State Attorneys General Increasing Oversight and Focus on Private Equity in Health Care Industry
State attorneys general ("AGs") have long had unique police powers over a variety of health care providers in their states. Recently, AGs in several states have used this authority to scrutinize consolidation and corporate ownership of health care entities, particularly focused on the impact on quality of care. One particular avenue of inquiry appears to be focused on private equity's role in health care service delivery, and several states have proposed or passed legislation that would impact private equity investment in health care, creating a greater role for AGs to review, and in some cases approve, such investments. For example, in 2024, the California legislature passed a bill that would have required private equity firms that intended to buy a "health care facility" (defined broadly to include various types of practice groups, nursing facilities, clinics, ambulatory surgical centers, clinical laboratories, and imaging facilities) to provide 90 days advance notice to the AG of any such transaction. It also would have granted the AG the power to stop the transaction if the AG determined that the sale would create a substantial likelihood of stifling competition or a substantial risk of an adverse effect on community access to health care. Ultimately, Governor Newsom vetoed the bill.
In addition, Massachusetts Governor Maura Healey recently signed into law H.5159, which expands the kinds of transactions that must be reported to the state's Health Policy Commission to include, among other things, all transactions involving private equity investment that result in a change of ownership or control of a provider or provider organization. While it does not appear that the Commission can block transactions under this new process, the law enables the Commission to refer information to the AG, grants the AG broad investigatory powers over PE investments, and reiterates the authority of the AG "to protect consumers in the health care market."
Other states are following suit. In Indiana, Governor Mike Braun has proposed a plan to require all health care private equity deals be approved by the AG. In New Mexico, a proposed bill would require approval of such transactions by the state's Superintendent of Insurance, which is in turn required to provide notices and documents received from any parties of such proposed transaction to the AG (see N.M. S.B. 14). In Pennsylvania, multiple proposed bills last session would have required health systems to provide the AG with advance notice of certain proposed transactions that, in the state's view, might curtail access to care (see H.B. 2344, S.B. 548).
Several other states have proposed legislation to further strengthen existing "corporate practice of medicine" prohibitions limiting control and direction of various activities, including non-clinical functions by entities not owned or controlled by licensed health providers (forestalling traditional PE-backed structures). See, for example, Oregon (SB 951, which would enumerate defined activities constituting unlawful control of a professional entity by a management services organization, and HB 3227, which would limit management services organizations from enforcing non-compete or non-disparagement clauses against providers); South Carolina (General Assembly Bill 46, which would forbid providers from allowing any corporate entity to interfere with a provider's direct duty to patients); and Washington (S.B. 5387, which would limit non-provider ownership or control of medical practices).
More states may follow, particularly depending on the success of these recent efforts. And even without such explicit statutes, state AGs may choose to exercise existing authorities to try to stop or stall transactions or other arrangements that they believe will have adverse consequences for state residents. Health industry participants, especially those with arrangements involving the delivery of health services, should consider proactive efforts to analyze the potential impact of this increased legislative activity and scrutiny on existing operations and arrangements involving health care professionals or the timing for transactions. As part of these efforts, companies may wish to assess alternative structures or safeguards that may mitigate risk.
