California Attorney introduces legislation to scrutiny PE healthcare acquisitions

Legislation introduced by California Attorney General Rob Bonta and Assembly Speaker pro Tempore Jim Wood (D-Healdsburg) in the Golden State would give the attorney general oversight of private equity and hedge fund acquisitions of long-term care and other healthcare facilities.

Backers of AB 3129 say that it would “safeguard fair competition and root out anticompetitive practices by dominant corporations” as well as “ensure that the acquisitions are in the public interest.”

Under the bill, the AG could grant, deny or impose conditions to a change of control or acquisition between a private equity group or hedge fund and a long-term care or other healthcare facility.

“Too often, private equity has served corporate profiteers by maximizing their profits at the expense of access, quality and affordability of healthcare for Californians,” Bonta said Feb. 20 in a statement.

The bill would apply to nonprofit and for-profit settings where physician, surgery or laboratory services are provided, including long-term care facilities, hospitals, clinics, ambulatory surgery centers, treatment centers, laboratories and physician offices, among other types of locations.

“A majority of studies show that healthcare consolidations are not lowering costs for anyone but the entities consolidating, including those acquired by private equity or hedge funds,” said Wood, who noted that he had practiced dentistry for more than 30 years. “We are often led to believe that these consolidations will save money and that it’s good for consumers, but what we are actually seeing in healthcare is that it reduces competition and results in higher corporate and shareholder profits.”

Nationally, a recent report from corporate research firm PitchBook found that private equity and real estate investment trusts finalized fewer skilled nursing deals in 2023 than in any year since the Covid-19 pandemic began. Private equity deals in healthcare overall declined moderately last year — approximately 16% since 2022 — but skilled nursing was among the sectors with the steepest decline, according to the report.

Private equity firms own 5% to 11% of US nursing homes as well as “a rapidly increasing percentage of hospice and home care agencies,” according to research cited by James Webster, MD, MS, in an opinion piece for the Journal of the American Geriatrics Society. He is the Gertz Professor of Medicine Emeritus of the Feinberg School of Medicine of Northwestern University.

“They promise ‘financial engineering’ miracles to restore profitability,” Webster wrote. “While some ‘back-office’ efficiencies do generally occur, most of their activities are draconian cost and care-cutting plans along with business actions such as leveraged buy-outs, paying themselves large management fees with bonuses, and using the organization’s own resources to take out huge debts.”

Solutions, Webster said, include “serious federal and local government and health department oversight.”

“New legislation and regulations could enforce quality and safety standards of staffing and care, some of which have already been proposed, as well as legal interventions to prevent PE’s current multiple, outrageous, unregulated financial and care abuses, outright neglect and questionable illegal behaviors,” he said. “Such changes, particularly welcome if accompanied by a complete revision of our non-system of healthcare delivery, are finally starting to be talked about in Congress and by President Biden. This would vastly improve care and could save billions of Medicare dollars annually.” McKnight’s Senior Living