Bill Text: CA AB3129 | 2023-2024 | Regular Session | Introduced

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Health care system consolidation.

Spectrum: Partisan Bill (Democrat 2-0)

Status: (Enrolled) 2024-09-13 - Enrolled and presented to the Governor at 4 p.m. [AB3129 Detail]

Download: California-2023-AB3129-Introduced.html

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CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Assembly Bill

No. 3129

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Introduced by Assembly Member Wood

February 16, 2024

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An act to add Division 1.7 (commencing with Section 1190) to the Health and Safety Code, relating to health facilities.

LEGISLATIVE COUNSEL'S DIGEST

AB 3129, as introduced, Wood. Health care system consolidation.

Existing law requires a nonprofit corporation that operates or controls a health facility or other facility that provides similar health care to provide written notice to, and to obtain the written consent of, the Attorney General prior to entering into any agreement or transaction to sell, transfer, lease, exchange, option, convey, or otherwise dispose of the asset, or to transfer control, responsibility, or governance of the asset or operation, to a for-profit corporation or entity, to a mutual benefit corporation or entity, or to a nonprofit corporation, as specified.

This bill would require a private equity group or a hedge fund, as defined, to provide written notice to, and obtain the written consent of, the Attorney General prior to a change of control or an acquisition between the private equity group or hedge fund and a health care facility or provider group, as those terms are defined, except as specified. The bill would require the notice to be submitted 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 change in control or acquisition. The bill would authorize the Attorney General to extend that 90-day period under certain circumstances. The bill would additionally require a private equity group or hedge fund to provide advance written notice to the Attorney General prior to a change of control or acquisition between a private equity group or hedge fund and a nonphysician provider, or a provider with specified annual revenue.

The bill would authorize the Attorney General to give the private equity group or hedge fund a written waiver or the notice and consent requirements if specified conditions apply, including, but not limited to, that the party makes a written waiver request, the party’s operating costs have exceeded its operating revenue in the relevant market for 3 or more years and the party cannot meet its debts, and the acquisition or change of control will ensure continued health care access in the relevant markets. The bill would require the Attorney General to grant or deny the waiver within 60 days, as prescribed.

The bill would authorize the Attorney General to grant, deny, or impose conditions to a change of control or an acquisition between a private equity group or hedge fund and a health care facility, provider group, or both, if the change of control or acquisition may have a substantial likelihood of anticompetitive effects or may create a significant effect on the access or availability of health care services to the affected community, applying a public interest standard, as defined. The bill would authorize any party to the acquisition or change of control to apply to the Attorney General to reconsider the decision and to modify, amend, or revoke the prior decision, and to seek subsequent judicial review of the Attorney General’s final determination on that reconsideration application if the Attorney General denies consent or gives conditional consent.

The bill would prohibit a private equity group or hedge fund involved in any manner with a physician or psychiatric practice doing business in this state, from controlling or directing that practice, as specified. The bill would also prohibit a physician or psychiatric practice from entering into an agreement or arrangement with an entity controlled in part or in whole directly or indirectly by a private equity group or hedge fund in which that private equity group or hedge fund manages any of the affairs of the physician or psychiatric practice in exchange for a fee. The bill would authorize the Attorney General to adopt regulations to implement its requirements, as specified.

Digest Key

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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Bill Text

The people of the State of California do enact as follows:

SECTION 1.

 Division 1.7 (commencing with Section 1190) is added to the Health and Safety Code, to read:

DIVISION 1.7. HEALTH CARE SYSTEM CONSOLIDATION

1190.

 (a) For purposes of this division, the following definitions shall apply:

(1) “Acquisition” means the direct or indirect purchase in any manner, including, but not limited to, lease, transfer, exchange, option, receipt of a conveyance, creation of a joint venture, or any other manner of purchase, by a private equity group or hedge fund of a material amount of the assets or operations, as used in Sections 5914 and 5920 of the Corporations Code, of a health care facility or provider doing business in this state. A transfer includes, but is not limited to, any arrangement, written or oral, that alters voting control of, responsibility for, or control of the governing body of the health care facility or provider.

(2) “Change of control” means an arrangement in which a private equity group or hedge fund establishes a change in governance or sharing of control over health care services provided by a health care facility or provider doing business in this state, or in which a private equity group or hedge fund otherwise acquires direct or indirect control over the operations of a health care facility or provider in whole or in substantial part doing business in this state, as consistent with subdivision (a) of Section 5914 of, and subdivision (a) of Section 5920 of, the Corporations Code. For purposes of this division, an “arrangement” shall include any agreement, association, partnership, joint venture, or other arrangement that results in a change of governance or control. A change of control does not exist where a health facility only extends an offer of employment to, or hires, a provider.

