The fallout from private equity's assault on health care

[Celerity]

https://prospect.org/health/2023-09-22-private-equity-medical-rollups-malpractice-insurance/

In early 2018, USAP bought the largest practice in Austin, which had an estimated 50 percent share of the hospital anesthesiology market, and instantly hiked its reimbursement rates.

Private equity firms swallowed nearly 1,100 medical practices from 2012 to 2022, in transactions so frequent and frenzied it appeared as though Wall Street had found some sort of “cheat code” that promised unlimited profits. Now, in a first for antitrust regulators, the Federal Trade Commission has sued a private equity firm for a conspiracy to roll up a medical specialty. The 106-page complaint filed Thursday in Texas lays out in granular detail just how one firm’s serial acquisition strategy nearly doubled the cost of anesthesia services in the state over the course of a few years.

Meanwhile, a thousand miles away, Delaware bankruptcy attorneys discussed the wreckage of a separate private equity medical rollup gone wrong. Unlike the rollup in the FTC case, which was conceived by the Godfather of Wall Street physician practice consolidation, New York buyout shop Welsh, Carson, Anderson & Stowe, this one was sponsored by the smaller and lower-profile Brown Brothers Harriman (BBH). Over the course of its eight-year history, BBH’s rollup acquired nine rivals and grew to comprise 150 hospital and freestanding emergency room contracts, but management was incompetent and profits were elusive. “It seems that the more the debtor expanded, the greater its operating losses became,” mused bankruptcy Judge Brendan Linehan Shannon during the proceeding, referring to the now-defunct American Physician Partners (APP), whose chaotic collapse starting in July underscores the fact that unsuccessful private equity rollups are often just as disastrous to doctors and patients as successful ones—if not more so.

The “success story” sued yesterday by the FTC is a mega-rollup of hospital anesthesiology practices called U.S. Anesthesia Partners (USAP), which Welsh Carson founded in 2012 with John Rizzo and Kristen Bratberg, two executives from Florida who had worked for one of the firm’s other portfolio companies. By that point, Welsh Carson had consolidated roughly a dozen physician specialties, starting with the much-loathed emergency medicine staffing agency and surprise billing trailblazer EmCare in 1992 and moving on to rollups of primary care physicians, orthopedic surgeons, oncologists, and cardiologists. Rizzo and Bratberg had run one of the firm’s most successful rollups, a conglomeration of more than 100 pediatric practices called Pediatrix that prided itself on staffing 1 in 4 neonatal intensive care units in the country.

Together with a junior partner named Brian Regan (who was still in his early thirties at the time) and a host of specialized consulting firms, the team mapped out a strategy to conquer the businesses of epidurals, spinal blocks, and intubations in hospitals with busy operating rooms, starting in Houston. There, they were blessed to happen upon a pitch deck from Greater Houston Anesthesiology, which boasted in its sales materials that it was “20 times the size of its second largest local competitor.” With backing from Welsh Carson and a consortium of lenders, the team pounced, explaining in an investor presentation their plan to “build a platform with national scale by consolidating practices with high market share in a few key markets,” as a means of “[n]egotiating leverage with” payors like UnitedHealthcare and Cigna.

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[leftstreet]

1. Good godz

DURec

[Celerity]

2. thanks!