The California Legislature passed a scaled-down version of a bill that would regulate certain private equity and hedge fund-backed healthcare deals.
If signed by Gov. Gavin Newsom, the bill would require private equity firms or hedge funds to obtain the written consent from the state’s attorney general for deals involving certain healthcare facilities and healthcare provider groups, such as medical offices, if there is a change in control. The bill exempts for-profit hospitals and dermatology medical groups. Nonprofit hospitals already must get the attorney general’s consent for a sale or transfer.
The bill also prohibits private equity and hedge fund firms that are investing or otherwise involved in a physician, psychiatric or dental practice from interfering with the professional judgment of physicians, psychiatrists, or dentists in making healthcare decisions. A private equity group or hedge fund must engage in a change of control for the transaction to trigger review
The American Investment Council opposed the bill, arguing it would result in less capital being available to fund healthcare services and research in California, according to a legislative analysis of the amended bill. The AIC also contended that the bill would send the wrong message to private capital investors that invest an average of about $100 billion per year, the analysis said.
“Private capital is essential for lifesaving innovation, healthcare and jobs in California," said Drew Maloney, AIC president and CEO. "We worked with our coalition partners to improve this legislation but remain concerned that the current bill sends the wrong message to the business community about investing in California.”
The board of the $510.6 billion California Public Employees’ Retirement System, Sacramento, in June voted to support the bill if amendments were made to expand the legislation's reach. But those kinds of amendments were never made to the bill, a spokesperson said.
The bill's author California Assemblymember Jim Wood, a Democrat, "believes this bill establishes a critical review system for the many private equity and hedge fund transactions in health care and is essential to protecting patients from high prices and poor quality care," a spokesperson said.
Three years ago, private equity investment in healthcare reached $83 billion nationally and $20 billion of that was in California alone, Wood said in a news release. In July, Lina M. Khan, chair of the Federal Trade Commission, wrote the California Legislature a letter supporting the bill. “In light of the FTC’s experience with healthcare consolidation and private equity investment in healthcare markets, I write to support California’s efforts to more closely monitor mergers and acquisitions within healthcare and to halt deals that undermine the availability and affordability of quality healthcare."
Khan added in the letter that "federal antitrust enforcers are deploying existing authorities to address the risks posed by rollups and serial acquisitions in healthcare, including when they are driven by private equity firms whose tactics may undermine competition in healthcare markets."
Newsom has until Sept. 30 to sign or veto legislation on this desk.
"This measure will be evaluated on its merits," said Elana Ross, deputy communications director for the governor's office.
California is not alone in looking to regulate private equity investment in healthcare.
A Massachusetts bill that would have regulated private equity investment in healthcare did not pass the state’s 2024 legislative session.
Democrats in Congress have also floated bills aimed at private equity investment in healthcare. In July, Sen. Ed Markey, D-Mass., and Rep. Pramila Jayapal, D-Wash., introduced the Health Over Wealth Act, which would mandate private equity-owned healthcare facilities to publicly report their debt and executive pay, lobbying and political spending, healthcare costs for patients and insurance plans, and any reductions in services, wages or benefits. In June, Sen. Elizabeth Warren, D-Mass., and Sen. Ed Markey, D-Mass., introduced the Corporate Crimes Against Health Care Act, which would create a new criminal penalty for private equity executives who “loot” healthcare entities such as nursing homes and hospitals.
