California Gov. Gavin Newsom (D) on Saturday vetoed a bill that would have required private equity firms and hedge fund organizations in the state to provide advance notice to the state’s attorney general of acquisitions or changes in control.
The governor had until the end of September to sign or veto the legislation, which passed in the state Senate Aug. 31 after having previously passed in the state House. If Newsom had signed it, it would have gone into effect Jan. 1.
The bill would have given the attorney general authority to grant, deny or impose conditions on a proposed transaction, after determining the likelihood of anticompetitive effects, “including a substantial risk of lessening competition or of tending to create a monopoly, or may create a significant effect on the access or availability of healthcare services to the affected community.”
The governor’s veto “was a surprise to many in the healthcare industry,” Arent Fox Schiff attorneys wrote for the National Law Review.
“Nationwide, there is growing concern among consumer advocates and regulators about the consolidation of health care facilities, physician practices, and other provider organizations by profit-driven private equity firms and hedge funds and the potential adverse impacts on the quality and cost of care,” the attorneys said. “As we noted in our outlook of legal issues facing the healthcare industry in 2024, state governments are taking steps in response to these concerns to regulate transactions between private equity firms and health care providers.”
In vetoing the legislation, Newsom noted that the state Office of Health Care Affordability already has the authority to review and evaluate healthcare consolidation transactions in the state — including mergers, acquisitions and corporate affiliations — so, he said, it is appropriate for the office to oversee consolidation issues as well.
The OHCA was established in 2022.
“While OHCA itself cannot block a proposed transaction, it can coordinate with other state entities, including referring transactions for further review to the AG,” the governor wrote. “This bill would exempt transactions involving [private equity groups] or hedge funds that would be subject to review by the AG from OHCA’s existing review.”
The bottom line, according to Arent Fox Schiff, “is that OHCA will remain the lead agency responsible for the review and analysis of these transactions in coordination with the attorney general and other state agencies.”
