Bigger may not always be better. Sometimes it just makes you the easy target. That’s what one anesthesia “supergroup” has just learned as it finds itself the subject of a federal lawsuit. More importantly, the legal action may have widespread implications for the anesthesia specialty as a whole.
It’s not a pleasant prospect. Being the focus of special scrutiny can be unnerving and even alarming. We’ve all endured the occasional background or credit check when seeking a job or a loan. And we all find ourselves increasingly subject to camera and software surveillance. These intrusions into our privacy have become fairly routine. But it’s another thing altogether to know that someone is looking into your business practices—especially when that someone is connected to a federal enforcement agency. That’s the position that one of the nation’s largest anesthesia groups now finds itself.
Late last month, it was announced that the U.S. Federal Trade Commission (FTC) filed suit against U.S. Anesthesia Partners (USAP). Originally known as Pinnacle Anesthesia Consultants and headquartered in Dallas-Fort Worth, USAP has now spread into nine other states. Much of this growth over the last several years has been accomplished through a strategy of acquiring other large anesthesia groups in selected cities. Known as one of America’s “supergroups,” USAP boasts over 4,500 providers who serve at over 700 facilities.
As we’ve written in recent alerts, one of the options that hospitals are looking at to contain costs is having such a supergroup to come in and take over the anesthesia contract, which means either pushing out the current group or forcing the existing providers to join the new regime. It matters, then, that the FTC is showing such an interest in the business practices of at least one of these supergroups.
In its September filing, the FTC alleged that USAP engaged in a decade-long scheme to drive up the price of anesthesiology by buying up more than a dozen practices to monopolize the Texas market and by setting prices with other anesthesiology firms. The action was filed against USAP and its private-equity founder, Welsh, Carson, Anderson & Stowe. According to the Washington Post, “the case represents one of the strongest moves by regulators to address complaints that the large doctor practices being built by financial firms are boosting U.S. medical prices.”
“Private equity firm Welsh Carson spearheaded a roll-up strategy and created USAP to buy out nearly every large anesthesiology practice in Texas,” FTC Chair Lina Khan said in a statement announcing the lawsuit. The government also alleges that USAP entered into “unlawful agreements to set prices and allocate markets.” The FTC asserted that such tactics enabled USAP and Welsh Carson to raise prices for anesthesia services, allowing them to rake in tens of millions of extra dollars for these executives at the expense of Texas patients and businesses. According to the FTC lawsuit, USAP’s tactics allowed it to get reimbursement rates that are double the median rate of other anesthesia providers in Texas.
Interestingly, the Washington Post had written a previous article back in June featuring USAP. The column focused on the supergroup’s expansion into Colorado, where internal documents provided insights into some of its business practices. Per the Post, “As in Texas, the company there bought some of the state’s largest anesthesiology firms and then negotiated price hikes.”
Company officials have denied that they are engaged in a scheme to wield monopoly power. In statements issued by representatives of USAP, the FTC lawsuit was characterized as “unwarranted.” Derek Schoppa, a USAP physician and board member stated that “the FTC’s civil complaint is 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 addition, a statement from Welsh Carson related that the company’s rates have not exceeded medical cost inflation. “We are confident we will prevail as the FTC’s claims are without merit in fact or law,” the statement said. USAP and Welsh Carson executives have described the consolidation of doctor practices as a means of creating synergy.
No one likes being the target of a federal investigation or the named subject in a federal lawsuit. However, it appears that the government is serious about the appearance of creeping monopolies in a given metropolitan area. FTC Chair Khan stated in her press release that “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.”
Whether or not USAP has acted inappropriately or illegally will be determined in due course. It’s now in the hands of the courts. What matters here for our discussion is what all this may mean for our specialty from a 30,000-foot perspective.
Hospitals want anesthesia services but at a reasonable cost. Anesthesia providers want a place to practice but at a reasonable rate of pay. Sometimes the solution has involved one of these large regional or national anesthesia supergroups, often referred to as “anesthesia staffing companies.” While it is not the purpose of this article to weigh the plusses or minuses of such entities, it is important that our readers are alerted to the larger and long-term implications of the FTC’s current actions against USAP. What does this portend for the future? What impact will this have on the trend toward consolidation? Will hospitals rethink their partnering with an anesthesia supergroup? It will be interesting to see how all this plays out. The forthcoming ruling in the FTC lawsuit will be an early indicator.
If you have any questions on this topic, please contact your account executive.
With best wishes,