California legislation aims to safeguard against private equity in healthcare

California Attorney General Rob Bonta and Assembly Speaker pro Tempore Jim Wood (D-Healdsburg) have introduced a new bill intended to strengthen state oversight of private equity abuses in healthcare.

The move comes amid rising legislative and regulatory scrutiny of the harmful impacts of private equity healthcare ownership. For example: legislation introduced in Oregon this month would tighten restrictions on the corporate practice of medicine; the Federal Trade Commission announced that it is holding a virtual workshop examining the role of private equity in healthcare; and late last year the Senate Budget Committee launched a bipartisan investigation into private equity ownership of hospitals. In 2023 alone, 24 states enacted laws related to health system consolidation and competition.

In announcing the new bill, AB 3129, AG Bonta wrote:

“At the California Department of Justice, we believe that the healthcare system should serve patients. Yet, too often, private equity has served corporate profiteers by maximizing their profits at the expense of access, quality, and affordability of healthcare for Californians. Today’s legislation not only curtails harmful transactions but also stops practices that undermine the practice of medicine.”

California has had its share of problems with PE healthcare investments.

Prospect Medical Holdings, the Private equity-owned safety net hospital chain that has been the subject of Congressional scrutiny, investigations, and national media attention for its owners’ profiteering, owns seven acute care and behavioral health hospitals in southern California. Pipeline Health, another PE-backed safety net hospital chain known for its bankruptcy and closure of a Chicago-area hospital, also owns hospitals in southern California.

And the problems extend beyond hospitals – Private equity-owned healthcare companies across the state have come under fire in recent years for business practices that hurt patient care, ranging from PE-owned group homes for people with disabilities to the company that provides healthcare in many of California’s jails.

According to its backers, AB 3129 would create stronger oversight of PE and hedge fund acquisitions of healthcare companies through the Attorney General’s authority as well as strengthen the bar on the corporate practice of medicine. The proposed law would:

• Require a private equity group or hedge fund to provide advance written notice prior to a change of control or acquisition of a healthcare facility at least 90 days before the change in control or acquisition.
• Require a private equity group or hedge fund to provide advance written notice to the Attorney General prior to a change of control or acquisition between a private equity group or hedge fund and a nonphysician provider, or a provider with specified annual revenue.
• Authorize the Attorney General to grant, deny, or impose conditions to a change of control or an acquisition between a private equity group or hedge fund and a health care facility, provider group, or both, if the change of control or acquisition may have a substantial likelihood of anticompetitive effects or may create a significant effect on the access or availability of health care services to the affected community.
• Prohibit private equity group or hedge fund involved in any manner with a physician or psychiatric from controlling or directing that practice.
• Prohibit physician or psychiatric practice from entering into an agreement or arrangement with an entity controlled in part or in whole directly or indirectly by a private equity group or hedge fund in which that private equity group or hedge fund manages any of the affairs of the physician or psychiatric practice in exchange for a fee.