A bill requiring private equity firms and hedge fund organizations in California to give prior notice of acquisitions or changes in control to the state’s attorney general could go into effect Jan. 1 if it is signed into law by the governor.
Gov. Gavin Newsom (D) has until the end of September to sign or veto the legislation. The bill, AB 3129, passed in the state Senate Aug. 31 after having previously passed in the state House. It “represents a growing trend of state-level interventions in healthcare transactions, albeit one that is unusually broad in scope,” the National Law Review reported.
Under the bill, the attorney general has the authority to grant, deny or impose conditions to 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 AG must act within 90 days of being notified.
“The bill also bars private equity groups or hedge funds from exercising certain authority over physician, psychiatric and dental practices. However, these restrictions largely reiterate existing laws against the corporate practice of medicine,” according to attorneys at Polsinelli.
The final legislation included some changes from the original bill, which was introduced in February.
According to Polsinelli, transactions with certain types of California healthcare entities were excluded from the notice and consent requirements in the final bill. The final legislation excludes transactions with hospitals, dermatology practices, healthcare service plans subject to review by the state Department of Managed Health Care for cost impact or market consolidation, and transactions where a county is acquiring a healthcare facility, provider group or provider from a private equity group or hedge fund, to ensure continued access to healthcare services in that county and transactions with health districts.
“If enacted, AB 3129’s broad scope, and the consent right that it grants to the attorney general, will likely introduce a layer of uncertainty in healthcare deal-making in California, until such time as market participants better understand the attorney general’s enforcement and review priorities with respect to AB 3129,” the National Review reported. “In addition to the pre-closing notice period delays that AB 3129 introduces, the bill imposes a layer of additional cost and filing burdens upon market participants, in contrast to other states where such transactions are not regulated and require no regulatory filings.”
