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

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The writer is chair of the Federal Trade Commission

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 on Thursday we filed a lawsuit to halt this conduct. The complaint names the private equity 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 effectively. Updating our approach to keep pace with new business realities is critical to ensure the public is benefiting from free and fair competition.