP still has two price-setting arrangements with at least two groups in Texas today: Methodist Hospital Physician Organization in Houston and Dallas Anesthesiology Associates. At one time it also had a price-setting agreement with Baylor College of Medicine in Houston, FTC alleged.

Finally, USAP and Welsh Carson allegedly entered into a market allocation agreement to avoid a head-to-head rivalry with another large anesthesia services provider, FTC said, but information about this deal was redacted from the complaint.

The FTC concluded that the consolidation strategy has worked, as USAP has become the dominant provider of anesthesia services in Texas.

"As of 2021," the complaint states, "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."

As a result, FTC alleged, "anesthesia services -- from the same anesthesiologists -- cost Texans tens of millions of dollars more each year than they did before USAP was created."

It noted that Welsh Carson has already started using a similar strategy to consolidate other types of physician specialties.

Today, USAP has a presence in eight states: Colorado, Florida, Indiana, Maryland, Nevada, Tennessee, Texas, and Washington. Texas accounted for about 65% of the company's profit in 2021, according to the FTC.

Welsh Carson currently owns approximately 23% of USAP. That ownership stake has fluctuated over time, the FTC said, but nonetheless the firm has "actively directed USAP's corporate strategy and decision-making," the complaint stated.

In a last week, USAP said it "refutes the civil enforcement action" by the FTC and "will vigorously defend itself against the FTC's misguided allegations."

A Welsh Carson spokeswoman told in a statement that "We are proud of our investment in USAP, which has allowed independent anesthesiologists to deliver superior clinical outcomes to underserved populations."

Insurers Next?

The American Society of Anesthesiologists said in a statement that the lawsuit is "of interest to the entire anesthesiology community," and that ASA members who are employed by USAP "by reputation ... provide safe, high-quality anesthesia care."

Both Casalino and Brown noted that physicians may ask whether the FTC will be similarly aggressive against health insurers. They both mentioned that private equity acquisition has provided doctors with some leverage when negotiating with insurers.

"I am very sympathetic to FTC's case, but if you talk to physicians about it, they will say we can't just be price takers from insurance companies," Casalino said. "We need to have some size so we can have some leverage to negotiate with them."

"Will this same level of scrutiny be applied, and will we see lawsuits against the vast amount of vertical integration that has been occurring in the private payer space?" Brown asked, noting that FTC has . "That too has created an environment where there's very little choice on the part of patients and little power for provider groups."

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