Roll Up Houston
In 2012, a former healthcare executive approached the private equity firm Welch, Carson, Anderson & Stowe (WCAS) with a plan to “aggressively” consolidate anesthesia markets. In each, the firm would employ a “ rollup: a business strategy where a firm consolidates smaller companies in the same industry to create efficiencies or gain market power, often leading to increased market concentration and higher prices ” strategy: acquire an initial practice (the “platform”) and then expand by acquiring competitors (the “add-ons”). The strategy was commonly used by private equity firms at the time and has grown even more popular since then. Today, it accounts for over $1 trillion in annual deal volume.
WCAS soon formed US Anesthesia Partners (USAP) and, in December 2012, acquired Greater Houston Anesthesiology, the largest practice in the region with 220 anesthesiologists. Over the next seven years, USAP acquired three additional practices in Houston, as well as replicated their strategy in Dallas and Austin. Each acquisition was followed by substantial price increases.
In 2023, the Federal Trade Commission (FTC) filed charges against USAP for antitrust violations, claiming that their transactions substantially reduced competition and that their conduct monopolized markets. The lawsuit, which is still ongoing, marks a significant milestone as it is the first time federal authorities have challenged a series of completed transactions and included charges against the acquirer’s financial sponsor. In its press release, the agency borrowed a term coined by one of this study’s authors, Wollmann, calling the transactions “stealth consolidation”—a reference to the fact that the acquisitions initially escaped the FTC’s notice because they were exempt from reporting requirements.
In this paper, the authors study rollups in the anesthesia industry. They use data from medical claims to examine both the litigated transactions in Texas, as well as 18 similar rollups that occurred between 2012 and 2021. The authors measure changes in market structure, price, and other outcomes following the acquisitions and predict the impact of remedies and policies that combat anticompetitive rollups. They begin by documenting the following concerning rollups in the anesthesia industry:
- Rollups are a key driver of consolidation in anesthesia markets, significantly shaping market structures. The authors calculate the
Herfindahl–Hirschman Index: Herfindahl–Hirschman Index: a widely used measure of market concentration in economics and antitrust analysis that is calculated by summing the squares of the market shares of all firms in a market, with the resulting index ranging from 0 (perfect competition) to 10,000 (monopoly)
<1,500: low concentration
1,500–2,500: moderate concentration
>2,500: high concentration
change >200 points: indicates significant consolidation (HHI), a standard measure of market concentration, and compare actual changes in HHI to those predicted solely from add-on acquisitions. They show that rollups, rather than factors like entry, exit, or firm growth, are the primary cause of increased concentration. Large metropolitan markets such as Phoenix, Las Vegas, Louisville, and Denver, as well as smaller ones like Trenton-Ewing and Syracuse, experienced dramatic consolidation during the authors’ sample window, with HHI increases often exceeding 1,000 points and, in some cases, surpassing 2,500 points. - These market changes drive price increases. Within six months of an add-on acquisition, prices rise by 18 percent, and within two years, they increase by 25-30 percent. Interestingly, prices do not increase following platform acquisitions. This suggests that the price hikes are driven by reduced competition resulting from add-on acquisitions, rather than the direct involvement of financial sponsors.
- Neither platform purchases nor add-on acquisitions improve anesthesia quality or increase the non-anesthesia prices of anesthetized procedures, suggesting that these acquisitions primarily aim to consolidate market power and increase anesthesia prices rather than enhance service quality or overall procedural costs.
- Larger expected increases in concentration were associated with larger post-merger price changes, revealing that preacquisition market structure plays a crucial role in shaping the magnitude of price effects.
The authors use these results to construct a structural model: an economic model that estimates how agents (e.g., payors and providers) interact, used to simulate policy outcomes and predict the effects of market changes of payor-provider bargaining. They simulate counterfactual outcomes under potential remedies and policies considered by judges, agency officials, and legislators aimed at mitigating the adverse effects of consolidation, and find the following:
- The authors first analyze the impact of court-ordered divestitures of add-on acquisition targets by simulating the effects of “unwinding” these transactions. They find that such remedies would reduce anesthesia expenditures by $120 million annually, or 3.25%. Additionally, court-ordered divestitures—or even court-awarded damages to private plaintiffs—could deter future rollup acquisitions. The authors simulate this deterrence effect and project further annual savings of $126 million, underscoring the potential long-term benefits of these interventions.
- Next, the authors examine the impact of market entry, inspired by an alleged agreement where one firm paid another $9 million to avoid entering its market. Through their simulations, they find that while market entry does lead to reduced expenditures, its impact is relatively modest.
- Finally, the authors assess the potential effects of recent legislation addressing ‘balance billing’ on anesthesia markets. Balance billing occurs when healthcare providers charge patients the difference between their billed amount and the amount covered by insurance, often leading to high out-of-pocket costs for patients. Consolidation in anesthesia markets exacerbates this issue, as larger, more concentrated provider groups gain increased bargaining power, potentially enabling them to charge higher out-of-network rates or demand greater reimbursement from insurers. The authors simulate the impact of limiting balance billing and find that while such policies reduce expenditures in anesthesia markets, the effects are smaller compared to remedies like court-ordered divestitures or deterrence of future rollups.
Serial acquisitions of clinician practices, often backed by investment funds, have consolidated geographically dispersed markets, raising significant antitrust concerns. While much of health policy research focuses on differences between provider types (e.g., for-profit vs. nonprofit, physician-owned vs. corporate-owned), this research underscores that competitive dynamics are the primary driver of price increases, with acquisitions frequently resulting in exceptionally large price hikes. The authors demonstrate that antitrust remedies, such as divestitures and stricter scrutiny of acquisitions, show promise in mitigating these harmful effects and preserving competition in the healthcare sector.