November 10, 2023 Reading Time: 4 minutes

The Federal Trade Commission (FTC), under its chairwoman Lina Khan, has taken on some big corporations including Microsoft, Amazon, Google, and Meta. One of the FTC’s newest targets is US Anesthesia Partners (USAP), a private equity firm that now owns a number of anesthesiology practices in Austin, Dallas, and Houston, Texas. USAP is accused of a “multi-pronged anticompetitive strategy [and its] resulting dominance has cost Texans tens of millions of dollars more each year in anesthesia services than before USAP was created.” The three prongs of the alleged strategy are buying up existing practices to establish market power, engaging in price-setting agreements, and colluding with potential competitors to allocate sales territory. 

As the FTC notes: “Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect ‘may be substantially to lessen competition, or to tend to create a monopoly.’” With large mergers and acquisitions, businesses must notify the government in advance, seeking approval. In USAP’s case, the acquisitions were a series of purchases of relatively small anesthesiology practices.

Economics — and the government — use the Herfindahl-Hirschmann Index (HHI) to measure a market’s competitiveness. The index ranges from 0 to 10,000 points, with values close to zero indicating something like perfectly competitive markets. The Department of Justice and the FTC’s horizontal merger guidelines define markets with an HHI over 1,800 as concentrated, and mergers that raise the HHI by more than 100 points as raising significant competitive concerns. 

The FTC provides HHI calculations in its complaint against USAP for the three metropolitan areas in question (Austin, Dallas, and Houston). These calculations show increases well above 100, that lead to HHIs well above 1,800. Absent some wrangling over how to properly define the relevant markets, these figures imply acquisitions that significantly reduced the competitiveness of hospital-based anesthesiology services. 

The complaint — which makes for surprisingly good reading — also makes clear the wide variety of existing practices that make the healthcare industry so anti-competitive.

First, it takes a long time to train and certify an anesthesiologist (12-plus years) or even a Certified Registered Nurse Anesthetist (7-8 years). In some states, CRNAs can work independently; Other states require that a qualified physician supervise CRNAs. In Texas, CRNAs are not permitted to practice without physician supervision. 

There are ongoing shortages in many healthcare professions, including in anesthesiology. Long training times and restrictions on the use of close substitutes for anesthesiologists, like CRNAs, pose a challenge to increasing the amount of anesthesia services available. 

Second, a reader of the FTC complaint will quickly notice that all of the reimbursement rates — the prices paid to anesthesiologists — are redacted from the text. With no information on price or quality of services, it’s challenging for an outsider to determine the effects on consumers. At a time with significant inflation and 2-4 year contracted pricing, one would expect rates to be rising, and the redaction prevents knowing to what degree this is happening. 

The lack of visible prices is a telling feature of much of healthcare: Consumers rarely know the prices they, or their insurance, are paying for services provided. Without information on price (let alone on quality), it’s hard to make informed decisions or to shop around for better quality, lower-priced services. 

Third, many hospitals described in the complaint sign exclusive anesthesia contracts with anesthesiology practices. So, for example, if USAP signs an exclusive contract with a hospital, it is obligated to provide all anesthesiology services all day, every day. The flip side of this is that only one company can provide anesthesiological services in that hospital. 

How much an insurance company pays anesthesiologists for their services is determined by the insurer’s negotiated rates for each anesthesiology practice. 

The complaint describes USAP’s strategy as the following: Find anesthesiology practices that have signed exclusive contracts with key hospitals. Buy up the practice and transition that practice’s reimbursement rate to the higher rate previously negotiated by USAP with the same insurer. Thus, the ‘same anesthesiologists’ are paid more.

As the FTC notes: “Patients do not, however, actively choose their anesthesiologists. Instead, anesthesia practices compete for contracts — often exclusive — to provide hospital-only anesthesia services at hospitals in the Houston MSA.” 

Imagine the scenario: A patient carefully seeks out a hospital that is an in-network provider for her health insurance, assuring the patient of lower out-of-pocket costs. This does not guarantee that the anesthesiologist proving pain management during the procedure is in-network. In the past, this resulted in surprise balance billing where anesthesiologists billed the patient separately for their services. The patient could then file the bill for out-of-network reimbursement from her insurer, but likely would be left with significant out-of-network, out-of-pocket expenses. 

The recent No Surprises Act addresses some of this, requiring out-of-network providers at in-network hospitals to accept the in-network reimbursement rate as full payment. But, in cases like that of USAP, the No Surprises Act will likely reduce competition further. 

Part of the complaint outlines United Healthcare’s ongoing conflict with USAP. United Healthcare disputed USAP’s attempt to raise rates and attempted to lower them. When USAP refused, United shifted them out-of-network in 2020. This likely resulted in more surprise billing, leading to pushback on the hospitals and firms using United to administer their health insurance plans. United eventually accepted higher USAP rates and brought them back in-network. 

United Healthcare pushed back against the higher prices charged by USAP with the main lever it has: the threat, and reality, of shifting services out-of-network. But the nature of anesthesiology, exclusive hospital contracts, and, now, the inability to charge higher rates out-of-network for a range of services mean that the out-of-network threat is not threatening. 

Neither do administrators have any incentive to fuss over prices charged by anesthesiologists practicing in their hospitals. Hospitals don’t reimburse anesthesiologists. And anesthesiologists who charge higher rates “can (and sometimes do) offer to share the spoils with hospitals in the form of a lower subsidy from the hospital.”

Limited supply, restrictions on the use of CRNAs, exclusive contracts with hospitals who likely prefer higher prices, individually negotiated rates with insurance plans, and balance billing regulations are just the restrictions clear from the government’s complaint! There’s little competition to be found much of anywhere in healthcare.

Angela Dills

Angela Dills is the Gimelstob-Landry Distinguished Professor of Regional Economic Development at Western Carolina University.

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