Bill Name: Assembly Bill 3129 (AB 3129)

Primary Sponsors: Assembly Person Jim Wood and Senator Melissa Hurtado

Status: 9/28/24: Vetoed by Governor

AmSpa’s Take: Several states, including California, view business arrangements between private equity and medical facilities, such as hospitals, with suspicion. However, this type of legislation often casts a too wide net and regulates medical practices that the legislators may not have intended.

Outlook: This bill has passed the Assembly and received a favorable review from the first Senate committee. California has a history of seeking to limit private equity in health care, and this has advanced further in the process than prior efforts.

Analysis: Most states have laws requiring the independence of health care providers to treat their patients. Many go so far as to prohibit non-licensed persons from owning businesses that provide medical services. Recently, some states have sought to limit the business arrangements that health care practitioners can enter into with non-physicians; we discusses a 2021 California effort in this article. Currently, a bill in the California Senate would require hedge funds and private equity firms to seek prior approval from the Attorney General before proceeding with a transaction with a health care entity.

Under AB 3129, hedge funds or private equity firms wanting to close a transaction with a health care provider would need to provide notice to the state attorney general (AG). The notice must be provided at least 90 days before the transaction and contain sufficient information for the AG to evaluate the transaction. If the AG declines to issue a written determination, the transaction may proceed after the 90 days have elapsed. Under certain conditions, the AG may extend this 90-day period by 45 additional days as well as hold a public hearing. In reviewing these transactions, the AG is expected to employ a “public interest” standard, including protecting competitive and accessible health care and reducing the risk of creating monopolies.

If the AG denies the transaction, AB 3129 does provide an administrative appeal process through an evidentiary hearing with an administrative law judge. This option must be elected within 14 days of the denial. Following this process, if the AG withholds consent for the transaction, the hedge fund or private equity group may seek a further judicial review with the superior court. The superior court is directed to issue a response within 180 days.

AB 3129 has gone through several changes as it passed the Assembly and Senate committees. In its most recent iteration, it requires approval for any transaction between a hedge fund or private equity group and:

• A health care facility;
• A provider group;
• A provider, if the hedge fund or private equity group has been involved with another health care transaction in the last seven years; or
• Any of the above under common control of a health insurance payor if the hedge fund or private equity group has been involved with another health care transaction.

“Transaction” is broadly defined and can be a purchase, transfer, lease, joint venture or anything involving a material amount of control or assets, or 15% of the shares or value of the health care entity. In this case, a “provider” is considered a group of two to nine licensed health professionals, and a “provider group” is 10 or more licensed health professionals with gross revenues of more than $25 million. The bill provides a few exceptions that are limited to specific situations, but, in general, a hedge fund or private equity group that regularly does transactions in the health care industry will need to give notice to the AG and wait for approval. Hedge funds and private equity groups are able to request a transaction waiver from the AG if the health care group or provider is in substantial financial difficulty and at risk of closing unless this transaction takes place.

AB 3219 also contains a number of provisions aimed at maintaining the professional independence of health care providers. These prohibitions fall into two general categories:

1. Hedge funds or private equity groups may not interfere in professional judgment, including by determining what diagnostic tests are appropriate, determining the need for referrals or consultations, being responsible for patient care, or determining how many patients a provider should see or how many hours they should work.
2. Hedge funds or private equity groups may not exercise control over or have the power to own patient records, hire or fire professional staff, set parameters that providers may enter into contractual relationships with third-party payors or for delivery of care, decide on the billing or coding procedures for care, or approve medical equipment or supplies.

These extend to prohibiting management contracts from containing non-competes with the providers containing revenue-increasing strategies or commenting on issues of quality of care or professional conduct.

As noted above, AB 3219 has been referred to the Senate’s Committee on Appropriations. If the bill has a favorable recommendation from the committee, it would then be voted on by the whole Senate, placing it one step away from the governor’s desk. The California Senate is presently on recess until August 5; the last day for committees to meet is August 16, and August 31 is the last day to pass bills. Presently, there is a hearing for this bill scheduled for August 5. If you would like information about this hearing or to contact the committee, information is available at their website. If you would like additional information, to read the bill or to contact the sponsors, you can find what you need here.