California is the latest state this year to consider but ultimately not pass bills that target private equity acquisitions in health care.
Gov. Gavin Newsom (D) vetoed a bill sponsored by Attorney General Rob Bonta (D) that would have required private equity groups or hedge funds to get approval from the attorney general before acquiring health care practices in the state.
The bill was one of several introduced across the country this year that aimed to increase state oversight of health care transactions, as regulators raise alarms over corporate consolidation of the medical industry. They were spurred in part by the high-profile closures of private equity-owned hospitals in the past year, including those owned by Steward Health Care, Prospect Medical Holdings and Pipeline Health.
But only a few bills, including in Illinois and Indiana, were signed into law, according to the Private Equity Stakeholder Project, a watchdog group focused on the private equity industry that supported the California bill.
“By strengthening its oversight authority over healthcare mergers, California could have joined the growing chorus of lawmakers that are choosing to prioritize the long-term health of its citizens over short-term, corporate profits,” Private Equity Stakeholder Project spokesman Matt Parr said.
Newsom said in a message to the legislature that the state already reviews mergers, acquisitions or corporate affiliations involving a range of health care entities through the Office of Health Care Affordability, which was established in 2022. While that office can’t block a transaction, it can coordinate with other state agencies, including referring transactions to the attorney general’s office for further review, he said.
“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. “However, OHCA was created as the responsible state entity to review proposed health care transactions, and it would be more appropriate for the OHCA to oversee these consolidation issues as it is already doing much of this work.”
Assemblymember Bill Wood (D), the bill’s author, said the OHCA review does not go far enough and is often too late to prevent the damage from the transactions it is tasked with overseeing.
“We can see the results of unregulated private equity transactions happening throughout the country as they gobble up hospitals, physician groups, nursing homes and other health care entities for only one purpose – to reap profits for their investors regardless of the consequences,” Wood said. “No one is reviewing these transactions before they happen, and as a result, they are flying totally under the radar.”
The bill was the subject of a months-long pressure campaign from deep-pocketed representatives from health care and investment groups. Between April and June, a coalition representing some hospitals, investors, dentists and doctors spent $583,000 lobbying against the measure, according to state financial reporting records cited by CalMatters.
The American Investment Council, a lobbying, advocacy and research organization launched by private equity firms, also opposed the bill. It said the proposal would deter private investment in research and health care in the state, which averages around $100 billion per year.
Typically, private equity firms and hedge funds invest in businesses by taking a majority stake with the goal of increasing the value of the business within a few years and selling it at a profit.
An analysis filed with the legislature stated that consolidation of hospitals and medical practices in California has played a critical role in driving up the state’s health care costs, and that studies point to the recent surge in private equity acquisitions as a key factor.
California already has one of the strongest bans on the corporate practice of medicine, which is meant to ensure that medical decisions are based on patients’ needs and not corporate interest. The bill’s sponsors contended that the explosion of private equity health care acquisitions over the past decade demands even more oversight.