(3) “Health care facility” means a facility, nonprofit or for-profit corporation, institution, clinic, place, or building where health-related physician, surgery, or laboratory services are provided, including, but not limited to, a hospital, clinic, long-term health care facility, ambulatory surgery center, treatment center, or laboratory or physician office located outside of a hospital.

(4) “Health plan” means a health care service plan or a specialized health care service plan, as defined in the Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340) of Division 2).

(5) “Hedge fund” means a pool of funds by investors, including a pool of funds managed or controlled by private limited partnerships, if those investors or the management of that pool or private limited partnership employ investment strategies of any kind to earn a return on that pool of funds.

(6) “Hospital” means a general acute care hospital, acute psychiatric hospital, or special hospital, as those terms are defined in subdivision (a), (b), or (f) of Section 1250, respectively.

(7) “Insurance products” means any product provided by the following:

(A) A health insurer licensed to provide health insurance, as defined in Section 106 of the Insurance Code.

(B) A publicly funded health care program, including, but not limited to, Medi-Cal and Medicare.

(C) A third-party administrator.

(D) Any other public or private entity, other than an individual, that pays for or reimburses for any part of the cost for the provision of health care.

(8) “Nonphysician provider” means a group of two or more individuals that are licensed as defined under Division 2 (commencing with Section 500) of the Business and Professions Code that does not provide health-related physician, surgery, or laboratory services to consumers.

(9) “Private equity group” means an investor or group of investors who engage in the raising or returning of capital and who invests, develops, or disposes of specified assets.

(10) “Provider” means any group of two to nine individuals, except for a provider group, that provides health-related physician, psychiatric, surgery, or laboratory services to consumers.

(11) “Provider group” means a group of providers of 10 or more providers that provide health-related physician, psychiatric, surgery, or laboratory services to consumers or a group of providers of two to nine individuals that provide health-related physician, psychiatric, surgery, or laboratory services to consumers that generate annual revenue of ten million dollars ($10,000,000) or more. This definition includes licensed health care providers such as dentists, optometrists, and pharmacists who provide health-related surgery or laboratory services within the scope of their practice as licensees under the Business and Professions Code.

(b) These definitions do not apply to acquisitions or changes of control entered into prior to January 1, 2025, including subsequent renewals, as long as those acquisitions or changes of control do not involve a material change in the corporate relationship between the private equity group or hedge fund and a health care facility or provider group, on or after January 1, 2025.

1190.10.

 (a) Except as provided in subdivision (f), a private equity group or hedge fund shall provide written notice to, and obtain the written consent of, the Attorney General prior to a change of control or an acquisition between the private equity group or hedge fund and a health care facility or provider group. The notice shall be submitted at the same time that any other state or federal agency is notified pursuant to state or federal law, and otherwise shall be provided at least 90 days before the change in control or acquisition, and shall contain information sufficient to evaluate the nature of the acquisition or change of control and information sufficient for the Attorney General to determine that the criteria set forth in subdivisions (a) and (b) of Section 1190.20 have been met or that a waiver may be granted pursuant to subdivision (f).

(b) The Attorney General may extend this 90-day period for one additional 45-day period, in addition to any time for which the period is stayed, if any of the following conditions apply:

(1) The extension is necessary to obtain additional information.

(2) The proposed acquisition or change of control is substantially modified after the original notice was provided to the Attorney General.

(3) The proposed acquisition or change of control involves a multifacility or multiprovider health system serving multiple communities, rather than a single facility or entity.

(c) The Attorney General may extend any time period set forth in subdivision (a) or (b) by 14 days if the Attorney General decides to hold a public meeting under subdivision (b) of Section 1190.30.

(d) A private equity group, or hedge fund, shall provide advance written notice to the Attorney General prior to a change of control or acquisition between a private equity group or hedge fund and a nonphysician provider or between a private equity group or hedge fund and a provider, where the nonphysician provider has annual revenue of more than four million dollars ($4,000,000) or the provider has annual revenue between four million dollars ($4,000,000) and ten million dollars ($10,000,000). Transactions between a private equity group or hedge fund and a nonphysician provider, or transactions between a private equity group or hedge fund and a provider, that are required to be notified under this subdivision shall not be subject to consent by the Attorney General.

