Legislation targeting private equity-linked healthcare transactions faltered in several state legislatures this year, potentially deterring other states from considering similar bills and teeing up more dealmaking over the next year.
More than a dozen states have passed laws over the last several years bolstering notification requirements for healthcare transactions, some of which specifically cite corporate owners of healthcare entities like private equity and real estate investment companies. But last week, California Gov. Gavin Newsom (D) vetoed the most ambitious state-led private equity oversight bill under consideration this year. In doing so, the Golden State became the sixth state to nix legislation designed to bolster merger reviews.
Related: States strengthen defense against private equity healthcare deals
Indiana and New Mexico bucked the trend and passed bills this year strengthening the merger and acquisition notification process. Still, the bills that stalled across six states may cause state lawmakers to reconsider broader legislative pushes, experts said.
Here’s what to know about where state and federal efforts stand and how they may sway mergers and acquisitions.
How will the veto in California affect other states?
California's private equity-related bill was the most aggressive state-led legislation. As a result of the veto, other state policymakers considering similar legislation might face more resistance, healthcare attorneys said.
"I would expect Gov. Newsom’s veto to chill efforts in other states to provide sweeping regulatory power to a state attorney general or other agency," said Travis Jackson, a healthcare lawyer at McDermott Will & Emery. "His veto may signal other states to proceed cautiously, and take a look at whether they have existing mechanisms to address healthcare transactions."
California's bill was aimed at trying to close a loophole in an existing corporate practice of medicine law. The bill would have made California the first state to augment a corporate practice law to prevent private equity firms and other corporate investors from controlling a physician group through management services organizations. It would have also required a 90-day notice and the attorney general’s approval of healthcare transactions involving private equity firms or hedge funds.
Newsom said in a note accompanying the veto that oversight of these types of transactions is important, but the legislation would have overlapped too much with the Office of Health Care Affordability, which the state established in 2022 to evaluate healthcare deals. The office began reviewing transactions in April.
What other state bills stalled this year?
Many states have already passed straightforward merger notification laws, and are looking to craft more comprehensive bills. But those bills are proving harder to get past the finish line, as merger and acquisition oversight legislation fell flat in Connecticut, Massachusetts, Minnesota, Oregon and Washington, as well as California this year.
Connecticut’s bill would have required the state's Office of Health Strategy to implement a plan to manage private equity-linked healthcare transactions, potentially requiring the state to issue a certificate of need for those deals.
The Massachusetts legislation would have required hospitals to own their real estate and forced facilities to disclose audited financial statements about their parent organization’s out-of-state operations, private equity investors, real estate investment trusts and management service organizations.
Minnesota’s bill would have prohibited any private equity company or real estate investment trust from acquiring healthcare providers.
The Oregon legislation would have limited the control that private equity-backed management service organizations have over for-profit physician groups. But Oregon already passed a law in 2022 giving the Oregon Health Authority the power to block or authorize healthcare transactions involving corporate investors.
The Washington bill would have required providers' parent companies, including private equity firms, to notify the attorney general about a proposed deal 120 days prior to its closing.
What laws did Indiana and New Mexico pass?
Indiana passed a law that took effect in July requiring healthcare entities with at least $10 million in total assets and private equity firms to notify state officials about pending mergers or acquisitions 90 days before transactions close.
New Mexico implemented a similar bill in March, requiring 120 days notice for healthcare transactions. But, unlike the Indiana law, New Mexico's statute gives state officials authority to approve transactions, approve them with conditions or deny them.
The Hoosier State, among others, aims to fill holes in federal antitrust law that state policymakers deem too permissive or too slow, lawyers said.
“States don't feel the FTC has been aggressive enough in healthcare, and have attempted to fill that gap,” Jackson said.
How is the federal government probing private equity?
As state laws take shape, the federal government seeks more information that agencies say will help them craft more robust regulations.
The Federal Trade Commission, Justice Department and Health and Human Services Department launched a probe in March, requesting information on the effects of private equity and other corporate investor-backed healthcare transactions, especially those involving companies the FTC deems serial acquirers.
The FTC honed in on Texas in a lawsuit against U.S. Anesthesia Partners and Welsh, Carson, Anderson & Stowe, a private equity firm that has a minority ownership stake in the physician group. The FTC alleges in a September 2023 complaint that U.S. Anesthesia Partners consolidated physician practices in Texas, inflating the cost of care for patients in the state.
In May, the U.S. District Court for the Southern District of Texas dropped Welsh, Carson, Anderson & Stowe from the lawsuit, although the court allowed the FTC to pursue its antitrust violation claims involving U.S. Anesthesia Partners' acquisition strategy.
How will state activity affect mergers and acquisitions?
Many healthcare investors and providers considering mergers and acquisitions in California were pausing deal activity until Newsom acted, healthcare lawyers said.
After Newsom stopped the bill, merger and acquisition activity is expected to increase in that state and beyond.
The stalled bills in the six states, combined with the Federal Reserve’s decision last month to cut its benchmark interest rate for the first time since 2020, may lead to more dealmaking, said John Saran, a healthcare attorney at the law firm Holland & Knight.
“The potential for scrutiny might persist, but I do think that the outlook for deals being done in 2025 saw an improvement from three weeks ago,” he said.