Newsom Vetoes California Bill Against Private Equity Firms’ Health Care Takeovers

Gov. Gavin Newsom vetoed a bill that would have given California the ability to block private equity acquisitions of health care facilities.

The proposed legislation would have empowered the state’s attorney general to review and veto deals garnered by private equity firms deemed bad for consumers and patients. It covered transactions involving public hospitals, health systems, physician groups and long-term care facilities operating in California.

A key provision aimed to prevent investors from meddling in health care decisions, ensuring that physicians and medical professionals retain autonomy over patient care.

Newsom said the bill was redundant because the Office of Health Care Affordability already has the authority to review and evaluate health care transactions in the state.

Private equity firms spend about $20 billion a year on health care transactions in California alone and $83 billion nationally. Physician practices are particularly appealing targets, with the number of transactions increasing sixfold over the past decade. While financial firms promise operational efficiency and management expertise, critics said the need for rapid returns — typically within three to seven years — could lead to aggressive cost-cutting measures.

“Investors often decrease staffing ratios, increase prices and buy up multiple health care entities in the same region or specialty to use that market power to hike prices,” said Dr. Christopher Cai, a physician at Brigham and Women’s Hospital and a Harvard Medical School researcher specializing in pharmacoeconomics.

According to a 2021 report from UC Berkeley, the financial pressures created by private equity ownership can push physicians to meet patient quotas, prioritize more lucrative procedures or cut back on less profitable services. Over time, this can erode the quality of care patients receive.

Consumer advocates, labor unions and the California Medical Association called the measure crucial to patient care.

“Today is a sad day for health care consumers,” said Assemblymember Jim Wood (D-Healdsburg), the bill’s sponsor, in a statement. “When we look across the nation, we see private equity’s encroachment into health care growing by leaps and bounds — and I had hoped California would be the first state to provide a preventive and reasonable initial review to protect health care consumers from being the victims of profit-driven investors who are not interested in ensuring that Californians get quality care where they need it and at an affordable price.”

The bill faced fierce opposition from the California Hospital Association and industry groups such as the American Investment Council (AIC) that argued the extra regulation could discourage investment in health care and limit innovation and access to capital.

“The Governor’s well-reasoned decision will help patients and communities continue to have access to quality care,” said Drew Maloney, the Council’s CEO.

Newsom’s veto may negatively influence support for a similar proposal at the national level, where it was introduced by Sen. Ed Markey (D-Massachusetts).