(e) The Attorney General may stay any time period in this section, upon notice to the parties to the acquisition or change of control, pending any review by a state or federal agency that has also been notified as required by federal or state law.

(f) (1) Written notice to, and the consent of, the Attorney General shall not be required under subdivision (a), if the Attorney General has given the private equity group or hedge fund a written waiver of this section as to the proposed acquisition or change of control. The Attorney General may grant a waiver if all of the following conditions apply:

(A) The party makes a waiver request by submitting, in writing, a description of the proposed acquisition or change of control, a copy of all documents that effectuate any part of the proposed acquisition or change of control, an explanation of why the waiver should be granted, and any other information the Attorney General determines is required to evaluate the waiver request.

(B) The party’s operating costs have exceeded its operating revenue in the relevant market for three or more years and the party cannot meet its debts as they come due.

(C) The party is at grave risk of immediate business failure and can demonstrate a substantial likelihood that it will have to file for bankruptcy under Chapter 11 of the Bankruptcy Act (11 U.S.C. Sec. 1101 et seq.) absent the waiver.

(D) The party would likely be substantially unable to reorganize successfully under Chapter 11 of the Bankruptcy Act (11 U.S.C. Sec. 1101 et seq.).

(E) The acquisition or change of control will ensure continued health care access in the relevant markets.

(F) The party has made commercially reasonable best efforts in good faith to elicit reasonable alternative offers that would keep its assets in the relevant markets and that would pose a less severe danger to competition and access to care than the proposed acquisition or change of control.

(2) Any consideration of a party’s finances under this subdivision may include consideration of the finances of any affiliates that are under common control or are under the control of the party.

(3) The Attorney General shall grant or deny the waiver request within 60 days after all information needed to evaluate the waiver request has been submitted to the Attorney General. In determining whether to grant a waiver, the Attorney General shall consider whether any of the decisional factors set forth in Section 1190.20 are applicable to the proposed acquisition or change of control. A waiver may be denied if any of these decisional factors require full Attorney General review of the proposed agreement or transaction. The Attorney General may condition the grant of a waiver in a manner that eliminates the need for full Attorney General review.

1190.20.

 (a) The Attorney General may grant, deny, or impose conditions to a change of control or an acquisition between a private equity group or hedge fund and a health care facility, provider group, or both, if the change of control of an acquisition may have a substantial likelihood of anticompetitive effects or may create a significant effect on the access or availability of health care services to the affected community.

(b) The Attorney General, in making a determination to grant, deny, or impose conditions pursuant to this section, shall apply the public interest standard. The term “public interest” is defined as being in the interests of the public in protecting competitive and accessible health care markets for prices, quality, choice, accessibility, and availability of all health care services for local communities, regions, or the state as a whole. Acquisitions or changes of control shall not be presumed to be efficient for the purpose of assessing compliance with the public interest standard.

1190.30.

 (a) The Attorney General shall make the determination required by Section 1190.20 in writing that provides the basis for the determination.

(b) Prior to issuing a written determination pursuant to subdivision (a), the Attorney General may hold a public meeting, which may be held in any of the counties in which the acquisition or change of control will take place, or, in case of a declaration of an emergency in any of those counties or in the state, online, to hear comments from interested parties. Prior to holding a public meeting, the Attorney General shall provide notice of the time and place of any meetings by electronic publication, or publication in newspapers of general circulation, to consumers that may be affected by the acquisition or change of control. If a substantive change or modification to the acquisition or change of control is submitted to the Attorney General after a public meeting, the Attorney General may conduct an additional public meeting to hear from interested parties with respect to the change or modification. To the extent that a public meeting has already occurred under Sections 5916 and 5922 of the Corporations Code, the Attorney General may waive a subsequent meeting requirement under this section.

(c) Within 10 days of the Attorney General’s notice of the decision to consent to, give conditional consent to, or not consent to the acquisition or change of control, any party to the acquisition or change of control may make an application to the Attorney General to reconsider the decision and to modify, amend, or revoke the prior decision in whole or in part based upon new or different facts, circumstances, or law. The party making the application shall state by affidavit what order or decisions were made, and what new or different facts, circumstances, or law are claimed to be shown. Pursuant to Section 1008 of the Code of Civil Procedure, the Attorney General shall order or deny reconsideration within 30 days following receipt of the application and affidavit. A decision by the Attorney General on an application filed under this subdivision shall have the same force and effect as the original decision.

