States are challenging private equity’s role in healthcare, passing new oversight measures to prevent the corporate bankruptcies currently destabilizing national hospital chains.
In recent weeks, Illinois legislators passed two private equity health care bills, the Vermont Legislature passed a bill, and Connecticut Gov. Ned Lamont signed a bill.
At least five other states — California, Maine, Massachusetts, Oregon and Washington — have enacted similar laws within the past year, spurred by a wave of high-profile collapses of private equity-backed entities that have left communities grappling with sudden hospital closures, massive layoffs and vendor supply shortages.
“My constituents, they’re saying we are feeling like we are not being held in top regard by the folks that are buying out our hospital systems,” said Illinois Sen. Graciela Guzmán, who introduced one of the two bills that were passed.
She said it feels as if these companies see healthcare professionals and patients as lines on a balance sheet.
The most aggressive approach so far came in Connecticut after years of controversy surrounding three troubled safety net hospitals owned by the now-bankrupt Prospect Medical Holdings. Prospect and Steward Health Care — two massive for-profit chains that filed for bankruptcy in 2024 and 2025 — crippled regional healthcare infrastructure spanning the Northeast, South and Midwest.
To prevent similar collapses, the Connecticut law establishes a first-in-the-nation blanket ban on hospital sale-leaseback transactions — agreements through which hospitals split their operations from their real estate and sell the real estate to investment trusts. Massachusetts enacted a more limited ban on certain sale leaseback agreements last year.
Read more: New Mass. law targets private equity ownership in health care
“This gets to a main tactic the private equity firms use to extract value for themselves that can lead to longer term risks down the line,” said Michael Fenne, senior policy coordinator at the watchdog group the Private Equity Stakeholder Project, which tracked 84 private equity health care bills in 24 states during 2025-2026 legislative sessions. “Connecticut’s the first state we’ve seen go directly after this tactic.”
Sale leaseback agreements generate cash for the private equity firms. But those agreements require hospitals to pay monthly leases to the real estate trust on property they used to own. Critics say such arrangements strip health care systems of their most valuable assets to enrich private equity investors.
The Connecticut law also requires hospitals to regularly certify that no private equity entity holds controlling interest or governance authority over hospital operations or clinical matters. Under the law, investors are explicitly barred from interfering with clinicians’ professional judgement regarding patient care, discharge, diagnosis and testing.
Fenne said the legislation specifically aims to address the backdoor control private equity investors can exercise without outright majority ownership, such as through board appointment rights, veto powers or conditional debt agreements.
Lawmakers are also leveraging “corporate practice of medicine” laws to block backdoor corporate control. After Oregon’s landmark 2025 law, California enacted a strict law blocking private equity groups and hedge funds from controlling clinical decisions, coding, billing, staffing, referrals or patient volume. Advocates in Vermont cited both West Coast frameworks as models for the legislation that was just passed.
Industry opponents have warned that blunt ownership bans could backfire, starving underfunded safety net hospitals of much-needed investment. That argument has caught lawmakers’ attention and shaped recent legislative strategies.
For instance, while several states have weighed outright bans on private equity ownership, the only complete prohibition to become law was a temporary one-year moratorium in Maine. That moratorium, which expired this month, was replaced by a permanent law requiring strict state approval for all major private equity healthcare transactions.
Many states have found success by focusing on transparency, a model advocates see as broadly replicable because transparency and disclosure measures have attracted broad, bipartisan support and little industry resistance.
Guzmán’s bill in Illinois, for example, would establish a permanent requirement for healthcare entities to notify the attorney general before a merger or affiliation. It was passed with unanimous approval in every vote.
New laws in California and Washington and two in Maine also require healthcare entities to notify state officials before a merger or acquisition. Washington last year also created a statewide registry of healthcare entity owners.
Guzmán said she is looking to more aggressive measures passed in other states as a model for future legislation in Illinois. She said she hoped to head off future disruptions to the state safety net like the closure of three Chicago-area hospitals tied to the private equity-backed Pipeline Health.
“We really need to start thinking about what else we can do to protect and change the market in a way that centers our patients and healthcare employees,” Guzmán said.
The other Illinois bill would create new disclosure requirements for entities providing intellectual and developmental disability services. It follows a broader national trend of tightening oversight on high-risk healthcare sectors, including behavioral health facilities, disability service providers and nursing homes.
Private equity and corporate investors have heavily targeted these businesses using “roll-up” strategies, acquiring smaller competitors to build monopolies before aggressively cutting costs at the expense of operations.