Key Takeaways
The FTC will likely seek to show that Welsh Carson controlled USAP despite being a minority owner.
The FTC argues that Welsh Carson created USAP to execute a decade-long consolidation strategy. Welsh Carson may counter that it has been a minority equity owner since 2014, as its equity stake in USAP has decreased from 50.2% at founding to approximately 23%. A key question is whether—despite changes in formal ownership—Welsh Carson controls USAP because the firm holds two board seats and “actively direct[s]” USAP strategy and decision-making on acquisitions.
The FTC is testing a novel enforcement tool while sticking to a traditional price analysis.
When federal antitrust agencies initially requested public comments to the Merger Guidelines in January 2022, stakeholders raised concerns about the impact of private equity-backed consolidation on the quality of healthcare services. Quality concerns included understaffing, use of mid-level practitioners over more experienced clinicians, and worse patient outcomes. By contrast, here the FTC’s complaint keeps a more targeted focus on price, often comparing an acquired firm’s price “before the acquisition” to “six months after the acquisition.” The complaint only notes that post-acquisition price increases occurred “without any clear improvement in quality.”
The parties contest how to measure price increases in the aggregate.
The FTC argues that USAP’s reimbursement rates were nearly double the median rate of other anesthesia providers in Texas. USAP will likely focus on the average rate, and has pointed to “average annual net rate increases” with rates increasing “modestly” over time but that are “essentially flat” after adjusting for inflation. Importantly, the FTC’s complaint cites documents which state that USAP had rates 96% or 110% higher than the median in Texas, but by some measures were only 40% higher than the average. The choice between median and average is especially important as rate increases are adjusted for inflation and scrutinized over a decade time horizon.
Conclusion
This lawsuit offers insights into how federal enforcers may respond to private equity investments across healthcare and other industries. Previously, in June 2022, the FTC put roll-up acquisitions on notice when it challenged a private equity fund’s acquisition in veterinary services; the final settlement included prior approval and notice requirements for all future acquisitions in the relevant market over the next ten years. In a highly critical concurring opinion, Commissioners Noah Joshua Phillips and Christine Wilson took issue with the “invocation of rhetoric unrelated to competition” in the complaint and the “apparent prediction of remedies upon ... the majority’s evident distaste for private equity as a business model, instead of the facts uncovered in the investigation.”
In particular, the two commissioners disagreed with the majority’s reliance on the “growing trend towards consolidation in . . . veterinary services markets across the United States” as a basis for “imposing broad prior approval and prior notice requirements.” According to Commissioners Phillips and Wilson, a national trend toward consolidation is “not an appropriate basis for incremental remedies[,]” such as the decade-long nationwide prior notice requirement imposed here, because the FTC’s investigation revealed that competition for veterinary services occurs at the local level, and not nationally. They further argued that the proposed consent order burdens private equity, as a “disfavored group,” with “heightened legal obligations . . . because of who they are rather than what they have done,” raising rule of law concerns.
The FTC’s lawsuit against USAP and Welsh Carson represents the latest development in enforcers’ effort to scrutinize private equity.
