Image caption: FTC Chair Lina Khan was appointed by President Joe Biden in 2021 to head the antitrust enforcement agency with a mandate to combat health care consolidation. (TOM WILLIAMS/CQ ROLL CALL)
The Federal Trade Commission (FTC) is beefing up its scrutiny of private equity investments in health care. This past September the FTC sued U.S. Anesthesia Partners (USAP) and the private equity firm Welsh, Carson, Anderson & Stowe in Houston federal court. The investors are accused of buying up a significant portion of large anesthesia practices in major Texas cities, allowing them to aggressively boost prices. FTC chair, Lina Khan, claims private equity investors “bought up the largest anesthesiology practices, then jacked up prices and entered into price-setting and market-allocation schemes.” Research has found that physician prices rose due to private equity investments.
A JAMA Internal Medicine study published last year found that prices charged by anesthesiology groups increased 26% after they were acquired by private equity firms.
USAP now controls 60% of Texas’ hospital anesthesia market, and its prices are double the median rates of other anesthesia providers in the state, according to the lawsuit. Learning that USAP would boost rates following one acquisition, a USAP executive wrote, “Awesome! Cha-ching,” the civil complaint said.
Similar investments in physician practices have taken place across the United States. For example, radiology, dermatology and gastroenterology practices have consolidated under private equity owners. The latter two are due to the aging of Baby Boomers but many private equity investments shared common traits: 1) the ability to balance bill patients for fees higher than health plans would pay; 2) acquisition of specialties that patients cannot choose, whose services they cannot refuse.
In the two years after a sale, PE-owned practices in dermatology, gastroenterology, and ophthalmology charged insurers 20% more per claim on average than did practices not owned by private equity, according to a JAMA study published last year.
Balance billing is no longer allowed by the No Surprises Act that went into effect in January 2022. On the other hand, the strategy of rolling up major medical specialty practices in major cities is going strong. The FTC wants to put a stop to it.
“This is a pretty common roll-up strategy, and some of the big private equity companies must be wondering if more FTC complaints are coming,” said Loren Adler, associate director of the Brookings
Schaeffer Initiative on Health Policy. “If the FTC is successful in court, it will have a chilling effect.”
The way the rollup strategy works is owners of large group practices are offered generous fees for control of their practices. Large up-front fees are offset by lower compensation later on. Private equity owners try to boost profits by cutting costs, reducing staffing, and having physicians cover more patients. Critics claim cost cutting sometimes jeopardizes patient safety. Physicians who work for private equity-owned practices often complain their wages are squeezed and workload increased. The physicians often have few options to work elsewhere because hospitals sign exclusive contracts with group practices and employees face noncompete agreements with their employers. These conditions allow private equity firms significant leeway in raising prices and restraining competition. Controlling a significant proportion of anesthesiologists in a major city means that when prices are unilaterally raised, competing anesthesiology practices have an incentive to raise prices too, since there is little price competition in most areas of health care.
One reason the FTC has been slow to act on monopolistic practices in health care is the threshold for reporting acquisitions is high enough that firms can gradually gobble up physician practices one at time without oversight. In addition, until recently the FTC did not understand the economics of health care providers. A case-in-point is hospital consolidation. In most major metropolitan areas large, regional hospital systems were allowed to consolidate until a few major hospital systems control most of the metro hospitals. Research has found hospital consolidation raises prices, sometimes up to 50%.
Read more at: FTC Chief Gears Up for a Showdown With Private Equity