What's Happening?
California Governor Gavin Newsom has signed into law a bill requiring increased transparency for private equity transactions in the health care sector. This legislation, Assembly Bill 1415, mandates private equity firms to notify the state Office of Health
Care Affordability before major transactions and provide detailed information on ownership and profit flows. Additionally, Senate Bill 41 introduces further regulatory scrutiny on pharmacy benefits managers. These laws, effective January 1, 2026, are part of a broader trend among states like Oregon, Massachusetts, and Indiana, which have enacted similar regulations. The aim is to allow states to review health care deals before they close, ensuring public health and safety are prioritized over financial interests.
Why It's Important?
The regulation of private equity in health care is significant due to the substantial influence these firms have on medical care decisions. A U.S. Senate Budget Committee report highlighted concerns about private equity's focus on financial goals over quality of care, citing health and safety violations and hospital closures. With private equity owning 22% of for-profit hospitals, including many in rural areas, the impact on patient care is profound. Studies have shown higher patient mortality rates and adverse events in private equity-owned hospitals. These state laws aim to mitigate potential harm by ensuring transparency and accountability in health care transactions.
What's Next?
The new California laws will take effect in 2026, and other states are considering similar legislation. States with existing regulations may strengthen them further. The enforcement of these laws will vary, with some states potentially adopting aggressive review processes. Companies involved in multi-state transactions will need to navigate differing regulations, complicating cross-state deals. The evolving legal landscape requires firms to remain vigilant about compliance and anticipate extended merger reviews or blocked transactions.
Beyond the Headlines
The increased scrutiny on private equity in health care raises ethical questions about the balance between financial interests and patient care. The trend towards greater regulation reflects a societal shift towards prioritizing public health over corporate profits. As states continue to enact and refine these laws, the long-term impact on investment patterns and health care delivery will become clearer.
