California Takes Action: New Legislation Aims to Limit Private Equity Control Over Health Care Providers

California lawmakers have introduced a new bill, SB 351, which aims to place restrictions on private equity investments in healthcare, similar to last year’s AB 3129. This new legislation would impact how private equity companies interact with doctors and dentists, particularly regarding management agreements. However, it does not include a requirement for the California Attorney General to approve certain transactions, which was part of the previous bill. You can find the text of the proposed legislation here.

SB 351 indicates California’s commitment to limiting the influence of private equity firms in healthcare. The bill draws on existing laws that already restrict corporate practices in medicine and dentistry.

Key Features of SB 351

One of the main points of SB 351 is the definition of a “private equity group.” According to the bill, this refers to any investor or group focused on raising capital and investing in various assets. However, individuals who only provide funds without managing the group are not classified as private equity groups.

The bill states that private equity groups connected to healthcare cannot:

• Interfere with healthcare decisions made by physicians or dentists. This includes:
• Choosing necessary diagnostic tests.
• Deciding on referrals to other healthcare professionals.
• Managing overall patient care and treatment options.
• Regulating patient volume or work hours for healthcare providers.
• Control or influence various aspects of a physician’s or dentist’s practice, including:
• Access to or ownership of patient medical records.
• Hiring or firing staff based on clinical skills.
• Setting terms for contracts with third-party payers and other healthcare providers.
• Determining billing and coding processes.
• Choosing medical equipment and supplies.

Additionally, SB 351 mandates that contracts relating to the management of a healthcare practice cannot include clauses that restrict providers from competing with their practice or speaking negatively about it after leaving.

The bill also empowers the California Attorney General to seek enforcement measures for violations. Importantly, this new legislation does not seek to limit existing California laws that govern the corporate practice of medicine and dentistry.

What This Means for Healthcare

SB 351 shows California’s ongoing effort to regulate private equity’s role in healthcare, a trend seen across the country. While much of the bill echoes existing laws, it specifically targets the influence of private equity firms on medical practices.

It’s noteworthy that the bill does not ban most management service organization (MSO) arrangements, as long as they adhere to these new regulations. Therefore, healthcare providers involved with private equity should carefully assess their current agreements to ensure they remain compliant with both existing laws and the new bill, should it pass.