"Anesthesia Prices Rose 40% After Private Equity Acquisitions...Could Be Worse in Korea"

Thomas Wollmann, Boston University Professor
Presented U.S. Case Study at Seoul National University Forum
"Small Acquisitions Also Drive Cumulative Price Increases"
"Korea Faces Similar Risks... Merger Policies Need Review"

A case study from the United States has found that the price of anesthesia services rose by 20–25% immediately after additional acquisitions by private equity funds, and reached around 40% over the following four years. Thomas Wollmann, the Boston University professor who presented this research, warned that Korea could face the same issues and called for a review of merger notification thresholds and regulatory guidelines.

On October 2, the Future Economy Research Center at the Seoul National University Institute of Economic Research (Director: Professor Lee Jihong) announced that it had held its 2nd monthly forum online the previous day under the theme "Private Equity Funds and Fair Competition Policy." Professor Songuk Cho of Seoul National University Business School (former Chairperson of the Korea Fair Trade Commission) presided as the moderator, and Professor Wollmann presented the study's findings.

Prices Unchanged After First Acquisition...but Rose Following Additional Acquisitions

The research presented by Professor Wollmann deals with the roll-up process in the U.S. anesthesia services market. A "roll-up" refers to buying a company and then acquiring and combining additional companies in the same market. Professor Wollmann explained, "Even if the size of an individual acquisition is small, when multiple transactions are carried out consecutively, a single operator can end up owning several companies in the market." In this case, market dominance increases and the competitive structure can change.

Professor Wollmann analyzed the U.S. anesthesia services market to examine how these consecutive acquisitions affect real market competition and pricing. He studied 50 additional acquisitions made by financial investors in 18 markets from 2012 to 2021, using health insurance claims data, among other sources. This market covers about a quarter of the U.S. population.

According to the analysis, there was no significant change in price after the initial acquisition. However, after the second and subsequent acquisitions, prices rose by 20–25% immediately following the deal and the increase grew to about 40% over approximately four years. Conversely, there was no meaningful improvement in service quality. In some small-scale acquisitions that were not subject to notification requirements, prices rose by up to 30% in a short period, and in some cases, by up to 50%.

Professor Wollmann concluded that the fewer competitors there are, the greater the bargaining power anesthesia service providers have over insurers, leading to price increases. The greater the increase in market concentration (the extent to which a small number of firms dominate the market) following an acquisition, the larger the price hike.

Small Acquisitions Not Requiring Notification Cause the Same Problems

Changes in US anesthesia prices compared to the quarter before acquisition. Additional acquisitions after the second one (blue line) rose by 20% shortly after and increased to over 40% after four years, while the first acquisition (gray line) showed no significant change. AI reconstruction of the original graph from Professor Altman's paper (page 16).

Professor Wollmann also pointed out that acquisitions of individually small size tend to fall outside the prior notification requirements for business combinations, placing them in a regulatory blind spot. “Just because an M&A deal falls below the notification threshold for antitrust authorities does not mean there is no problem,” he said, adding, “It could in fact lead to even greater anticompetitive effects.”

He emphasized, “Merger review needs to consider not only individual transactions but also the continuity and cumulative effects of a series of acquisitions.”

According to U.S. merger guidelines, when a combination consists of multiple acquisitions, the antitrust authorities may review the entire sequence of transactions as a whole. In some of the 50 acquisitions analyzed, the change in market concentration due to an individual deal did not surpass the threshold for presuming anticompetitive effects, but when measured cumulatively, it did exceed those thresholds.

Professor Wollmann explained, “When looking only at changes in market concentration from each individual transaction, some acquisitions may not seem highly anticompetitive, but if the entire roll-up is evaluated as a single deal, the assessment can change.”

"Korea Could Face Even Greater Problems...Guidelines and Standards Need Review"

Thomas Wollmann, Professor at Questrom School of Business, Boston University, USA, presenting online at the 2nd Monthly Forum of the Center for Future Economy, and attendees. Center for Future Economy, Seoul National University

Professor Wollmann suggested that this is also a policy issue for Korea. He said, “Since additional acquisitions by private equity funds are increasing in Korea as well, there is a need to review and improve related regulations and evaluation guidelines.”

He noted, “Korea’s merger review standards do take trends in market concentration change into consideration; however, explicit standards for assessing a series of acquisitions as a single transaction are more limited in Korea than in the United States.” He continued, “Korea could face the same issues, and the problems could be even greater in some cases.”

Professor Wollmann recommended, “It is necessary to review related regulations and guidelines to ensure that the anticompetitive effects of cumulative small-scale acquisitions that avoid reporting thresholds can be detected.”

Center director Lee Jihong commented, “Because Korea has very high market concentration in key industries, it is necessary to closely examine the impact of rapidly increasing private equity M&A activity on the market and to reflect the results in the fair trade regulatory system.”

This content was produced with the assistance of AI translation services.