What's Happening?
California Governor Gavin Newsom has signed into law Assembly Bill 1415, which mandates private equity firms to notify the state Office of Health Care Affordability before engaging in major health care
transactions. This legislation requires firms to disclose details about ownership and profit flows, aiming to increase transparency in the health care sector. Additionally, Senate Bill 41 was signed to impose further regulatory scrutiny on pharmacy benefits managers. These laws, effective January 1, 2026, are part of a broader trend where states like Oregon, Massachusetts, and Indiana have enacted similar regulations. The goal is to allow states to review health care deals before they are finalized, ensuring that financial interests do not compromise public health and safety.
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. According to the Private Equity Stakeholder Project, private equity firms own 22% of the U.S.'s for-profit hospitals, with a notable presence in rural areas. Concerns have been raised about these firms prioritizing financial returns over quality of care, leading to understaffing and hospital closures. A Harvard study highlighted increased patient mortality and adverse events in private equity-owned hospitals. These regulations aim to mitigate such risks by ensuring that health care decisions prioritize patient welfare over financial gains. However, there is concern that increased regulation may deter investment in states with stringent laws.
What's Next?
The new California law will take effect on January 1, 2026, and other states are considering similar legislation. States with existing regulations may strengthen them further. The impact of these laws will depend on how aggressively they are enforced. Firms involved in multi-state transactions will need to navigate varying regulatory landscapes, potentially complicating deals. The industry will closely monitor how these regulations affect investment flows and health care practices.
Beyond the Headlines
The increased regulation of private equity in health care raises ethical questions about the balance between financial interests and patient care. The trend reflects a growing concern over the corporatization of health care and its impact on service quality. As states implement these laws, the tension between proprietary business information and regulatory transparency will be a critical issue. The evolving legal landscape may lead to more comprehensive disclosure requirements, affecting how private equity firms operate in the health care sector.
