A bill pending in California's legislature to ratchet up oversight of private equity investments in health care is receiving enthusiastic backing from consumer advocates, labor unions, and the California Medical Association, but drawing heavy fire from hospitals concerned about losing a potential funding source. The legislation, sponsored by Attorney General Rob Bonta, would require private equity groups and hedge funds to notify his office of planned purchases of many types of health care businesses and obtain its consent. It also reinforces state laws that bar nonphysicians from directly employing doctors or directing their activities, which is a primary reason for the doctor association's support.
Private equity firms raise money from institutional investors such as pension funds and typically acquire companies they believe can be run more profitably. Then they look to boost earnings and sell the assets for multiples of what they paid for them. That can be good for future retirees and sometimes for mismanaged companies that need a capital infusion and a new direction.
But critics say the profit-first approach isn't good for health care. Private equity deals in the sector are coming under increased scrutiny around the country amid mounting evidence that they often lead to higher prices, lower-quality care, and reduced access to core health services. Opponents of the bill, led by the state's hospital association, the California Chamber of Commerce, and a national private equ.