As more private equity firms buy health care physician practices and facilities, states are pushing back on acquisitions that some critics say could potentially gut health care infrastructure.
This year alone at least seven states, including California, Indiana, Massachusetts, Maine, New Mexico, Oregon and Washington, have enacted laws requiring more oversight over private equity acquisitions in health care. Private equity involves pooling resources from pension funds, endowments, sovereign wealth funds and wealthy individuals to buy controlling stakes in companies and boost their value — often with the goal of selling at a profit within a few years.
Private equity firms argue that their role in upgrading technology and increasing efficiency helps health care access, especially in rural and other underserved areas.
Private equity interest in health care has been around for a while, but really started to grow in the past decade, said John McDonough, a professor of public health practice at the Harvard T.H. Chan School of Public Health. Now there are private equity interests “in every imaginable iteration of medical care,” from hospitals to nursing homes, hospice care, physician practices and even veterinary care, he said.
This year, several states have passed laws to increase oversight and transparency of private equity’s continuing acquisitions.
Massachusetts and California enacted laws requiring more groups that were not included under previous reporting requirements, such as private equity firms, real estate investment trusts and management service organizations, to now notify the state if they make a health care acquisition and to give the attorney general more power to investigate the transactions. Indiana passed a law that gives the attorney general authority to investigate market concentration.
Oregon passed an oversight law that not only limits how much private equity firms can buy up a health care market, but also bars private equity firms from having any control over clinical operations. The law also gives the state power to block any pending transitions that violate the law. California also enacted another law that prohibits private investors from interfering with the judgment of physicians and dentists.
New Mexico passed a law that strengthened its 2024 Health Care Consolidation Oversight Act, which temporarily gave the state regulators more oversight over transactions. The new law makes that oversight authority permanent and more expansive, while also establishing penalties for non-compliance with reporting requirements. And Washington state passed a transparency law creating a registry of all health care entities.
Maine passed a law to impose a one-year moratorium on all private equity or real estate investment trust purchases of hospitals.
“The purpose of the dealmaking is to enrich the owners as quickly as possible, and then get out and move on to your next conquest,” McDonough said. “And so there’s a fundamental conflict there between duty to patients as a primary obligation and return on profits to shareholders.”
According to researchers from the University of California, Berkeley, the number of acquisitions of physician practices rose from 816 in 2012, to 5,779 in 2021. Researchers also found that some single private equity firms captured 30-50% of specialty practices in local markets.
With limited congressional oversight on private equity actions in health care, states play a critical role in reining in predatory practices, said Michael Fenne, senior policy coordinator at the Private Equity Stakeholder Project, a watchdog group that monitors private equity activity.
“There’s not really federal law that targets private equity acquisitions in the same way [as laws] that states have been passing recently,” he said.
This story was originally published by Stateline. Stateline reporter Shalina Chatlani can be reached at [email protected].
