California is progressing toward passing a bill that will expand its oversight and control of healthcare transactions involving private equity groups or hedge funds. The bill, which would cover transactions entered into, on, or after January 1, 2025, would require the state’s Attorney General to preapprove certain transactions and would prohibit private equity group or hedge fund control over physician or psychiatric practices. It would also prohibit certain common economic relationships of private equity groups and hedge funds with physician or psychiatric practices. The bill reflects California’s increasing efforts to oversee and regulate healthcare transactions, adding to the onslaught of state legislation intended to regulate the healthcare industry, some of which now faces constitutional challenges. As of the writing of this article, the California Assembly passed the bill by a vote of 50–16, and it has been sent to the State Senate for further consideration. If enacted, the bill could pose significant limitations, delays, or uncertainties on financial sponsors and their portfolio companies on their acquisition or divestiture of provider practices, as well as common control and economic arrangements with their current or future investments.
In this article, Sidley partners Jon Zucker and David Carpenter, and associate Gabrielle Feliciani, outline the terms of the proposed legislation, the potential implications of the proposed legislation on healthcare transactions involving private equity groups or hedge funds, the definitions of certain key terms, and the notice and consent provisions of the bill. They also discuss similar legislation in other states.
These authors previously published a Sidley alert on this topic.
