At least six state legislatures have introduced bills in the last two weeks to increase regulatory scrutiny of private equity mergers and acquisitions in the healthcare space.
The strictest proposals targeting private equity specifically are from Indiana and Connecticut, The Wall Street Journal reported Jan. 29. Oregon and Vermont are considering bills that would restrict corporate control of medical practices more broadly, while New Mexico and New York are evaluating expansions to disclosure requirements for healthcare mergers, rather thant total bans
However, WSJ reported that "none of these bills are close to being enacted," citing "opposition from some lawmakers and stout resistance from the healthcare and private equity lobbies," who have argued that the measures will lead to declines in investment and worsen patient care.
The proposals demonstrate growing bipartisan concern about the effects of private equity-led medical acquisitions, John Saran, a partner in Holland & Knight's healthcare practice, told WSJ. Massachusetts Gov. Maura Healey recently signed a bill into law that specifically aims to increase scrutiny of private equity sponsors, significant equity investors, health care real estate investment trusts, management services organizations and pharmacy benefits companies in the state.
On Jan. 15, HHS released a report warning of the harmful effects of private equity involvement in healthcare. The report stems from a March 2024 request for information into the ways that market transactions by health systems, insurers, private equity and other investors may drive consolidation, harm patient care and affordability, endanger workers and burden taxpayers.
In the case of Massachusetts, political appetite for increased regulation of private equity reached a peak after Dallas-based Steward Health Care, one of the largest hospital operators in the state, filed for Chapter 11 protection in May. In early January, Los Angeles-based Prospect Medical Holdings, a private equity-backed system that owns hospitals across four states, also filed for Chapter 11.
In Indiana, the push for tighter regulation of private equity in healthcare is being led by state Rep. Julie McGuire, a Republican who recently proposed a bill to give the state attorney general the power to block private equity transactions in healthcare that would result in negative financial or health outcomes for state residents. The proposal would also compel healthcare businesses to report to the state any entity, including private equity, that owns 5% or more of its shares.
She has said that Indiana is a "highly monopolistic market," with little competition outside the state capital. According to WSJ, Indiana has the eighth most expensive healthcare market in the country. Her proposal aims to increase transparency around ownership of healthcare businesses and entities.
In September 2024, California Gov. Gavin Newsom vetoed a bill that would have increased scrutiny over private equity firms and hedge funds acquiring physician practices. The bill would have also given California's attorney general power to set conditions on the acquisition of physician groups and healthcare entities in cases where authorities believed a PE firm or hedge fund investment would have anticompetitive effects or negatively impact the access or availability of healthcare services to the community.
Notwithstanding the veto of the California bill, the momentum behind the proposal in Indiana and the passage of the law in Massachusetts may signal that increasing transparency is a more politically viable way forward than total bans, Peter Hanoian, a partner in the private-equity group at law firm Goodwin Procter, told WSJ.
"I think California showed that an outright ban on private equity is not going to catch on across the country," he said in the report. "But there will be more of a focus going forward on transparency."