Antitrust Alert for Private Equity Physician Organizations
Private Equity Physician Practice Roll-ups: Increasing Antitrust Scrutiny
Throughout 2023, private equity (PE) firms that purchase physician practices have experienced increasing scrutiny by the public health establishment, health care industry watchdogs, mainstream media reporting, and, in a development that should greatly concern PE-backed physician roll-up companies, the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ). Most recently, on September 21, 2023, The Federal Trade Commission (“FTC”) filed a complaint against PE firm, Welsh, Carson, Anderson & Stowe and its anesthesiology roll-up, U.S. Anesthesia Partners Inc. (“USAP”).
How PE Firms Can Successfully Navigate the Antirust Enforcement Landscape
Even if federal antitrust enforcement will not – and arguably ought not – outright prohibit PE-backed physician roll-up strategies, PE firms should still learn some lessons from the Welsh Carson/USAP case. So, what actions can a responsible PE firm undertake to avoid legal jeopardy?
We recommend three essential steps:
First, embed principles of antitrust economics into the business sourcing and investment committee process. Any evaluation of physician practices for potential acquisition or affiliation should use templates and tools that: (1) highlight the pro-competitive and efficiency-enhancing aspects of the deal in terms of improved clinical quality and reduced health care costs, (2) identify other doctors in the community that patients and payors could access as alternatives to the physician group under evaluation, and (3) demonstrate the collaborative role the new physician organization would intend to assume in the market with regard to value-based care.
Second, highlight the pro-competitive, efficiency-enhancing benefits of the roll-up in the due diligence and transaction process. The same exacting analysis that the PE firm’s legal and business teams apply to a medical practice’s balance sheet, clinical productivity, governing documents, and outstanding liabilities should also extend to such matters as market conditions, payor relationships, and community health care needs. Further, the design of the new physician organization should interweave principles of clinical integration, financial integration, and population health. Moreover, the back-and-forth of communications and negotiations among the parties should focus on the procompetitive aspects of the transaction – like quality improvement, greater efficiency, and community benefit – and remain free of anticompetitive implications – such as elimination of competitors or “cornering the market,” engagement in exclusionary strategies like boycotts or price gouging, or improper sharing of pricing and other competitively-sensitive information.
Third, and most importantly, immediately adopt an antitrust compliance program in the new roll-up vehicle. When implemented properly, a program of corporate antitrust compliance will provide a PE-backed physician organization with much more favorable treatment from prosecutors. And, while official DOJ guidance eschews “formulaic requirements” for antitrust compliance programs, the agency will always consider three fundamentals: (1) whether the program is applied “earnestly and in good faith,” (2) whether the compliance program is well-designed, and (3) whether the program actually works. Assuring the latter two – i.e., a well-designed program that actually works – requires significant experience in both health care law and antitrust.
Health Care Antitrust Expertise
This is where HMBR can provide real value. The leaders of our health care practice, Thomas Babbo and John Marren, have developed over 300 antitrust-compliant physician groups (including single TIN practices, CINs, MSOs, ACOs, and other value-based networks) across more than 30 states.