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| Dear Friend,
In line with the FTC's and Department of Justice's public criticism of PE consolidation in healthcare, this past week, the FTC filed suit against one of the largest private equity backed anesthesia groups and its PE sponsor.
On September 21, 2023, the Federal Trade Commission (“FTC”) filed a complaint in the U.S. District Court for the Southern District of Texas alleging that U.S. Anesthesia Partners, Inc. (“USAP”) and Welsh, Carson, Anderson & Stowe (“WCAS”), its private equity backer, engaged in a years’ long anticompetitive scheme in connection with the market for anesthesiology services in Texas.
First, it’s important to note that anyone who can pay the filing fee can bring suit and the Biden administration’s FTC under its Chair, Lina Khan, has been extremely aggressive in filing them, with pretty shoddy results. In other words, a complaint, even if filed by the FTC, is just that, a complaint; it’s a completely one-sided statement of alleged facts and an alleged application of the law. The Government’s claims, at least at this point, are civil only, and USAP and WCAS are entitled to their day (or months/years) in court.
We’ll look at the case, and its important lessons for you, in greater detail later this week in the September issue of our monthly newsletter. To make sure you’re included, subscribe at weisspc.com.
Until then, following are both what you need to know about the basic allegations, and some of the many overall takeaways to incorporate into your own group’s thinking.
What You Need to Know About The Basic Allegations
The FTC alleges that USAP and WCAS engaged in a multiyear scheme to consolidate and monopolize the Texas market for anesthesiology services. According to the complaint:
“USAP’s acquisitions have hit Texans’ wallets hard. With each deal, USAP raised the acquired group’s prices to USAP’s (often much) higher price. As one insurance executive summarized, USAP and Welsh Carson used acquisitions to ‘take the highest rate of all . . . and then peanut butter spread that across the entire state of Texas.’ Welsh Carson and USAP euphemistically referred to this practice—wielding its increasingly dominant market position to net tens of millions of dollars in additional profits—as ‘synergies.’ Before USAP made a single acquisition, Welsh Carson was already bragging to potential financiers about the plan to create a ‘significant synergy opportunity’ at the expense of patients, their employers, and insurers. USAP’s and Welsh Carson’s executives, in plotting their ‘roll up,’ underscored that ‘captur[ing] significant synergies’ was a key part of their scheme. Following one acquisition, a USAP executive put it more bluntly: ‘Cha-ching!”’
The FTC also alleges that the defendants entered into agreements with remaining, independent anesthesia practice to set prices. According to the complaint:
“Second, USAP supported its ‘roll-up’ strategy by entering or maintaining price-setting arrangements with other, independent anesthesia groups that shared key hospitals in Houston and Dallas. Under these price-setting arrangements, USAP charges its own high prices for services in fact provided by those independent groups that had been charging lower prices. Like its acquisitions, USAP’s price-setting arrangements yielded ‘synergies’—or additional revenues—that USAP then split with each independent group. Despite USAP’s own executives recognizing that these price-setting arrangements are ‘odd from a compliance standpoint,’ two of them remain in use today and USAP has signed or pursued multiple others.”
And, the FTC alleges that that USAP and WCAS entered into a market allocation agreement with another competing group. According to the complaint:
“ . . . , USAP and Welsh Cason entered a market allocation with another large anesthesia services provider, . . . [NAME AND RELATED INFORMATION REDACTED] . . . . The Welsh Carson partner who acted as USAP’s chief negotiator made clear that this market allocation agreement was “what we want,” and he later expressed appreciation for . . . [NAME REDACTED] . . . “constructive” attitude towards USAP’s and Welsh Carson’s interest in sidelining a significant rival.”
The FTC seeks both an injunction as to further conduct and “structural relief”, e.g., an ordered break up of USAP.
Some of the Many Takeaways for Your Group
- Although the Biden administration is hot to demonize consolidation, there’s nothing inherently illegal about roll-up strategies. However, roll-up strategies that are schemes to monopolize are another story.
- If the FTC wins its case, USAP could be broken up, creating new opportunities in the market.
- Although the case is civil, not criminal, there’s no guaranty that the government won’t, via the Department of Justice, bring a companion criminal antitrust case against the defendant entities and, potentially, individuals who worked or are working on their behalf. An individual’s culpability for criminal conduct is not shielded by the fact that it was committed on behalf of an employer.
- Some of the specific allegations underlying the grand “schemes” claimed by the FTC, such as the allegation that the defendants entered into agreements with competitors to allocate the market, mean that other groups and individuals might become targets of either or both civil or criminal actions.
- Among the FTC’s specific allegations is that in some cases in which USAP could not convince another group to sell, it would enter into an agreement with the other group in which USAP would bill payors for the anesthesia services rendered by both groups using USAP’s own provider or tax information, which price-setting arrangements made it appear to payors as if USAP were doing the work of the other group’s anesthesia providers. In addition to potential antitrust violations, arrangements such as that raise significant breach of insurance provider agreement issues, significant insurance fraud issues, as well as federal, and state, antikickback statute concerns.
