California Bills Target Private Funds in Healthcare

Healthcare Transactions attorney John Saran was interviewed by Private Funds CFO about a pair of bills in California that increase restrictions on private equity in healthcare and how the proposed legislation fits into the broader context of state-level efforts to regulate this area. Senate Bill (SB) 351 and Assembly Bill (AB) 1415, awaiting approval from Gov. Gavin Newsom, would add management services organizations (MSOs) to the list of businesses required to report transactions to the state's Office of Health Care Affordability as well as strengthen existing corporate practice of medicine rules to prevent private equity firms or hedge fund managers from becoming involved in decisions about patient care. Mr. Saran noted the bills draw similarities to AB 3129, which Newsom vetoed last year, and questioned how they would avoid the kind of redundancy the governor cited in his decision to nix the proposed law.

In terms of other state legislatures, he highlighted a shift away from platform-specific rules and toward more general regulations requiring companies to file with state attorneys general (AGs) in conjunction with filing for federal merger approval. With Oregon's strict corporate practice of medicine bill an exception, this trend represents a compromise and a point of relief for providers. However, Mr. Saran cautioned, Newsom's signing of SB 351 and/or AB 1415 could swing the pendulum in the other direction.

"California coming in second with a corporate practice bill, will, I think, determine whether it becomes a trend, or it's just Oregon on an island," he observed. "I think it's going to be tough to try and get things passed next year without California approving one or both of these bills. So we'll see."

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