California’s largest health care businesses get exemptions from proposed hedge fund rules

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California lawmakers are about to vote for the first time on regulating private investment in health care, but the proposal they will be considering will provide deadlocks for some of the industry’s biggest players.

Strong lobbying from health care groups and investors forced Assembly member Jim Wood to agree to exclude for-profit hospitals — about 20% of hospitals — from regulation. .

Proponents of the hotly contested approach warn that privatization is already leading to increased consolidation, higher prices and less access. Opponents argue that the measure will block much-needed investment in health care, leading to reduced services and hospital closures.

Wood, a Democrat from Healdsburg, said during the last committee session that no one is more disappointed than he had to make the deal, but the bill still has value.

“I’d rather move forward with (the private measure) than lose this,” Wood said.

The measures try to put some security into private equity and hedge funds by requiring an attorney to approve most of their health transactions. Corrections do not include hospitals, skin care practices, and government-run facilities.

The attorney general already has the authority to regulate the merger of nonprofit hospitals and impose conditions intended to protect patients and costs, such as prohibiting services from ending services. certain ones.

Although there are exceptions, many types of health care businesses, such as nursing homes, dialysis centers and large physician groups, would be regulated, according to CalMatters’ Digital Democracy project.

More changes are expected when Wood advocates for the bill in the final weeks of the legislative session. Between April and June, a coalition representing hospitals, investors, other dentists and doctors spent $583,000 to advocate against the measure, according to state budget filings. The California Hospital Association, one of the country’s largest political trade unions and affiliates, has spent more than $2 million since January independently on issues it cares about, including opposition to the bill. this one.

Its members include hospitals that have now been exempted from production.

“California has made great strides in improving access to health care in recent years, but parts of the health system remain severely underfunded, undermining the ability of many families and communities to access care that they need,” said Ned Wigglesworth, a spokesman. for Californians to Protect Public Health Care, a coalition that opposes the measure.

Wood, who is not running for re-election, has staked his political legacy on addressing health issues. In 2021, he brokered a deal that created the Office of Health Care, a new agency tasked with controlling health care costs.

Addressing private equity intrusion into health care was Wood’s No. 1 priority in his final weeks as a lawmaker, his staff said. For the five-term lawmaker, the growing market share of private equity in health care is something to be alarmed about. A growing body of evidence across the country suggests private equity purchases lead to higher prices and spending with mixed effects on quality.

“There is absolutely no regulation of private equity in the health care space,” Wood said in a hearing last month.

Some private health care financing options in California

His allies say the proposal would not prevent private investment in health care businesses in California. For example, the attorney general’s office has generally approved mergers and acquisitions of nonprofit hospitals, said Katie Van Deynze, a Health Access California law enforcement expert.

“The history of the attorney general … 80-90% of mergers have been approved,” Van Deynze said. “The goal was to maintain access to care.”

In health care facilities, private equity firms often finance the purchase of hospitals, doctor’s offices, nursing homes and the like with borrowed money. The purchased entity will be responsible for the debt, which the private firms can pay off by increasing capacity or selling assets.

Investors typically sell their acquired assets after three to seven years, according to a national advocacy group called the Private Equity Stakeholder Project. Nationally, private equity has gained a larger share of health care, investing more than $200 billion by 2021 in procurement alone, according to the Commonwealth Fund.

California’s health care companies — battered by rising costs, shrinking margins and the occasional pandemic recovery — have also turned to private investors for cash flow.

Between 2005 and 2021, private equity deals grew from $1 billion to $20 billion annually, according to a recent policy paper from the California Health Care Foundation. The paper identified 22 private hospitals in California. Most of the investments have been in pharmaceuticals and biotechnology.

“It is not an issue that comes up. It exists and it creates problems for the delivery of health care,” Wood said in a recent hearing.

The hospital sold its property to a private equity firm

In one recent example, an $8 million public purchase and federal loan saved Watsonville Community Hospital from bankruptcy after its for-profit owners sold the hospital property to a private equity group. houses, The Wall Street Journal reports. That group, Medical Properties Trust, is also facing the collapse of Steward Health Care System, a 30-hospital chain primarily on the east coast of another private equity firm that filed for bankruptcy earlier this year.

“They take control and bad things happen. How can you see all this and not try to prevent it from happening for the sake of our lives?” Van Deynze said.

But investors and some industry groups have a problem with the perception that private investors are bad actors. The group opposing the measure points to recent partnerships such as those made between UC Davis and UC Irvine and Lifepoint Rehabilitation, supported by the investment firm Apollo Global Management, to open new rehabilitation hospitals.

“The key question we’re asking … is when does less money in the market lower prices?” said Marc Aprea, a sponsor representing the American Investment Council and Children’s Choice Dentistry, during the committee meeting.

Opponents also argue that the new Office of Health Care would have the authority to regulate these transactions. The office has the ability to review how large healthcare transactions affect the market and request data from companies, but it does not have the power to stop business.

Wood insists that these opponents prevented the same control from being given to the office that can be purchased and that as a result it does not have any power over the transaction.

“Let’s get the evidence before we start making policy solutions,” Wigglesworth and the opposition campaigner said.

CaMatters reporter Jeremiah Kimelman contributed to this report.

It is supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a price they can afford. Visit www.chcf.org to learn more.