Two state bills seeking more oversight of private equity investments in the health care industry are making their way to Gov. Gavin Newsom’s desk for his signature.

Los Angeles representatives of the private equity and venture capital space are most concerned with how one of the two bills, AB 1415, could impact the management of hospitals and doctors’ offices owned by private equity.

Authored by Assemblymember Mia Bonta, (D-Oakland), who is chair of the State Assembly Committee on Health, AB 1415 seeks to extend oversight on private equity investments in health care by allowing the Office of Healthcare Affordability (OHCA) to collect information on the firms involved in these transactions. The state senate bill (SB 351), authored by Sen. Chris Cabaldon (D-West Sacramento), seeks to prohibit private-equity and hedge fund interests from influencing doctors’ decisions of medical and dental practices owned by such finance companies.

Darren Eng, executive director of the Los Angeles Venture Association, said AB 1415 would be burdensome for investors in healthcare. “The language of the legislation is creating uncertainty. Investors prefer more clarity and consistency,” Eng said.

‘Modern enforcement tools’

The authors of the two bills contend that the legislation will right wrongs in health care.

Cabaldon said that private equity in health care has quintupled over the past decade. “That kind of growth demands modern enforcement tools, not to restrict investment, but to make sure it doesn’t hurt patient outcomes or drive up the cost of care,” Cabaldon said in a prepared statement.

Bonta also claimed the private equity investment in health care has driven up costs in the industry. “AB 1415 ensures that Californians have a watchdog when it comes to the billions of dollars of private equity transactions in California’s health care system,” Bonta said in a statement.

“This bill is a crucial step to close the gaps in the Office of Health Care Affordability’s oversight abilities at a time when our constituents are demanding that we take action to protect access to affordable and high-quality care,” she said.

SB351 received a unanimous vote within the state assembly on Sept. 12. The same day, the Senate approved the bill in a vote of 32 to three. Five ‘no votes’ were recorded. As for AB 1415, the assembly passed it in a 51 to 19 vote on Sept. 8. Within the senate, it also won approval on Sept. 4 in a 26 to 10 vote.

The predecessor: AB 3129

Both bills made their way through Sacramento after a similar legislation, AB 3129, was vetoed by Newsom in 2024. It called for the state Attorney General’s office to review significant mergers and acquisitions in health care. In his veto, Newsom said that OHCA should serve as the state agency tasked with reviewing major health care transactions.

Travis Jackson, a partner with the Century City office of McDermott, Will & Schulte and co-leader of its hospital and health systems practice, said that state legislatures embraced the message of Newsom’s veto.

“SB 351 and AB 1415, together pick up pieces of AB 3129, but neither bill is as sweeping nor as detrimental as AB 3129 would have been to California health care investment,” Jackson said.

 “At its core, SB 351 codifies existing guidance from the state medical board for physicians and then applies that guidance to dentists as well,” Jackson said. “I think that’s why it passed so overwhelmingly in the assembly and state senate.”

Jackson added that many private equity investors and hedge fund managers “had already structured their relationships” within the health care sector in a manner that aligned with core of SB 351.

“Still, given the attention to SB 351 and the focus on private equity, entities with private equity investments should review their structures and make sure their agreements comply with SB 351,” he said.

The opposition

However, AB 1415 had received much opposition. Mark Farouk, the California Hospital Association’s vice president of state advocacy, urged in a statement that the Senate vote against the bill.

“The bill would delay the reopening of closed health care providers and exacerbate hospitals financial distress,” he wrote in August.

Eng of Los Angeles Venture Association said that the intentions of the bill were good, but it was poorly written. “The definition of a private equity group is so broad that it sweeps in venture activity, creating uncertainty for firms that are not driving up health care costs,” Eng said.

Jackson said AB 1415 has the potential to stifle investment in health care systems. He noted that OHCA may not have the capacity to review the plethora of transactions that flow through the office.

“For example, if OHCA does not have enough staff, will it request voluntary extensions of review timelines or be incentivized to buy time by conducting unnecessary cost and market impact reviews?”Jackson said. “The potential for needless delay is a definite concern.”