FTC’s Khan puts private equity on notice

The battle to reshape American society through vigorous antitrust enforcement will be fought over healthcare and private equity is in the line of fire, a new speech by Federal Trade Commission chair Lina Khan shows.

“Today, we are returning to America’s longstanding anti-monopoly tradition,” Khan said in a February 14 speech to the American Medical Association. “Healthcare markets are a key site of this work, and the FTC is squarely focused on tackling illegal business practices that deprive Americans of access to affordable and innovative healthcare.”

Khan is the spear-tip of a growing movement of thinkers who want to scrap three generations of antitrust law and precedent that they argue is too narrowly focused on consumer price and not focused enough on the way that corporate power impacts everyday American life. They see private equity as a problem to be solved. Khan’s speech mentions private equity eight times.

“ER doctors, for example, report having to take shortcuts to meet profit-driven metrics in understaffed emergency rooms, a trend they attribute to a slew of private equity buyouts,” she told the doctors. “Empirical research shows that hospital consolidation routinely results in higher costs and reduced service, and the FTC has long been active in tackling these illegal deals.”

‘Deterring illegal deals’

Under Khan and Department of Justice antitrust leader Jonathan Kanter, the Biden administration has already adopted new guidelines making it easier for Washington to attack interlocking board memberships, industry roll-ups, non-compete agreements and to block pending mergers. They’ve also filed suit against private equity managers or imposed strict conditions on the mergers they have approved.

Khan says the work has only begun but it’s already showing results.

“The FTC has successfully blocked seven healthcare mergers in the last two years alone,” she said. “Our actions are putting industry participants on notice. We hear that corporate dealmakers are increasingly assessing the legality of the transaction at the beginning of the process rather than at the end, and that some mergers are no longer making it out of the boardroom if the antitrust risk is viewed as high. As a law enforcer, deterring illegal deals is a mark of success.”

Welsh, Carson suit

Private equity adviser Welsh, Carson, Anderson & Stowe is one firm that has gotten caught up in the FTC’s crosshairs. In September, the FTC sued Welsh, Carson and its portfolio company, US Anesthesia Partners, accusing them of building an illegal monopoly in Texas as part of a years-long scheme to “exploit the fact that anesthesia services are critical to modern surgery; hospitals need to offer anesthesia services, and patients, their employers and insurers must pay for them, even if choices dwindle and prices go up.” The suit involves not just one acquisition, but nearly a decades’ worth of acquisitions as part of Welsh, Carson’s roll-up strategy.

Welsh, Carson has vowed to defend itself in court. In her speech, Khan said she was “proud” of the suit and hinted that more might be coming. “We are also studying closely the empirical work examining the effects of private equity expansion into healthcare,” she said, “and have been alarmed by studies showing that some private equity buyouts have resulted in not just higher prices but also dramatic fall-off in quality – in some cases resulting in higher mortality rates.”

Two days after her speech to the doctors, Khan announced that she and her fellow Democratic FTC commissioners will host a virtual workshop entitled, “Private Equity in Health Care.” It’s scheduled for Tuesday.