FTC Settlement Proposes Consent Order to Monitor Private Equity Firm Welsh Carson’s Acquisitions Plans

We previously reported on the Federal Trade Commission’s (FTC) lawsuit against U.S. Anesthesia Partners (USAP) and the private equity firm Welsh, Carson, Anderson & Stowe (Welsh Carson). In the lawsuit, the FTC alleges that Welsh Carson, through its portfolio company USAP, engaged in anticompetitive acquisitions to suppress competition and drive-up prices for anesthesiology services across Texas.

On Jan. 17, the FTC announced that it had entered into a settlement with Welsh Carson. Under a proposed Consent Order, the FTC agrees not to file an administrative complaint against Welsh Carson in exchange for which Welsh Carson, as more fully described below, agrees, among other things, to:

• Limit its ongoing ownership rights with USAP by freezing its investment in USAP at current levels and reducing its board representation to a single, non-chair seat

• Obtain prior approval from the FTC for any future investments in anesthesia businesses nationwide, as well as prior approval for certain acquisitions by any majority-owned Welsh Carson anesthesia group nationwide

• Provide 30-days advance notice for certain transactions involving other hospital-based physician practices nationwide. (No monetary penalties are involved.)

(The litigation in federal district court involving the FTC and USAP is not impacted by the settlement with Welsh Carson and continues.)

Background

In Sept. 2023, the FTC filed suit in federal district court alleging that Welsh Carson created USAP and executed a multiyear anticompetitive scheme to consolidate anesthesiology practices in Texas, drive up the price of anesthesia services provided to Texas patients and boost its profits.

In its complaint, the FTC alleged that this involved a three-part strategy to consolidate and monopolize the Texas anesthesiology market as follows:

• USAP and Welsh Carson 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
• USAP and Welsh Carson further drove up anesthesia prices through price-setting agreements with remaining independent practices
• USAP sidelined a significant competitor by striking a deal to keep it out of USAP’s territory

The FTC further alleged that this anticompetitive strategy and resulting conduct amounted to unlawful monopolization, unlawful acquisitions, a conspiracy to monopolize, unfair methods of competition and unlawful restraints of trade, and as such violated Section 5(a) of the Federal Trade Commission Act (FTC Act) (prohibiting unfair methods of competition) and Section 7 of the Clayton Act (prohibiting mergers and acquisitions where the effect may be substantially to lessen competition or tend to create a monopoly).

In its complaint, the FTC requested that the court issue a permanent injunction under Section 13(b) of the FTC Act (15 U.S.C. Section 53(b)) to remedy the impact of the alleged anticompetitive conduct and prevent its recurrence, and to do so notwithstanding that it had not yet commenced an administrative proceeding.

USAP and Welsh Carson denied the allegations and requested the case be dismissed.

In May 2024, the district court dismissed Welsh Carson from the case on procedural grounds, finding that the FTC lacked authority to bring the case against it in federal court because the complaint did not allege that Welsh Carson was currently violating the law, as required under Section 13(b) of the FTC Act. At the same time, the court denied USAP’s request that the case against it be dismissed.

The dismissal of the case against Welsh Carson ended the FTC’s effort to obtain a permanent injunction against Welsh Carson in federal court. However, it did not preclude it from pursuing an administrative action against Welsh Carson asserting that its conduct with USAP constituted unfair methods of competition in violation of Section 5 of the FTC Act and substantially lessened competition in violation of Section 7 of the Clayton Act. At the time of the settlement, the FTC had prepared and was ready to file an administrative complaint.

The Consent Order

In exchange for the FTC’s agreeing not to file the complaint and instead settle the case, the proposed Order as described below seeks to limit the ongoing involvement of Welsh Carson and its affiliates (Welsh Carson Party or Parties) in USAP and to require them to give the FTC advance notice and, in some instances, obtain FTC approval prior to consummating various transactions involving anesthesia businesses and hospital-based physician practices nationwide.

The advance notice and approval requirements are intended, among other things, to require the Welsh Carson Parties to bring to the attention of the FTC transactions that might otherwise be too small in size to trigger the need to make a Hart-Scott-Rodino advance notice filing. The “roll-up” acquisitions that the FTC alleges resulted in monopolization and unfair methods of competition in the case of USAP and Welsh Carson were always small enough in size to avoid the need to file.

Section II of the proposed Order freezes Welsh Carson’s current investment in USAP and reduces its board representation to a single board member who cannot serve as chairman. It also prohibits Welsh Carson from having any management rights.

Pursuant to Section III of the proposed Order, without the prior approval of the FTC, no Welsh Carson Party may invest in or acquire any ownership or other interest in any anesthesia business in the United States, and no anesthesia business controlled by a Welsh Carson Party may invest in or acquire directly or indirectly, any ownership or other interest in any anesthesia business that does business in the same state or Metropolitan Statistical Area (MSA) as the acquiring controlled anesthesia business.

Pursuant to Section IV of the proposed Order, at least 30 days prior to the closing of any transaction that results in a Welsh Carson Party or a controlled hospital-based physician practice acquiring a controlling interest in any hospital-based physician practice that operates in the same state or MSA as a controlled hospital-based physician practice of the same type, the applicable Welsh Carson Party or controlled hospital-based physician practice must provide advance notice to the FTC.

Looking Ahead

As is standard, the Consent Order has been placed on the public record for 30 days for receipt of comments from interested persons. Comments received during this period will become part of the public record. After 30 days, the FTC will review the comments received and decide whether it should withdraw, modify or finalize the proposed Order.