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California’s Private Equity Bill Set for Committee Hearing

California’s Senate Appropriations Committee will hold a hearing on California’s private equity bill, AB 3129, on August 15, 2024. This proposed legislation would expand existing California Attorney General authority to include review and approval authority over most healthcare private equity transactions. AB 3129 also targets certain management activities that are believed to interfere with the judgment of licensed providers. &nbsp;

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AB 3129 is sponsored by Attorney General Rob Bonta and follows prior failed attempts at similar legislation in 2020 and 2022. Notably, the bill passed with a substantial majority in the California Assembly in May and accompanies a&nbsp;<a href="https://www.bakerlaw.com/insights/prepare-to-be-under-the-microscope-transaction-review-laws-in-healthcare-and-private-equity-ma/" target="_blank" rel="noreferrer noopener">wave of healthcare transaction review legislative efforts across several states.</a>

Private Equity Transaction Notice and Approval

AB 3129 would require private equity groups or hedge funds to provide written notice to the California Attorney General and obtain consent (conditional or otherwise) before closing a transaction involving a healthcare facility, provider groups and certain other providers under common control or affiliated with a payor. Expanded notice requirements apply to private equity groups or hedge funds that have been involved in healthcare transactions in the past seven years.&nbsp;Notice must be provided at the same time that any other state or federal agency is notified or at least 90 days “before the transaction.”

Prohibition on Certain Management Practices

In addition to the transaction reporting element, AB 3129 would broadly prohibit activities that “interfere with the judgment of physicians, psychiatrists, or dentists in making health care decisions.” For example, the bill references determinations related to the type of diagnostic tests used for particular conditions, the need for referrals to other providers or how many patients a provider will see in a given period of time. The bill also discusses control over medical records, hiring/firing decisions for clinical staff based on clinical competency, contracts with third-party payers and other providers, billing and coding decisions, and the selection of medical equipment and supplies.

AB 3129 is similar to existing California law that requires nonprofit organizations that operate or control a healthcare facility in California to provide notice and obtain Attorney General consent prior to transactions that transfer California healthcare facilities to a different nonprofit or to a for-profit entity (Cal. Corp. Code § 5914 and § 5920). AB 3129 also mirrors certain definitions used in California’s broader healthcare transaction review law (Cal. Health &amp; Saf. Code § 127501&nbsp;et seq.) and the transaction review process overseen by the California Office of Health Care Affordability.

California’s legislature has substantially amended AB 3129 following its introduction in February, and the bill could see further revisions. If passed, AB 3129 is expected to apply to transactions on and after&nbsp;January 1, 2025.

For additional information on this topic, please contact Sarah Browning at <a href="mailto:sbrowning@bakerhostetler.com" target="_blank" rel="noreferrer noopener">sbrowning@bakerhostetler.com</a>.

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