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The Federal Trade Commission has filed its first antitrust lawsuit during chair Lina Khan’s tenure, challenging the continuous acquisitions made by private equity firms. The lawsuit accuses Welsh, Carson, Anderson & Stowe of engaging in a “multiyear anti-competitive scheme” that specifically targeted anaesthesiology practices.
The defendants in the case are Welsh Carson, a New York-based buyout group, and US Anesthesia Partners (USAP), a company formed by Welsh Carson in 2012. USAP has acquired over a dozen anaesthesiology practices in Texas. The Federal Trade Commission alleges that these acquisitions were part of a “roll-up scheme” aimed at creating a dominant provider with the ability to demand higher prices.
According to the FTC’s complaint, as of 2021, USAP was nearly seven times larger than the second-largest anaesthesia group in Texas.
The FTC also accused the companies of increasing anaesthesia prices through “price-setting agreements” with independent practices. Additionally, USAP allegedly signed a deal to prevent a “significant competitor” from entering the market.
In an opinion piece for the Financial Times, Lina Khan highlighted that the serial acquisitions made by private equity firms extend beyond anaesthesiology practices. Khan mentioned nursing homes, apartment buildings, emergency medicine clinics, and opioid treatment centres as other sectors where private equity firms have made numerous acquisitions.
The Federal Trade Commission is seeking a permanent injunction based on alleged violations that include unlawful monopolization and acquisitions, conspiracy to monopolize, unfair methods of competition, and unlawful restraints on trade.
Welsh Carson has not yet commented on the lawsuit.
This lawsuit is the first direct challenge by US antitrust agencies to a core strategy in the private equity industry. In recent years, there has been a push for stronger antitrust enforcement to address concerns about excessive corporate power.
Lina Khan is part of a progressive group of antitrust officials appointed by US President Joe Biden to tackle these issues. They argue that lax enforcement in the past has allowed anti-competitive behavior to go unchecked, resulting in harmful economic effects.
The lawsuit against Welsh Carson and USAP will test the application of US antitrust laws to the private equity sector, which has largely avoided scrutiny until now.
In her op-ed for the Financial Times, Lina Khan argues that US antitrust laws were designed to be “flexible” and can be applied to various business practices, including serial acquisitions.
“As antitrust enforcers, we must update our application of the law to new realities,” she added.
The lawsuit against Welsh Carson and USAP demonstrates Khan’s commitment to taking a more stringent approach to private equity deals that, while not problematic individually, may raise concerns when viewed collectively.
Last month, Jonathan Kanter, the head of the US Department of Justice’s antitrust division, warned of an impending crackdown on private equity groups that engage in practices that undermine competition. Kanter argued that many buyout practices contradict the law and the competitive landscape.
According to the FTC’s complaint, the acquisitions made by USAP have resulted in higher costs for anaesthesia services in Texas. As stated in the filing, a USAP executive responded with “Cha-ching!” after a particular acquisition.
The FTC also obtained a quote from an insurance executive who claimed that USAP and Welsh Carson used acquisitions to ensure the highest rate across the entire state of Texas.
The allegations made by the Federal Trade Commission include a violation of Section 5 of the FTC Act, which prohibits “unfair methods of competition” and has a broader scope compared to other antitrust statutes.
The FTC and the Department of Justice have been scrutinizing private equity groups more closely, including proposing new guidelines and disclosure requirements for merger notifications.
The draft guidelines released in July indicated a tougher stance against private equity and emphasized examining the entire series of acquisitions rather than just individual deals.
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