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| | | | Wednesday - The Strategy of Power in Negotiations - Medical Group Minute
Watch the video here, or just keep reading below for a slightly polished transcript:
You're probably familiar, if not personally, then at least conceptually, with the notion of "F.U. money" - having enough money that you can simply walk away. That concept, whether you have the money or not, applies directly to your negotiation strategy. Have you ever simply stood up and walked away from the negotiating table, saying to your teammates, "let's go, we're done here"? As I've espoused many times before, for example, see here and here, negotiation is far, far more than what takes place at a negotiating table. But the overall ability to walk from a deal requires either the actual ability to walk away from the deal because you don't actually need it, or the guts, strategic thinking, and the ability to project your power to do the same, even if it's your only deal, the one that you need to survive as a business. The true power in any negotiation is the ability to project that you do not need the deal, even if that "not needing" is not true. That power can be developed in multiple ways. It can be developed in the sense of "F.U. money," by the size of your bank account. It can be developed even if you don't have enough money to make the initial deposit into a bank account by having a high enough "deposit" of confidence that you can project the same power to the opposite party. You want a concrete example? OK. I've guided clients through a strategic process whereby start-up physician groups have adopted and implemented a position against large healthcare systems that we would negotiate from our documents, from our position, and have achieved tremendous results. The secret? Besides the proprietary strategy, those clients were coached on having supreme confidence in themselves and on the strategy, and on how to project their power through their demonstrated willingness to walk away. They had the willingness to invest in themselves by controlling the drafting of the documents - they knew that sitting back, pinching pennies, and waiting for the opposite party's documents was a fool's position, one that would have put them at a disadvantage before the first shot was fired. Develop and project power.
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| | | Listen to the podcast here, or just keep reading for the transcript.
Many medical group leaders come to me for help when they’ve got a “problem” and they’re looking for a solution. Oftentimes, they think that the solution lies outside of the problem. But I want you to think about things a different way: Most problems, maybe even all problems, are themselves the kernel of the solution. Let’s take an example. Currently, many medical group leaders are looking for the “cure” for surprise medical billing. It's a big issue for many hospital-based physician group clients. They're facing threats of being thrown out-of-network and relegated to new out-of-network payment schemes. Those schemes are, in essence, cram-down rules imposed by the bureaucratic “cures” for surprise medical billing. They’re also being forced to feel the pressure of reduced “offers” of reimbursement from those payors still willing to contract. The implied, and sometimes vociferously stated, threat is that unless the group agrees to work for peanuts, their only other choice is to work out-of-network pursuant to a sham payment methodology in which they'll be paid in metaphorical peanut shells. It's win-win for the payors. Higher reimbursed groups are either pressured to work for less or are tossed out-of-network. And, by reducing their average in-network rates, they'll eventually lower what they are forced to pay the groups pushed out-of-network under the arbitration system mandated by surprise medical billing statutes or regulations. Faced with those problems, many medical group leaders seek to know how to deal with that arbitration system. But query whether the problem isn’t something different. Instead of seeing it as in-network versus out-of-network, perhaps the problem is the lack of control over patients and the ultimate means of funding patient care. With that mindset, perhaps there are other ways (there are!) to bypass carriers, or to turn the legislation and regulations inside out to make what was a problem for physicians, a problem for payors. Think about problems a different way. Think about solutions from other industries to similar problems and how they’ve played out. Think about whether you want to “game the system.” There are ways to accomplish far more than you think. But that means you’ve got to look at things differently and invest in yourself by obtaining help. If you’re not willing to do those things, consider shutting down your business, it might be cheaper. If you are willing to do those things, get in touch now. |
| | Help Us Help You With Helpful Content
What tailored content would you most like to see during this
time? How can we focus on solutions to your most pressing strategic concerns?
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| | | | We all hear, and most of us say, that the pace of change in healthcare is quickening. That means that the pace of required decision-making is increasing, too. Unless, that is, you want to take the “default” route. That’s the one is which you let someone else make the decisions that impact you; you’re just along for the ride. Of course, playing a bit part in scripting your own future isn’t the smart route to stardom. But despite your own best intentions, perhaps it’s your medical group’s governance structure that’s holding you back.
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| In fact, it’s very likely that the problem is systemic. The Medical Group Governance Matrix introduces a simple four-quadrant diagnostic tool to help you find out. It then shows you how to use that tool to build your better, more profitable future. Get your free copy Free.
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| | | | Whenever you're ready, here are 4 ways I can help you and your business:
1. Download a copy of The Success Prescription. My book, The Success Prescription provides you with a framework for thinking about your success. Download a copy of The Success Prescription here.
2. Be a guest on “Wisdom. Applied. Podcast.” Although most of my podcasts involve me addressing an important point for your success, I’m always looking for guests who’d like to be interviewed about their personal and professional achievements and the lessons learned. Email me if you’re interested in participating.
3. Book me to speak to your group or organization. I’ve spoken at dozens of medical group, healthcare organization, university-sponsored, and private events on many topics such as The Impending Death of Hospitals, the strategic use of OIG Advisory Opinions, medical group governance, and succeeding at negotiations. For more information about a custom presentation for you, drop us a line.
4. If You’re Not Yet a Client, Engage Me to Represent You. If you’re interested in increasing your profit and managing your risk of loss, email me to connect directly. |
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