Connecticut Gov. Ned Lamont (D) is calling on state lawmakers to increase oversight of private equity investment in the state’s health care system, after years of controversy surrounding three troubled safety net hospitals owned by the now-bankrupt Prospect Medical Holdings.
Lamont announced Thursday that he plans to propose a legislative package in the coming weeks aimed at “increasing the oversight and financial stability of Connecticut hospitals.”
“The state needs to have a role in overseeing large financial transactions involving healthcare practices and facilities so that we can ensure that the critical services these facilities provide continue to be readily available to our residents,” Lamont said in a statement.
The statement highlighted the increased ownership of the state’s health care providers by out-of-state, for-profit companies that have exposed loopholes in the state’s regulatory review system.
“We need to provide the state with the tools needed to protect our healthcare system from dangerous and destabilizing practices and ensure that our system continues to provide quality, accessible, and affordable health care for all,” he said.
Connecticut is one of several states that have considered tightening oversight of health care industry financial transactions after a wave of bankruptcies involving for-profit companies that have scooped up hospitals and other health care providers across the country.
Earlier this month, Massachusetts enacted sweeping legislation to give more power to various state agencies, boards and committees tasked with reviewing health care industry acquisitions. It also significantly increases the financial penalties for hospitals, providers, pharmacy benefit managers and other entities that fail to submit required data on time.
Illinois, Indiana, New Mexico and New York have also passed legislation in the last two years increasing transparency of health care acquisitions.
Mary Bugbee, a health care research and campaign director at the watchdog group Private Equity Stakeholder Project, said the proposal Lamont outlined would go further than most other state laws, which focus mainly on antitrust considerations when evaluating health care mergers and acquisitions.
“Enforcing antitrust regulations is certainly important, but is insufficient to protect patients, workers, and communities from exploitative healthcare companies and their investors,” Bugbee said.
Lamont’s proposal would expand oversight of health care deals to better evaluate how they might impact health care access, quality and affordability, Bugbee said. “The proposal would also allow the Attorney General to impose conditions on healthcare deals, versus simply to sign off on them.”
Leonard Green & Partners, the parent company of Prospect Medical Holdings, was one of two private equity firms blasted for “putting profits over patients” in a bipartisan 162-page report released last month by the U.S. Senate Budget Committee.
“LGP and PMH’s primary focus was on financial goals rather than quality of care at their hospitals, leading to multiple health and safety violations as well as understaffing and the closure of several hospitals,” the report said.
The report found that Prospect paid out $645 million in dividends since 2010, with $424 million going to Leonard Green & Partners. Keeping up with those payments left the company in “severe financial distress,” and it closed eight hospitals during that time.
Prospect Medical Holdings, which is based in California and owns hospitals in four states, filed for bankruptcy this month.
While the company said it would provide uninterrupted care at all its facilities, the move spurred calls from Connecticut lawmakers to prioritize new regulations for private equity firms that own health care facilities.
A 2024 bill that would have directed state officials to come up with a plan “concerning private equity firms acquiring or holding an ownership interest in health care facilities in the state” was never called for a vote.
“For years, my colleagues and I have warned about Prospect’s precarious financial and organizational issues that have impacted patient care at Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital,” Sen. Saud Anwar (D) said in a statement after the bankruptcy was announced.
Anwar said “we can’t let this happen again” and that private equity “has no place in a field dedicated to recovery and healing.”
Anwar, who is a doctor, sponsored three bills that would address private equity investment in the state’s hospitals by implementing tighter restrictions on hospital financial transactions and ownership, expanded oversight authority from state regulators, and a new task force to study private equity involvement in the radiology industry.
Lamont’s office said the bill the governor will present to the legislature would:
- Strengthen the existing “notice of material change” statute to make sure the attorney general and health strategy offices have insight into transactions that have the potential to negatively impact the health care system’s quality, access, or affordability — not only antitrust laws. Under current law, many transactions escape scrutiny.
- Establish an review process in the attorney general and health strategy offices to look for red flags in health care transactions.
- Allow the attorney general’s office to impose conditions on transactions to prevent harm to the health care system or refer the application to the health strategy office for further evaluation and action.
Lamont will release the full proposal when he gives his annual budget address to a joint session of the General Assembly on Feb. 5.