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Buyouts

Healthcare court win for PE bolsters roll-up strategies

A Texas lawsuit’s dismissal could thaw a portion of the frozen deal environment.

A Texas federal judge threw out a healthcare-sector lawsuit that could have disrupted private equity’s bread-and-butter roll-up strategy.

In a win for the PE industry against antitrust regulators on Tuesday, US District Judge Kenneth Hoyt dismissed a lawsuit against Welsh, Carson, Anderson & Stowe after the Federal Trade Commission alleged the PE firm was suppressing competition in the Texas anesthesiology market as a result of its roll-up strategy.

In 2012, WCAS acquired US Anesthesia Partners and began an aggressive acquisition strategy, buying up the largest practice in Houston and three other practices in the area, according to court documents.

USAP, the parent company used to conduct the roll-up strategy, was also named in the lawsuit. After each acquisition, USAP raised the new company’s rates to match its own higher prices, the documents said.. Soon the firm expanded its reach into Texas’ other major cities, buying up practices in Tyler, Austin, Amarillo and San Antonio in an effort to consolidate the anesthesiology market in the state and suppress competition, the FTC alleged.

On Tuesday, Hoyt dismissed the lawsuit against WCAS in court documents, but upheld the suit against USAP.

The dismissal marks an initial defeat for the Biden Administration in its effort to rein in the PE industry. In March, antitrust regulators at the FTC, the Justice Department and the Department of Health and Human Services initiated a public inquiry into the effects of PE and other corporations’ mounting control in healthcare.

In the March announcement, FTC Chair Lina Khan expressed concerns about PE firms buying healthcare facilities and the potential effects on the quality of care for patients.

The asset class’s foothold in hospitals, for example, has made headlines recently following the bankruptcy of Steward Health, a PE-backed hospital chain.

Cerberus Capital Management—which bought the Massachusetts hospital chain in 2010 and grew it into the largest private for-profit hospital group in the US—sold the company in 2020 after loading it with a mountain of liabilities.

The outlook

Antitrust concerns are the least of PE’s worries. The sector’s dealmaking has been stifled by a stubborn pricing gap between buyers and sellers, a general expectation that the Federal Reserve will hold rates higher for longer, and state regulations that slow deals to a halt.

PE’s overall deal count in healthcare services landed at an estimated 158 transactions globally in the first three months of the year. That’s the lowest figure since Q2 2020, according to PitchBook’s Q1 2024 Healthcare Services Report.

Still, some deals in other sub-sectors under the healthcare umbrella found success before the close of the quarter. Notable agreements included Alvarez & Marsal‘s buyout of Arizona Heart Rhythm Center; Elevance Health‘s acquisition of Paragon Health; and Acadia Healthcare‘s purchase of behavioral health treatment chain Turning Point Centers.

Moving into the second quarter, antitrust pressure may have alleviated slightly with Tuesday’s decision, signaling to PE firms that roll-up strategies remain permissible.

The report’s author, lead healthcare analyst Rebecca Springer, still expects most sponsors to wait for a more favorable exit environment—with some exceptions.

On Monday, for example, Blackstone announced plans to take Japanese clinical trial services company I’rom Group private, marking a transaction that could skirt the uncertain US regulatory landscape.

Springer anticipates healthcare services deals will pick back up in 2025.

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Featured image by sshepard/Getty Images

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  • jessica-hamlin-headshot.jpg
    Senior funds columnist Jessica Hamlin writes about limited partners for PitchBook News, based in New York. Jessica is also the lead writer of the Capital Pool weekly newsletter. Previously she wrote about private equity for Institutional Investor in New York. Jessica is a graduate of the Grady College of Journalism and Mass Communication at the University of Georgia.
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