Will California Regulate Healthcare Hedge Funds? Lawmakers Will Decide Soon – Times-Standard

California lawmakers are preparing to vote for the first time on regulating private capital investment in health care, but the proposal they will consider includes exemptions for some of the industry’s biggest players.

Strong pressure from wealthy health care groups and investors forced Assemblyman Jim Wood to agree to exempt for-profit hospitals (about 20% of hospitals) from oversight.

Supporters of the hotly contested measure warn that private equity takeovers are already causing more consolidation, higher prices and less access. Opponents say the measure will stifle much-needed investment in health care, leading to cuts in services and hospital closures.

Wood, a Healdsburg Democrat, said during a previous committee hearing that no one was more disappointed about having to make concessions than he was, but that the bill still made sense.

“I’d rather make progress (on private equity) than lose it,” Wood said.

The measure attempts to put guardrails in place for private equity and hedge funds by requiring the attorney general to approve most health care transactions. The amendments do not cover hospitals, dermatology practices and government-run facilities.

The attorney general already has the authority to regulate mergers of nonprofit hospitals and set conditions intended to protect patient access and costs, such as preventing facilities from eliminating certain services.

Even with the exemptions, many types of healthcare businesses, such as nursing homes, dialysis centers and large physician groups, would still be subject to regulation, according to CalMatters’ Digital Democracy Project.

More amendments are expected as Wood advocates for the bill in the final weeks of the legislative session. From April to June, a coalition representing hospitals, investors, some dentists and doctors spent $583,000 lobbying against the bill, according to state filings. The California Hospital Association, one of the state’s largest political associations and a member of the coalition, has independently spent more than $2 million since January on issues it cares about, including opposing the bill.

It includes hospitals that are currently excluded from the proposal.

“California has made significant progress in improving access to affordable health care in recent years, but parts of the health care system remain severely underfunded, making it difficult for many families and communities to access the care they need,” said Ned Wigglesworth, spokesman for Californians to Protect Community Health Care, a coalition opposing the measure.

Wood, who is not seeking reelection, has staked his political legacy on tackling thorny health care issues. In 2021, he brokered a deal that created the Office of Health Care Affordability, a new oversight agency tasked with reining in inflationary health care costs.

Addressing the intrusion of private capital into the health care sector has been Wood’s No. 1 priority in his final weeks as a legislator, his staff said. For the five-term legislator, the growing presence of private capital in the health care market is cause for concern. Growing evidence nationwide suggests that private capital acquisitions are leading to higher prices and spending, with mixed results for quality.

“There is no oversight of private capital in the health care sector, period,” Wood said at a hearing last month.

More private equity deals in California’s healthcare sector

His allies say the proposal wouldn’t necessarily prevent private capital from investing in California health care companies. For example, the attorney general’s office has generally approved mergers and acquisitions among nonprofit hospitals, said Katie Van Deynze, a lobbyist at Health Access California, which supports the legislation.

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

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

California health care companies — battered by inflation, shrinking margins and a sometimes rocky recovery from the pandemic — are increasingly turning to private equity investors for cash infusions.

According to a recent policy brief from the California Health Care Foundation, private equity deals have grown from $1 billion to $20 billion annually between 2005 and 2021. The brief identified 22 hospitals owned by private equity in California. Most of the investments were in pharmaceuticals and biotechnology.

“This is not a new problem. It’s here and it’s creating challenges for health care delivery,” Wood said at a recent hearing.

Hospital sells land to private equity firm

In one recent example, a public buyout and $8 million in state loans saved Watsonville Community Hospital from bankruptcy after its for-profit owners sold the hospital site to a private real estate group, The Wall Street Journal reported. That group, Medical Properties Trust, is also embroiled in the collapse of Steward Health Care System, a chain of 30 hospitals mostly on the East Coast owned by another private equity firm that filed for bankruptcy earlier this year.

“They take over and bad things happen. How can you see all this and not try to prevent it from happening to our health care?” Van Deynze said.

But investors and some industry groups dispute the characterization that private equity investors are inherently bad actors. The group opposing the measure points to recent partnerships like those between UC Davis and UC Irvine and Lifepoint Rehabilitation, which is backed by investment firm Apollo Global Management, to open new rehabilitation hospitals.

“The fundamental question we ask… is: When does less capital in the market drive down prices?” Marc Aprea, a lobbyist representing the American Investment Council and Children’s Choice Dental, said during the committee hearing.

Opponents also say the new Office of Health Care Affordability will have some regulatory authority over these deals. The office has the ability to review how large health care deals are affecting the market and request data from companies, but it does not have the authority to stop the deals.

Wood argues that the same opponents have prevented similar regulatory oversight from being granted to the Office of Affordability and that, as a result, the office has no authority over the transactions.

“Let’s gather evidence before we start shaping any policy solutions,” said Wigglesworth of the opposition campaign.

CaMatters reporter Jeremia Kimelman helped prepare this article.

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 find out more.

Originally published: August 19, 2024 at 1:55 PM