All doctor-patient relationships require trust, perhaps none so deep as the faith we place in anesthesiologists. We allow them to guide our vital processes, such as our breathing and heart rate, often taking us perilously close to death. As we go under, totally vulnerable, we count on them not to rifle through our belongings. But how much can we trust these specialists not to pick our pockets?
We can’t in most Texas hospitals, suggests a suit filed late last month by the Federal Trade Commission, the agency tasked with protecting consumers and ensuring competitive markets. The 106-page enforcement complaint reads at times like a gangster-movie screenplay. It tracks the rise of U.S. Anesthesia Partners, a company created in 2012 by New York City–based private equity firm Welsh, Carson, Anderson & Stowe.
According to the FTC, Welsh Carson and USAP ignored federal antitrust laws as they moved from market to market—first Houston, then Dallas, Austin, San Antonio, Tyler, Amarillo, and others—buying more than a dozen anesthesiology practices, involving more than 1,000 doctors and 750 nurses. The government also says that USAP forged cooperative agreements with would-be competitors to charge the highest rates possible, ensuring that hospitals, insurers, and patients have few options for seeking better deals.
Today, USAP collects nearly 60 percent of the in-hospital private-insurance anesthesia revenue in Texas, thanks in part to exclusive arrangements with many facilities. And the FTC alleges that USAP secretively controls much of the rest of the state’s anesthesiology market via its price-fixing arrangements with other practices.
“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,” the FTC writes. “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. Welsh Carson and USAP spent the next decade bringing that consolidation strategy to life through a set of illegal tactics.”
USAP has disputed these allegations as “misguided” and appears poised to defend itself in a case headed for U.S. district court in Houston. In a statement, Dr. Derek Schoppa, a Houston anesthesiologist and board member of USAP, dismisses the FTC suit as “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.” In a statement provided to the New York Times, Amy Stevens, a Walsh Carson spokesperson, criticized the complaint as “consistent with the series of recent lawsuits that the F.T.C. has filed using litigation to pursue radical policy theories,” and added, “We are confident we will prevail.”
USAP’s price-setting power costs Texas patients and their employers tens of millions of dollars each year, according to the FTC. A 2020 internal document from insurer United Healthcare, cited in the complaint, states that “USAP Texas’s rates are 96% higher than the median rate we pay other anesthesia groups in Texas, but their quality performance is not meaningfully better than their peers.” If United is correct on both counts, then about half of every dollar spent on USAP’s hospital services could be seen as little more than tribute to what the federal complaint describes as the company’s market power. Meanwhile, in Manhattan, the FTC notes that “Welsh Carson continues to benefit handsomely from USAP’s supracompetitive prices, having received nearly $85 million in dividend payments between 2018 and 2020 (and over $350 million between 2012 and 2020).”
The FTC suit has raised eyebrows not just in Texas, where USAP remains a dominant and often unavoidable provider of anesthesia services to hospitals and patients, but also among observers of the health care industry and the practice of antitrust law. The federal enforcement action is unusual, experts say, in at least two ways. First, it targets a “roll up”—many smaller acquisitions of competitors over a protracted period—as opposed to a single mega-merger. Traditionally the FTC has targeted only the biggest transactions. Secondly, the complaint names Welsh Carson, which allegedly masterminded the scheme, as a defendant. Typically investors can reap the rewards of alleged monopolistic behavior without facing the legal consequences.
“This is the first challenge to a New York private equity firm getting involved in a health care market far away,” says C. Paul Rogers III, a professor and former dean at Southern Methodist University’s Dedman School of Law and lead author of the textbook Antitrust Law: Policy and Practice. “The way the complaint reads, it makes some sense to sue the private equity firm as well. But I’m not aware of that happening before.”
Rogers stresses that the FTC isn’t guaranteed a victory in court and notes that the U.S. Department of Justice recently lost similarly aggressive enforcement cases related to wage-fixing. A win for the FTC could result in an enjoinder to stop the behavior described in the complaint, as well as fines or even a breaking-up of USAP. But Rogers says the defendants are likely to argue that their acquisitions and cooperative agreements led to better-quality care, and this argument may well carry the day in federal court, where readings of antitrust law are often narrow.
Here, the metaphor of a body being taken advantage of while under sedation may again be relevant—if we think of the body as the U.S. economy and the anesthesia as traditionally lenient antitrust enforcement. Rogers notes that for about forty years, federal regulators and the U.S. Supreme Court have favored the so-called “Chicago School” of thinking about antitrust policy, named after scholars at the University of Chicago who saw little need for government intervention. “The problem with the Chicago School has been that, all the while, our economy has become more and more concentrated, with dominant firms controlling many sectors of the economy,” Rogers says.
For those who, like FTC chair Lina Khan, aim to replace the Chicago School approach with a more active antitrust regime, it’s as if America underwent sedation four decades ago and is waking up to find an economy often controlled by fewer and fewer major players in key industries. “What happened in Texas is happening across the U.S.,” Khan recently wrote in a Financial Times op-ed announcing that her agency will more aggressively target roll-up schemes. “In recent years, private-equity firms have made serial acquisitions across markets—from nursing homes and apartment buildings to emergency-medicine clinics and opioid-treatment centres.”
This is a key issue on the minds of policymakers as the U.S. continues to grapple with price inflation. “Monetizing Medicine,” a recent study by the Petris Center at the University of California, Berkeley, and the Center for Equitable Growth—a Washington, D.C.–based think tank—found a connection between private-equity roll-ups and rising health care costs in affected specialties. Laura Alexander, director of markets and competition policy at the Center for Equitable Growth and a coauthor of that study, says her group has been advocating for more enforcement of roll-up-style oligopolies, because “private equity funds have been taking advantage of this in order to accumulate large market shares under the radar.”
According to Alexander, the Texas suit could potentially set a significant precedent regarding roll-up strategies. If the suit is successful, she predicts a “sea change” in the industry. “Historically, private equity investors get the upside from the investment and, to the extent that there is a downside, whether that’s legal action or bankruptcy or some other consequence, that falls on the target company,” Alexander says. “If we’re ever going to address the problem of those mismatched incentives for PE firms in the healthcare space, it has to be done through holding the PE firms accountable when they are the ones driving the conduct.”
In some circumstances, patients could exercise their power to steer dollars away from private-equity-backed enterprises. Yet when it comes to anesthesiology, consumers have little control over exclusive arrangements between hospitals and providers, and a patient barely gets to meet an anesthesiologist before going under for surgery. It’s easy to imagine why this field of practice might have been especially attractive to investors plotting a roll-up arrangement.
Private-equity players may not stop there, either. The FTC, quoting communications by the firm, warns that “Welsh Carson has already begun ‘deploying a similar strategy to consolidate’ multiple other physician practice specialties,” including emergency medicine and radiology.
When markets fail to offer us better choices, Alexander says, we can exercise our power as voters and citizens to demand a government that keeps monopolists out of our pockets when we’re most vulnerable. “We saw bipartisan legislation on the No Surprises Act passed in 2021,” she says, referring to a federal law that prohibits sneaky medical-billing tactics. “I think that’s elected representatives responding to their constituents being outraged. The thing about health care is that it touches every single person’s life—and in many cases, it’s life and death.”