California bill seeks stricter oversight of private equity in healthcare

Editor's Note

A bill in California that aims to increase oversight of private equity healthcare investments is receiving support from consumer advocates, labor unions, and the California Medical Association and opposition from hospitals worried about losing funding sources, the Los Angeles Times reported August 9.

Sponsored by Attorney General Rob Bonta, the legislation would require private equity groups and hedge funds to notify his office and obtain consent before acquiring certain healthcare businesses, such as clinics, physician groups, and nursing homes, the outlet reports. The bill also reinforces state laws that prevent nonphysicians from employing doctors or directing their activities, a key reason for the California Medical Association's support.

As detailed in the article, private equity firms—which acquire companies to boost profits and then sell them—have been under increasing scrutiny for their role in healthcare. Critics argue that their profit-first approach often leads to higher prices, lower-quality care, and reduced access to essential services. Research has shown that private equity-owned hospitals have a higher likelihood of adverse events like patient infections and falls compared to others.

Opponents of the bill, including the state's hospital association and a national private equity advocacy group, argue that it would discourage necessary investment in a sector with rising operating costs, the Los Angeles Times reports. They warn that the required review by the attorney general could create a "chilling effect" on private funding. However, proponents argue that the bill is necessary to protect the quality and accessibility of care in California, where private equity deals in healthcare have surged, growing from under $1 billion in 2005 to $20 billion in 2021.

A final vote could come this month. Other states, including Connecticut, Minnesota, and Massachusetts, are reportedly considering similar legislation.