The Federal Trade Commission (FTC) has been focused on consolidation in the health care industry for some time now and has intervened to challenge numerous transactions involving combinations between health systems and mergers in the commercial health insurance market. While the FTC’s focus on the health care industry is nothing new, its recent lawsuit against U.S. Anesthesia Partners, Inc., a large Texas-based anesthesia services provider, and its private equity sponsor, Welsh, Carson, Anderson & Stowe, based upon allegations of a multi-year anticompetitive scheme to consolidate anesthesiology practices and drive up the price of anesthesia services in Texas suggests that the government’s focus on potentially anticompetitive transactions in the health care industry is expanding beyond health systems and insurers and now includes health care services platforms created by private equity acquisitions of physician practices. FTC Chair Lina Khan further verified the FTC’s focus on private equity sponsored physician services platforms in remarks she delivered to the American College of Emergency Physicians at its annual meeting on Oct. 11, 2023. In her comments, Khan noted that the FTC is “especially focused” on understanding the impact of consolidation in the health care industry and asked physicians to share their experiences with private equity with the agency. Khan further noted that the FTC is working on updating the Hart-Scott-Rodino Act form in ways that will ensure that the agency is alerted of private equity transactions in the health care industry that fall under the $111.4 million reporting threshold.

Given the FTC’s focus on health care private equity transactions, private equity firms should act quickly to ensure that their portfolio companies in the health care services market are well positioned to withstand potential scrutiny from the agency and other antitrust regulators. Observing the following guidelines and best practices will help deal teams engaged in health care transactions demonstrate that they are not engaged in anticompetitive conduct:

• The parties to health care transactions must remember that prior to any closing, they remain competitors or potential competitors;
• During the due diligence phase, caution should be exercised to ensure that competitively sensitive information regarding the seller is not shared with anyone at the buyer who is involved with the day-to-day decision-making of the competing business. Competitively sensitive information includes information regarding pricing, contractual terms (i.e. payer contracts and fee schedules), customer lists, strategic planning documents, marketing, and terms of employment (i.e. physician compensation arrangements);
• To the extent competitively sensitive information needs to be exchanged, disclosure should be limited to outside advisors and/or a clean team under the terms of a written clean team agreement; and
• It is critical the competitors not coordinate any business activities prior to closing. Failure to do so will expose the companies to enforcement actions and substantial fines.

Additionally, companies may also be restricted from coordinating business activities post-closing if the acquisition involves something short of a full merger. This is particularly true where a transaction involves the acquisition of a minority interest.

If you have any questions on the FTC’s scrutiny of health care private equity transactions and strategies for promoting compliance with antitrust laws, please contact the authors of this update.