California bill would tighten oversight on private equity hospital purchases

California lawmakers are considering a bill that would tighten oversight of private equity and hedge fund buyers of hospitals and healthcare facilities.

Private equity investment in hospitals and physician groups has been under scrutiny in recent months after a slew of high-profile failures, including bankruptcies and hospital closures.

California lawmakers have drafted a bill that would require private equity firms and hedge funds to give the state attorney general written notice before purchasing a healthcare facility or provider group. The attorney general would have to approve the transaction. Buyers would also be required to submit written notice to any federal or state agency as required by law within 90 days of the transaction, and the attorney general could extend that period.

The bill gives the attorney general the power to halt an acquisition if there is a "substantial likelihood of anticompetitive effects" or if it would affect access of healthcare services delivered to the community.

Physician groups would also be affected by the bill; private equity groups or hedge funds would be prohibited from controlling the practice and the practice physicians would not be able to sign a deal with an entity partially or wholly directed by a private equity group or hedge fund if those firms provide other services to the physicians for a fee.

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