Article Referred by Doug Aldeen
Private-equity firms are merging doctor groups to create firms that critics say are big enough to wield excessive power over prices
The multibillion-dollar private equity firm Welsh, Carson, Anderson & Stowe took less than a year to create, from scratch, Colorado’s biggest and most prominent anesthesiology practice.
The financiers created a company, U.S. Anesthesia Partners, which in 2015 bought the largest anesthesiology group in the Denver region. Then it bought the next largest. Then it bought a few more. The company employed 330 anesthesiologists in Colorado at one point, according to its website, making it the state’s largest practice by far. It obtained contracts at 10 of the region’s 15 largest hospitals, according to the hospitals.
The Federal Trade Commission, which is supposed to prevent unfair business practices, questioned the company’s growth but did not stop it.
The company raised prices for its services — one by nearly 30 percent in its first year in Colorado — and continued raising them for several years, according to interviews and confidential company documents obtained by The Washington Post. The price hikes boosted patient bills andpushed up insurance rates, former company physicians and managers said. Eventually, some of the company’s own doctors became disillusioned, physicians said, with about 1 in 3 leaving the company over a three-year period.
“The company became big enough to influence pricing and raised prices because it could,” said Matt Bigalk, who worked as director of operations at USAP’s Colorado branch from 2015 to 2017 and who previously handled negotiations with insurers for one of the merged firms. He now works at another Denver anesthesia practice.
A spokesman for U.S. Anesthesia Partners denied that it wielded monopoly power. The company said the firm faces plenty of competition and pressure frominsurance companies.
As the United States struggles to control medical costs, however, private-equity firms like Welsh Carson have become critical players in health-care economics, with private-equity funds acquiring hundreds of physician practices across America and, according to multiple academic studies, raising prices while returning billions to investors.
A 2022 study published in JAMA Internal Medicine based on six years of data, for example, found that when anesthesia companies backed by private-equity investors took over at a hospital outpatient or surgery center, they raised prices by an average of 26 percent more than facilities served by independent anesthesia practices.
Since its founding in 2012, USAP has built a staff of more than 4,500 clinicians and spread to nine states, typically following the same approach it took in Denver: acquiring the largest anesthesiology firm in a city and growing its reach from there, company officials said. It has issued more than $1.3 billion in dividends to its shareholders.
Information about private-equity acquisitions of doctor groups is scarce because private-equity firms are not required to make the same financial disclosures that public companies do. Because of confidentiality agreements, the academic analyses of the industry do not name the companies raising prices.
Internal USAP documents shared with The Post, however, offer a rare glimpse into one such private-equity venture into physician services, describing both the price hikes and how the company dealt with federal regulators reviewing whether USAP was accumulating monopoly power. The Post also interviewed or reviewed legal documents from a dozen former USAP anesthesiologists.
USAP executives declinedan interview on the record but provided some answers in written statements. Their public relations representative, Jeff Birnbaum,provided others.
“USAP faces significant competition in Colorado, from a variety of groups and health care organizations,” said a statement from Robert Coward, the company’s chief executive. “USAP’s average annual net rate increases from major insurers in Colorado are modest and in line with national benchmarks.”
The company’s clinical governance board in Colorado, composed of 10 physicians, also sent a statement: “USAP-Colorado is a physician-run, patient-focused anesthesia practice that is proud of the quality of care that we provide,” the board members said. “A few disgruntled former USAP physicians here have apparently complained to you about us, but they are providing you with provably false information. USAP does not exercise market power in Colorado … We are pleased with the way physicians are scheduled and compensated.”
Company officials did not share annual price increases on contracts but said the company’s negotiated rates with insurers in Colorado rose at the rate of 3.7 percent annually from 2014 to 2019. That’s a total increase of 20 percent over the five-year period, meaning USAP’s prices rose twice as fast as median prices measured by a national survey by the American Society of Anesthesiologists.
The company called that survey unreliable, saying its sample size is too small; the ASA collects voluntary information from about 200 or more practices annually. The company also objected to comparing its five-year price increase to the national median price increase, saying the average increase would be a more appropriate comparison. While the median increase was about 9 percent for that period, the average increase was about 10 percent, according to ASA survey publications. By either measure, USAP’s prices rose about twice as fast as prices nationally.
Eventually the company raised prices so high that in 2020, United Health, the nation’s largest health insurer, terminated its contract with USAP, saying the anesthesia company had pushed its rate demands too far. The insurersaidit had singled out the USAP contract for termination because the company wanted to charge 70 percent more than competitors in Colorado and twice as much as competitors in Texas. USAP blamed the cancellation on a national strategy by the insurer to push down prices. The two sides later reached an agreement.
Antitrust reviewers have looked into USAP’s acquisitions at least three separate times, according to company accounts, physicians and media reports.None of the inquiries has ended with enforcement action. The earliest of the known inquiries was in September 2016, shortly after USAP moved into Colorado, when company officials faced questions from the FTC. In response, two company representatives flew to Washington to assure FTC officials that there was still plenty of competition in the region, according to interviews and the company documents obtained by The Post.
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