The governor vetoed a private equity bill that would have impacted health care deals

California Gov. Gavin Newsom (D-Md.) on Saturday vetoed a bill that would have required the state’s private equity firms and hedge fund organizations to notify the state attorney general in advance of acquisitions or changes in control.

The governor had until the end of September to sign or veto the bill, which passed the state Senate on Aug. 31 after earlier passage by the state House. If Newsom signed it, it would go into effect on January 1.

The bill would give the attorney general the power to grant, deny or impose conditions on a proposed transaction after determining the likelihood of anticompetitive effects, “including a significant risk of restriction of competition or a tendency to create a monopoly, or is likely to create a significant effect on the access or availability of health care services to the affected community.”

The governor’s veto “came as a surprise to many in the health care industry,” attorneys Arent Fox Schiff wrote for the National Law Review.

“Across the country, there is growing concern among consumer advocates and regulators about the consolidation of health care facilities, medical practices and other service organizations by for-profit private equity firms and hedge funds and the potential for adverse effects on the quality and cost of care,” the lawyers said. “As we noted in our forecast of legal issues facing the healthcare industry in 2024, state governments are taking steps in response to these concerns to regulate transactions between private equity firms and healthcare providers.”

In vetoing the bill, Newsom noted that the state Office of Health Care Affordability already has the authority to review and evaluate health care consolidation transactions in the state – including mergers, acquisitions and corporate affiliations – so he said it is appropriate for the office to also oversee issues consolidation.

OHCA was established in 2022.

“While OHCA cannot itself block a proposed transaction, it may coordinate with other state entities, including referring transactions for further review by the AG,” the governor wrote. “This bill would exempt transactions involving (private equity groups) or hedge funds that would be subject to AG review from existing OHCA review.”

What’s most important, according to Arent Fox Schiff, is that “OHCA will remain the lead agency responsible for reviewing and analyzing these transactions in cooperation with the attorney general and other state agencies.”