California Governor Gives Private Equity and Hedge Funds a Reprieve From Attorney General Approval of Health Care Transactions

The governor’s veto of AB 3129 was a surprise to many in the health care industry. Nationwide, there is growing concern among consumer advocates and regulators about the consolidation of health care facilities, physician practices, and other provider organizations by profit-driven private equity firms and hedge funds and the potential adverse impacts on the quality and cost of care. As we noted in our outlook of legal issues facing the health care industry in 2024, state governments are taking steps in response to these concerns to regulate transactions between private equity firms and health care providers.

AB 3129 proposed to require private equity groups and hedge funds to notify and obtain consent from the attorney general prior to entering into a transaction with certain types of California health care facilities and provider groups. In his veto message, the governor noted that OHCA already reviews health care consolidation transactions in its cost and market review of health care-related mergers, acquisitions, and affiliations. OHCA was created in 2022 by the enactment of the California Health Care Quality and Affordability Act (codified in Health & Safety Code §§ 127500 et seq.). The legislative findings in the Act specifically cited market consolidation in the health care industry and rising costs as issues OHCA shall address.

The practical implication of the governor’s veto is that OHCA will remain the lead agency responsible for the review and analysis of these transactions in coordination with the attorney general and other state agencies. As the governor stated in his veto message, OHCA has discretion to refer a transaction to the attorney general for further review.