On September 28, 2024, California Governor Gavin Newsom vetoed California Assembly Bill 3129 (the Bill). The Bill, if enacted, would have imposed new notice and consent requirements for private equity investors involved in healthcare transactions. Governor Newsom’s veto statement clarifies the Bill’s vetoing, stating that the Office of Health Care Affordability (OHCA) “was created as the responsible state entity to review proposed health care transactions, and it would be more appropriate for the OHCA to oversee these consolidation issues as it is already doing much of this work.” A summary of the Bill’s requirements is included below.

The Bill, if enacted, would have required a private equity group, or a hedge fund, to provide written notice of, and obtain the written consent of, the California Attorney General (CA AG) before certain health care transactions could become effective. This approval would have been required for any transaction in which a private equity group or hedge fund is either indirectly or directly acquiring “more than 15 percent of the market value or ownership shares of the health care facility, provider group, or provider;” or, obtaining “rights significant enough to constitute a change in control, including, but not limited to, supermajority rights, veto rights, exclusivity provisions, and similar provisions.”

The Bill provided a narrow exception from the consent requirement where all of the following apply: (1) the private equity group or hedge fund has not been involved in any healthcare acquisitions in the preceding seven years; (2) the group consists of fewer than 10 providers; and (3) the group’s gross annual revenue is less than $25 million, although notice may still be required.

The Bill would have required that the private equity group or hedge fund submit notice to the CA AG at the same time that any other state or federal agency is notified pursuant to state or federal law and otherwise at least 90 days before the transaction. The Bill would also have authorized the CA AG to extend that 90-day period under certain circumstances. The Bill does not specify the documents that would have to be submitted with the notice filing, but it does require the submission of information sufficient for the CA AG to determine whether approval is appropriate. The documents to be submitted would likely have included (at a minimum) deal documents and related information that communicate the nature of the transaction and its likely impact on competition, costs, and access to healthcare services.

At the end of the 90-day period, the Bill would have authorized the CA AG to consent to, give conditional consent to, or not consent to a transaction between a private equity group or hedge fund and a health care facility, provider group, or provider if the transaction “may have a substantial likelihood of anticompetitive effects, including a substantial risk of lessening competition or of tending to create a monopoly, or may create a significant effect on the access or availability of health care services to the affected community.”

Additionally, the Bill would have prohibited a private equity group or hedge fund involved in any manner with a physician, psychiatric, or dental practice doing business in California from interfering with the professional judgment of physicians, psychiatrists, or dentists in making health care decisions, among other things. Lastly, the Bill would also have authorized the CA AG to adopt regulations and contract with state agencies, experts, or consultants to implement its requirements, as specified.

The Bill follows a broader national trend of heightened notice and consent requirements for health care transactions involving private equity investors.