FTC chair discusses veterinary trends at AVMA economic meeting

Commission is finalizing rules on noncompete agreements, assessments of mergers and acquisitions

Federal regulators are keeping a close eye on competition among veterinary service providers with the Federal Trade Commission’s focus on noncompete agreements, mergers, and private equity acquisitions.

Federal Trade Commission (FTC) Chair Lina Khan addressed these topics to open the beginning of the AVMA Veterinary Business and Economic Forum on October 24.

"Time after time, we've been hearing from veterinarians about how various trends in the industry, including consolidation and financialization and the proliferation of noncompetes, may be undermining the business of veterinary services and making it more difficult to provide quality service," Khan said. "And, so, we've been hearing from you all and wanted to make sure we were getting a chance to engage directly."

Lina Khan, chair of the Federal Trade Commission (FTC), gave the opening talk at the 2023 AVMA Veterinary Business and Economic Forum
Lina Khan, chair of the Federal Trade Commission (FTC), gave the opening talk at the 2023 AVMA Veterinary Business and Economic Forum. She highlighted the FTC’s work on mergers and acquisitions, and in particular, roll-up strategies. 

Khan was appointed FTC chair in June 2021. Prior to heading up the FTC, she was an associate professor of law at Columbia Law School. She also previously served as counsel to the House Judiciary Committee's Subcommittee on Antitrust, Commercial, and Administrative Law, where she led the congressional investigation into digital markets; legal advisor to FTC Commission Rohit Chopra; and legal director of the Open Markets Institute.

Mergers and acquisitions

Khan rose to national prominence with the 2017 publication of "Amazon’s Antitrust Paradox" in the Yale Law Journal. Khan’s scholarship on antitrust and competition policy has been published in the Columbia Law Review, Harvard Law Review, University of Chicago Law Review, and the Yale Law Journal.

In her opening comments, Khan underscored a deliberate change in enforcement attitude at the FTC.

"Unfortunately, over the last four decades, we have been running somewhat of a natural policy experiment, where around the 1970s and the 80s, policy makers bought into a set of assumptions around how markets tend to be perfectly competitive and self-correcting, that monopoly power is generally fleeting, and that a hands-off approach to anti-trust and competition policy would deliver great efficiencies that would outweigh any costs," Khan said.

"These assumptions and frameworks have stayed intact and shaped policy ever since. When President Biden took office, he put reinvigorated antitrust and competition enforcement back at the center of his economic agenda, publicly declaring that our 40-year experiment with the hands-off approach had been a failure and had failed to deliver the open, fair, and competitive markets to serve all Americans. Since taking office at the FTC, we have been focused on returning the FTC to its antimonopoly roots and ensuring we are faithfully acting on the mandate Congress gave us to protect Americans from unfair methods of competition," she added.

As part of the FTC’s enforcement agenda, Khan highlighted the FTC’s work on mergers and acquisitions, and in particular, roll-up strategies. This is where companies acquire many similar companies to gradually amass market share.

Khan noted that "…instances in which a private equity firm, or others, may be serially making acquisitions, each one of which may be relatively small, and may not raise competition issues, but how in the aggregate these serial acquisitions can still roll up a market in ways that we believe can be quite harmful to competition."

She gave an example of the FTC’s recent enforcement actions. Related to veterinary services, Khan mentioned the FTC’s 2022 action requiring JAB Consumer Partners (JAB) to divest veterinary clinics. The commission also mandated additional prior approval of acquisition for specialty and emergency clinics in several states and prior notification of proposed acquisitions of any veterinary or emergency clinic within 25 miles of a JAB-owned veterinary clinic anywhere else in the United States. Khan also highlighted the recent FTC challenge of a private equity firm’s alleged scheme to suppress competition in anesthesiology practices across Texas. The lawsuit, filed September of 2023, is ongoing.

Khan ended the address with a clear message of caution regarding mergers and acquisitions in veterinary services.

"To the extent that there continues to be potential shifts towards roll-up activities, being aware of the FTC’s concerns in this area—be it serial acquisitions, roll ups, these stealth consolidation schemes—this is an area where enforcers have been somewhat hands off in recent decades. But we’re really doubling down again because we think there have been harms to people at the level of higher prices, but also worse quality," she said.

Noncompete agreements

Lina Khan, chair of the Federal Trade Commission
Khan anticipates the final rule on noncompete agreements to be issued in 2024.

Another area of interest for the FTC has been noncompete agreements, which block people from working for a competing employer or starting a competing business, after their employment ends.

The commission held a public workshop in January 2020 titled "Non-Compete Clauses in the Workplace: Examining Antitrust and Consumer Protection Issues." Then, in July 2021, President Joe Biden issued an executive order on promoting competition that included encouraging the FTC "to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility."

The commission proposed a new rule this past January that would ban employers from imposing noncompetes on their workers. The proposed rule, which is based on a preliminary finding that noncompetes constitute an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act, garnered over 25,000 comments from people across the country, ranging from security guards to fast food workers to engineers.

"One sector from which we heard many comments was health care workers, including veterinarians. They shared stories of how noncompete clauses have upended their lives, keeping them stuck in jobs and forcing them to forego better job opportunities or otherwise uproot their families because the noncompetes have locked them out of local jobs. Others shared the fear of being buried in litigation by an employer, even when the noncompete in place was void or not enforceable," Khan said.

The FTC has also received comments against prohibiting noncompete agreements, saying they are necessary to protect trade secrets or incentivizing investment in employees.

In review of comments, the FTC is considering other avenues firms have to protect legitimate trade secrets, such as provisions under trade secrets law. Khan also emphasized the proposed rule carves out an exception for business owners following the sale of their business, citing this as a legitimate and regular use of a noncompete agreement that the commission has not identified a pattern of harm to workers or competition as a whole.

Khan addressed provisions in the proposed rule relating to clauses that function as de facto noncompete agreements, such as requirements for payback of training costs not reasonably related to the cost the employer incurred for training the worker. Khan cited instances where the repayment required by an employee was multiples of the actual investment made by the employer as a potential example of a de facto noncompete clause.

"We’ve heard a whole bunch of perspectives and so we’re digesting that and figuring out where to land," she added.

Khan anticipates the final rule on noncompete agreements to be issued in 2024.

The road ahead

Also coming are revised regulations that lay out how FTC antitrust regulators plan to assess whether a merger or acquisition may harm competition and violate the antitrust laws.

On July 19, the Department of Justice (DOJ) and the FTC jointly released draft merger guidelines for public comment. To evolve with changing business tactics, these proposed guidelines would, for example, address serial acquisitions and roll-up schemes by not looking at each acquisition individually, but more wholistically.

"After decades of consolidation, the road to recovery is not a short one. But seeing the similarities across professions and trades who are experiencing the consequences of that consolidation and the new interest around ensuring the policy makers are fully using the legal tools at their disposal is how we’ll travel that road more quickly and make sure that Americans are benefiting from open and fair competitive markets," Khan said.

A version of this story appears in the December 2023 print issue of JAVMA.