Commentary on Political Economy

Friday 22 September 2023


It’s time to halt roll-up schemes that viol­ate anti­trust laws

In 2012 a New York-based private equity firm, from its Park Avenue offices, saw that there was a frag­men­ted mar­ket for anaes­thesia ser­vices in Texas. There were many small anaes­thesi­ology prac­tices in the state that com­peted against one another and let insurers nego­ti­ate prices for them­selves, which kept prices lower for Texas busi­nesses and patients.

This private equity firm saw an oppor­tun­ity to extract higher prices from patients and insurers. They decided to pur­sue an aggress­ive “roll-up” strategy to con­sol­id­ate the mar­ket and elim­in­ate com­pet­i­tion. Simply put, insurers effect­ively had no choice but to cover anaes­thesi­ology prac­tices in order to keep serving patients who need these crit­ical ser­vices. Over the next dec­ade, the firm bought out nearly every large anaes­thesi­ology prac­tice in the state. The prac­tices it couldn’t buy out were side­lined through price-set­ting and mar­ket alloc­a­tion agree­ments that fur­ther elim­in­ated com­pet­i­tion.

The firm it cre­ated to house these prac­tices is now the dom­in­ant pro­vider of anaes­thesia ser­vices in Texas. As of 2021, it was nearly seven times lar­ger than any other group in the state, with rates now double the median rate of other pro­viders in Texas, cost­ing patients tens of mil­lions of dol­lars each year. As a res­ult, patients, employ­ers, hos­pit­als and insurers have been left with fewer choices and higher costs.

We believe this roll-up scheme viol­ates anti­trust laws, and yes­ter­day we filed a law­suit to halt this con­duct. The com­plaint names the PE firm and its related entit­ies as addi­tional defend­ants. The anti­trust laws may apply to par­ent com­pan­ies and investors if they dir­ectly par­ti­cip­ate or con­spire to par­ti­cip­ate in anti-com­pet­it­ive con­duct.

What happened in Texas is hap­pen­ing across the US. In recent years, private equity firms have made serial acquis­i­tions across mar­kets — from nurs­ing homes and apart­ment build­ings to emer­gency medi­cine clin­ics and opioid treat­ment centres.

When Con­gress passed US anti­trust laws, law­makers made them flex­ible pre­cisely because they knew that they could not pre­dict the con­stantly new and evolving ways in which firms can under­mine free and fair com­pet­i­tion. These laws work just as Con­gress inten­ded and can be squarely applied to a wide range of busi­ness prac­tices, includ­ing serial acquis­i­tions.

One reason why enfor­cers may not have scru­tin­ised the impact of roll-ups pre­vi­ously is the rel­at­ively small size of each acquis­i­tion. Anti­trust enforce­ment has tra­di­tion­ally focused on large deals between large com­pan­ies. Roll-ups are executed through a series of smal­ler acquis­i­tions, in which each may fall below the dol­lar threshold that trig­gers report­ing to fed­eral anti­trust agen­cies. As a res­ult, they have enabled firms to amass sig­ni­fic­ant con­trol over key ser­vices in local mar­kets. This has ser­i­ous con­sequences for con­sumers, work­ers, busi­nesses and com­munit­ies.

Serial acquis­i­tion strategies are not just lim­ited to private equity firms. They have also been used by large tech­no­logy com­pan­ies and oth­ers to con­sol­id­ate con­trol over cer­tain mar­kets. As anti­trust enfor­cers, we must update our applic­a­tion of the law to new real­it­ies. The FTC has taken a series of steps to ensure our tools keep pace with changes in how firms now do busi­ness.

First, we have pro­posed revi­sions to the forms that firms fill out when they seek to make a report­able acquis­i­tion. If final­ised, the new form would provide enfor­cers with key inform­a­tion about a firm’s past deals, mit­ig­at­ing blind spots and allow­ing us to detect poten­tial roll-up strategies that may unlaw­fully reduce com­pet­i­tion.

Second, we recently announced draft mer­ger guidelines, with the Depart­ment of Justice. These serve as a hand­book for how mar­ket par­ti­cipants should under­stand the ana­lyt­ical tools and frame­works we apply when assess­ing whether a deal viol­ates the law. One of those guidelines explains that enfor­cers can exam­ine whether a firm’s pat­tern or strategy of mul­tiple acquis­i­tions risks sub­stan­tially lessen­ing com­pet­i­tion or tend­ing to cre­ate a mono­poly.

Finally, last year, the FTC issued a policy state­ment cla­ri­fy­ing the full scope of Sec­tion 5 of the FTC Act, which pro­hib­its “unfair meth­ods of com­pet­i­tion”. It also reflects a man­date from Con­gress that the FTC ensure its applic­a­tion of the law keeps pace with the con­stantly evolving real­it­ies of how firms may under­mine fair com­pet­i­tion.

We are fully com­mit­ted to enfor­cing the laws that Con­gress has assigned us — and to ensure that we’re doing so effec- tively. Updat­ing our approach to keep pace with new busi­ness real­it­ies is criti- cal to ensure the pub­lic is bene­fit­ing from free and fair com­pet­i­tion.

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