Bill rejected by Newsom would have let attorney general deny mergers after recent scandal involving Stewart Health
Hopes to rein in private equity investment in healthcare died in California last weekend, as a nationally watched bill was vetoed by the Democratic governor, Gavin Newsom.
The bill was the nation’s most high-profile legislative effort to regulate such investments in healthcare, and would have given the state attorney general discretion to deny mergers.
Its demise comes amid US Senate hearings over mismanagement at Steward Health, a chain of more than 30 private equity-backed hospitals in Massachusetts whose CEO and investors siphoned “hundreds of millions” of dollars from community hospitals even as they developed one of the worst patient care records in the country.
“We’re really disappointed to see this bill was vetoed,” said Katie Van Deynze, a legislative advocate for Health Access California, a consumer advocacy coalition that lobbied in favor of the bill. “There are a lot of other states and folks who were watching this.”
The bill received an endorsement this summer from Lina Khan, chair of the Federal Trade Commission, the agency responsible for enforcing antitrust regulations. A dozen other US states, including red states such as Indiana, either have merger review laws on the books or considered similar legislation this year.
Private equity investors have gained an enormous foothold in American healthcare in the last decade, buying up $1tn worth of physician practices, hospitals, specialty practices and even hospice centers. California alone has seen $20bn in private equity investment.
The bill, formally known as AB 3129, would have required private equity and hedge fund-backed buyers of certain healthcare businesses to seek the state attorney general’s approval 90 days before a deal was slated to close, and given the attorney general the option to deny such mergers. The bill would have also prohibited investor-owners from interfering with professional medical judgment of providers from dentists to psychiatrists, strengthening so-called corporate practice of medicine laws.
That kind of power could have altered the playing field for regulators, who often have little power to challenge mergers until organizations grow into behemoths or display anticompetitive behavior.
In response to a request for comment, the private equity lobbying group the American Investment Council directed the Guardian to a statement saying it “applauds” the Newsom veto.
“Our coalition worked hard to ensure California leaders recognize and support private equity’s essential role in improving health care in California,” the statement said. “The Governor’s well-reasoned decision will help patients and communities continue to have access to quality care.”
In a letter explaining the veto, Newsom said: “I appreciate the author’s continued efforts and partnership to increase oversight of California’s healthcare system”. However, he argued that a recently created state agency should instead oversee healthcare consolidation. “For these reasons, I cannot sign this bill.”
Newsom is an important surrogate for Vice-President Kamala Harris, who has a track record of critically examining such consolidation in healthcare. As attorney general of California, Harris intervened to stop mega-mergers and oversaw settlements against major players, such as Quest Diagnostics laboratories and McKesson, a medical supplies behemoth.
Private equity investment received special scrutiny this year as the indignities of patients at Steward Healthcare have come to light, following an investigative series by the Boston Globe. At Steward, reporters and now legislators have documented how investors extracted hundreds of millions of dollars from hospitals, even as many lacked staff and basic supplies.
In recent testimony before the US Senate health, education, labor and pensions committee, a nurse recounted how the hospital was so stingy that it lacked “bereavement boxes”, containers specially designed for infants’ remains.
“Steward didn’t pay the vendor and there weren’t any bereavement boxes,” said a former Steward nurse, Ellen MacInnis, as she paused to gather emotions. “And nurses were forced to put babies’ remains in cardboard shipping boxes.”
At the same time, academic research is beginning to reveal the disadvantages such ownership structures appear to present for patients. Patient care, “is intrinsically a human endeavor, it is intrinsically an art practiced with a bond of trust ideally between a patient and a clinician”, said Dr Zirui Song, a professor of healthcare policy at Harvard University and a general practitioner at Massachusetts general hospital.
Song was lead author of a 2023 Jama study examining private equity-owned hospitals. The research studied preventable injuries and illnesses in more than 662,000 hospitalizations at 51 private equity-backed hospitals. Researchers compared those hospital stays with 4.1m hospitalizations at 259 control hospitals. All of the data was derived from Medicare, the federal public health insurance program covering people older than 65 and the disabled.
Researchers found a more than 25% increase in incidents such as falls and infections of central lines, tubes inserted near the heart to deliver medicine, fluids and nutrition. That happened even though private equity-backed hospitals tended to admit more socioeconomically advantaged patients.
“We should be seeing fewer complications and yet we’re seeing an increase in complications,” said Song. Increased charges and billing, another well-documented strategy firms use to extract profit, are ultimately paid by “society as a whole”, because healthcare is primarily financed through taxes and wages foregone by employees who receive private insurance.
“This bill was fought at every point by mostly the private equity folks, but also others that didn’t want any of their investment opportunities hamstrung,” said Rachel Linn Gish, communications director at Health Access California. For instance, the state’s hospital association opposed AB 3129 even after lawmakers exempted hospitals from the oversight, Van Deynze said.
“Our argument has always been: we’re not preventing private equity from buying hospitals and doctors’ offices,” said Gish. “All we want is to make sure there’s not going to be a decrease in access and increase in price … If you continue to provide good and quality healthcare you shouldn’t face any issues.”
Reprinted from “The Guardian”