(d) (1) If the Attorney General does not consent or gives conditional consent to an acquisition or change of control, any of the parties to the acquisition or change of control may, within 30 calendar days of a decision pursuant to subdivision (a) or subdivision (c), seek judicial review of the Attorney General’s final determination by a writ of mandate to the superior court pursuant to Section 1085 of the Code of Civil Procedure.

(2) Barring extraordinary circumstances or the consent of the parties, the superior court shall issue its response to the petition within 180 days of receipt of the petition. After a review of the records, including any administrative record and any material submitted in support of the petition, the court may grant the petition upon finding that the decision was a gross abuse of discretion.

(e) The Attorney General’s determination in subdivision (a) or subdivision (c) shall be based on an administrative record that shall be provided to the court and to the parties to the acquisition or change of control in the event that the parties notify the Attorney General of their intent to appeal the Attorney General’s final determination pursuant to subdivision (d). The administrative record shall consist of any evidence submitted by the parties to the acquisition or change of control, any comments offered by interested parties at a public meeting held pursuant to subdivision (b), any official reports by any experts hired by the Attorney General to review the transaction, any evidence obtained by the Attorney General from the parties to the acquisition or change of control or third parties, and any other evidence or information relied on by the Attorney General in making the determination required by subdivision (a) or subdivision (c), including information required to be submitted as part of the notice required by subdivision (a) of Section 1190.10. To the extent that any evidence or other information is confidential, the Attorney General may take reasonable measures to ensure the confidentiality of that evidence or other information in the administrative record.

1190.40.

 (a) A private equity group or hedge fund involved in any manner with a physician or psychiatric practice doing business in this state, including as an investor in that physician or psychiatric practice or as an investor or owner of the assets of that practice, shall not control or direct that practice, including, but not limited to, influencing or entering into contracts on behalf of that practice or physicians or psychiatrists in that practice with any third party, influencing or setting rates for that practice or physicians or psychiatrists in that practice with any third party, or influencing or setting patient admission, referral, or physician or psychiatrist availability policies. The corporate form of that physician or psychiatric practice as a sole proprietorship, a partnership, foundation, or a corporate entity of any kind shall not affect the applicability of this section.

(b) Any physician or psychiatric practice, whether a sole proprietorship, a partnership, a foundation, or corporate entity of any kind, doing business in this state shall not enter into any agreement, or arrangement, with any entity controlled in part or in whole directly or indirectly by a private equity group or hedge fund in which that private equity group or hedge fund manages any of the affairs of the physician or psychiatric practice in exchange for a fee to be charged to that practice or passed through by that practice directly or indirectly to any health plan, insurer product, or patient. This provision does not bar revenue-sharing between any such practice and any private equity group or hedge fund.

(c) Any contract involving the management of a physician or psychiatric practice doing business in this state by, or the sale of real estate or other assets owned by a physician or psychiatric practice doing business in this state to, a private equity group or hedge fund shall not explicitly or implicitly include any clause barring any provider in that practice from competing with that practice in the event of a termination or resignation of that provider from that practice, or from disparaging, opining, or commenting on that practice in any manner as to any issues involving quality of care, utilization of care, ethical or professional challenges in the practice of medicine, or revenue-increasing strategies employed by the private equity group or hedge fund. Any such explicit or implicit contractual clauses are void, unenforceable, and against public policy.

(d) The Attorney General shall be entitled to injunctive relief, and other equitable remedies, a court deems appropriate for enforcement of this section and shall be entitled to recover attorney’s fees and costs incurred in remedying any violation of this section.

1190.50.

 The Attorney General may adopt regulations to implement this division, including, but not limited to, regulations to extend time periods or to provide a process for requesting a waiver, pursuant to Section 1190.10.

1190.60.

 (a) This division is intended to address health care practices by private equity groups, and hedge funds that can lead to higher prices for services, lower quality at a given price for services, less cost-efficient services, restricted access to, or the closure of services, and less choice for services, which ultimately leads to higher prices and more inconvenience for consumers, and higher total cost of care for services.

(b) This division shall be construed, as a matter of state law, to be enforceable up to, but no further than, the maximum possible extent consistent with federal law and constitutional requirements, even if that construction is not readily apparent, as these constructions are authorized only to the extent necessary to save the statute from judicial invalidation.

(c) The provisions of this division are severable. If any provision of this division or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.