FTC sues PE firm Welsh Carson over alleged pricing fixing of anesthesia services

The Federal Trade Commission on Sept. 21 filed a lawsuit in federal court against private equity firm Welsh, Carson, Anderson & Stowe and an anesthesia services company it created, alleging they used a "roll-up scheme" to drive up the price medical costs and boost their own profits.

"Welsh Carson itself developed the overarching strategy to consolidate anesthesia markets, recognizing that doing so would yield market power and higher prices," the FTC said in its complaint filed in U.S. District Court in Houston. "Welsh Carson then carefully directed — and assisted — USAP (U.S. Anesthesia Partners) in following through on the consolidation strategy. Indeed, in internal communications, Welsh Carson has bragged that it is USAP's 'primary architect.' In other words, the fact that Texans pay considerably more for hospital-only anesthesia services is the direct result of Welsh Carson's conduct."

The lawsuit alleges that Welsh Carson, which created U.S. Anesthesia Partners in 2012, engaged in a three-part strategy to consolidate and monopolize the anesthesiology market in Texas. First, the firm executed a roll-up scheme, systematically buying up nearly every large anesthesia practice in Texas to create a single dominant provider with the power to demand higher prices, according to the FTC. Then, USAP and Welsh Carson further drove up anesthesia prices through price-setting agreements with remaining independent practices. And lastly, USAP sidelined a significant competitor by striking a deal to keep it out of USAP's territory, the FTC said.

"Along with a set of unlawful agreements to set prices and allocate markets, these tactics enabled USAP and Welsh Carson to raise prices for anesthesia services — raking in tens of millions of extra dollars for these executives at the expense of Texas patients and businesses," said FTC Chair Lina M. Khan in a statement. "The FTC will continue to scrutinize and challenge serial acquisitions, roll-ups and other stealth consolidation schemes that unlawfully undermine fair competition and harm the American public."

The FTC alleges that USAP and Welsh Carson's conduct amounts to unlawful monopolization, unlawful acquisitions, a conspiracy to monopolize, unfair methods of competition and unlawful restraints of trade, in violation of the FTC Act and the Clayton Act, the FTC said.

A spokesperson for Welsh Carson said in an email that the firm is profoundly disappointed that the "FTC has chosen to bring this unwarranted case," and is proud of its USAP investment. "The FTC's action will harm clinicians and patients at a time of physician shortages," the spokesperson said. "Moreover, the FTC is ignoring that USAP's commercial rates have not exceeded the rate of medical cost inflation for close to 10 years. The FTC's decision to pursue a civil action against a minority investor of a physician-owned company is unprecedented and disregards well-settled principles of law. Unfortunately, this is consistent with the series of recent lawsuits that the FTC has filed using litigation to pursue radical policy theories. We are confident we will prevail as the FTC's claims are without merit in fact or law."

According to its website, Welsh Carson has $30 billion in assets.