California Gov. Gavin Newsom vetoed a bill that would have regulated certain private equity and hedge fund-backed healthcare deals.
“I appreciate the author's continued efforts and partnership to increase oversight of California's health care system in an effort to ensure consumers receive affordable and quality health care,” Newsom said on Sept. 28.
The legislation was authored by California Assemblymember Jim Wood (D-Healdsburg).
Healthcare consolidations are more appropriately overseen by agency set up in 2022, the state Office of Health Care Affordability which was created to review and evaluate health care consolidation transactions, Newsom said.
While the Office of Health Care Affordability cannot block a proposed transaction, it can coordinate with other state entities, including referring transactions for further review to the state attorney general, Newsom said.
Industry lobby
Private equity trade group American Investment Council praised Newsom’s action, noting that private equity has invested nearly $1 trillion into U.S. health care since 2006, representing 12.7% of all health care investments over that time period.
"Our coalition worked hard to ensure California leaders recognize and support private equity's essential role in improving health care in California,” said AIC President and CEO Drew Maloney in a written statement. “The Governor's well-reasoned decision will help patients and communities continue to have access to quality care."
In California, between 2005 and 2021, private equity deals grew from $1 billion to $20 billion annually, according to a report by California Health Care Foundation, or CHCF.
Higher costs
In a statement, Wood said, “I had hoped California would be the first state to provide a preventive and reasonable initial review to protect health care consumers from being the victims of profit-driven investors who are not interested in ensuring that Californians get quality care where they need it and at an affordable price..”
Although the Office of Health Care Affordability has a significant role to play, "it cannot block a transaction – too late to prevent the damage the transaction could have on the cost of health care,” Wood said.
“And just like any other circumstances, if acquisitions result in anticompetitive behavior, the consequences are often higher costs and lesser quality – caring for patients cannot suffer either of those outcomes,” Wood said.
Overall, research has found that PE involvement in health care has led to changes in the workforce, increased costs and utilization, mixed effects on quality of care, and a lower percentage of Medicare patient discharges, implying an increase in privately insured patients with higher reimbursement rates. A study from the National Institute for Health Care Management (NIHCM) suggests PE makes healthcare more expensive.
Newsom's veto "ends a summer where six states struggled to augment their existing regulatory frameworks that reviewed healthcare transactions and governed the corporate practice of medicine," said John Saran, a partner, practicing healthcare law at law firm Holland & Knight.
In response to California's bill, "an industry mobilized to advocate for both sides....No other similar state healthcare law received this much attention nationally, which shows the gravity of the decision of Governor Newsom to veto the bill," Saran said.
"While some of these efforts might remerge in 2025, states might find less support in government and the industry to become an outlier with more complex regulatory schemes," Saran said.
