Judge Dismisses FTC’s Antitrust Suit Against Welsh Carson

A Texas federal judge has dismissed the Federal Trade Commission’s antitrust lawsuit against Welsh, Carson, Anderson and Stowe in a big win for the private equity firm. However, the government’s suit against Welsh Carson’s portfolio company U.S. Anesthesia Partners was allowed to continue.

Last year, the FTC sued Welsh Carson and USAP, alleging they pursued a buying spree of anethesiology practices in Texas to create a dominant provider that used its market power to suppress competition and increase the cost of anesthesiology services.

Welsh Carson, which formed USAP in 2012, has since whittled down its ownership of the provider from more than 50% to 23%, and argued that precludes it from being included in the suit. The FTC argued the firm effectively remains in control of USAP.

However, U.S. District Judge Kenneth Hoyt granted Welsh Carson’s motion to dismiss the suit on Tuesday, essentially finding that private equity firms are not liable for the actions of their portfolio companies.

The FTC was unable to prove “any authority for the proposition that receiving profits from an entity that may be violating antitrust laws is itself a violation of antitrust laws,” Hoyt wrote in his opinion.

Hoyt found that Welsh Carson holding a minority share in USAP does not reduce competition, despite USAP’s acquisitions potentially being anticompetitive themselves. In addition, comments from Welsh Carson executives expressing a desire to consolidate other healthcare markets don’t show that the PE firm plans to violate antitrust laws.

If Welsh Carson signals “beyond mere speculation and conjecture” that it’s actually about to violate the law, the FTC can lodge a new lawsuit, the judge wrote.

A spokesperson for Welsh Carson said the firm is “gratified” that the court dismissed the case.

”As we have said from the beginning, this case was without factual or legal basis,” the spokesperson said.

However, Hoyt denied USAP’s motion to dismiss.

The FTC is arguing that USAP — which is the largest anesthesia practice in Texas — leveraged its size to raise prices in the state, resulting in patients, employers and insurers paying tens of millions of dollars more each year for anesthesia services. In addition, USAP allegedly paid a competitor, Envision Healthcare, $9 million to stay out of the Dallas market for five years.

USAP has been criticized for using similar practices to grow in other states, including Colorado.

USAP argued the FTC was overreaching its authority, and regulators’ allegations of anticompetitive conduct were meritless. Hoyt disagreed, pointing out that USAP continues to own the acquired anesthesia groups and continues to charge high prices, including under price-setting agreements. Overall, USAP’s “monopolization scheme remains intact,” according to the opinion.

“The FTC has plausibly alleged acquisitions resulting in higher prices for consumers, along with a market allocation and price-setting scheme. It would be premature to dismiss these claims at this stage,” Hoyt said.

Either way, the dismissal against Welsh Carson is a setback for the FTC, which has taken a more aggressive stance against anticompetitive behaviors in the healthcare industry under the Biden administration.

In December, the FTC and the Department of Justice finalized new guidelines for merger reviews taking aim at previously overlooked practices. Those include private equity roll-ups, when firms acquire and merge multiple small businesses into one larger company — like Welsh Carson’s strategy to grow USAP.

PE firms have acquired hundreds of physician practices across the U.S. in recent years, despite controversy over negative effects on medical quality and cost. One study from 2022 found when private equity took over physician practices, they raised prices by 20% on average.

The FTC declined to comment for this story.