California Gov. Gavin Newsom has vetoed a bill that was designed to require state approval for healthcare merger and acquisition deals involving private investors. The scrutiny was meant to increase oversight of private equity and hedge fund ownership transactions that have the potential to lead to consolidations and closures of healthcare provider operations. However, it’s important to note the reason behind the veto. Newsom reasoned that California has an existing Office of Health Care Affordability that was established in 2022 to evaluate the cost and market impact of healthcare transactions, and additional regulations are not needed, he says. Even though the existing office does not have the authority to block ownership deals, it can prompt other state officials to oversee transactions. Oregon had a similar bill that eventually died on its Senate floor. “It would have eliminated or heavily restricted non-physician owned management services organizations (MSOs), which are the entities that own and control the business of medical practice,” says Alan A. Ayers, MBA, MAcc, President of Urgent Care Consultants and Senior Editor of JUCM. “Eliminating MSOs in effect would have eliminated the structure by which private equity and other non-physicians could invest in medical businesses. That could have left existing private equity-backed practices in Oregon with no choice but to sell, likely to hospitals, which would only have increased the concentration and power of health systems.”
Case in point: As more lawmakers dig into healthcare deals and their effect on the market, they are likely watching the Steward Health Care situation in Massachusetts. In this case, lawmakers believe the system’s private equity owners grossly mismanaged the organization resulting in $9 billion in debt and a bankruptcy in May, causing the closure or proposed sell-off of its 31 hospitals. In Washington, D.C., a Senate committee subpoenaed Steward’s CEO, but he didn’t appear at the scheduled hearing in September. He has since resigned. Steward owners maintain that the company’s financial situation is a reflection of the larger healthcare industry challenges.