As Federal Action Stalls, States Aim to Curb Private Equity Greed in Health Care

New legislation in California is poised to rein in the financialization of healthcare — part of a growing trend of states taking action while federal legislation struggles to move forward.

On October 6, California enacted legislation (Senate Bill 351) that restricts financial firms’ ability to influence how physicians in practices they own treat patients. It prohibits the firms from setting the number of patients doctors are expected to see, determining what diagnostic tests are required or what equipment the practice uses, or using ‘non-compete’ clauses in doctors’ contracts that prevent them from practicing medicine in their communities for a period of time after their current employment ends.

A few days later, on October 11, California Governor Gavin Newsom signed a second bill, Assembly Bill 1415, that expands the Office of Health Care Affordability (OHCA) review process. OHCA formerly required health care entities to submit written notice of any transaction that results in a material change in ownership or control of the entity. The new legislation extends that requirement to private equity groups, hedge funds and management services organizations (MSOs) that will now be required to provide notice and submit financial information when engaged in a transfer of control over a health care entity. In addition, the legislation requires similar notice when one of these organizations that owns a health care entity plans to sell, lease, transfer or otherwise dispose of its material assets.

The legislation is the result of widespread concerns about PE’s role in healthcare. The US healthcare sector experienced an upsurge in private equity (PE) buyouts in the 21st century. Between 2000 and 2024, PE healthcare deals increased in value from about $6 billion annually in 2000 to an annual high of $210 billion in 2021 during the COVID-19 pandemic before declining dramatically after 2021. Healthcare deals declined in value to between $110 and $90 billion in 2022-2024, still a 14-fold increase over 2000.*

Research shows that private equity acquisitions raise costs — including costs of doctors’ office visits and procedures — without improvements in quality and, in some cases, deterioration in patient care. Bankruptcies of PE-owned health organizations interfere with patient care and may devastate communities.

The 2024 bankruptcy of scandal-ridden Steward Healthcare, a system of more than 30 hospitals in 10 states owned by Cerberus Capital from 2010 to 2020, caught the attention of health professionals and the public. Cerberus followed the private equity playbook, and Steward collapsed under the burden of billions in debt placed on it by its former PE owners and the high rents it was obligated to pay to MPT, a real estate investment trust (REIT), when its PE owners sold its real estate out from under it and pocketed the proceeds. Cerberus made $800 billion on its initial $245 billion investment, MPT collected $2.5 billion in rent, and Ralph de la Torre, Steward’s CEO, collected hundreds of millions in pay and famously bought himself a $40 million yacht.

Meanwhile, understaffing at the hospitals meant patients were stuck in hallways waiting for care, ICUs did not have nurses to staff them, and facilities were allowed to deteriorate. Many patients died, including a new mother who died the day after giving birth in one of Steward’s Massachusetts hospitals. She developed a deep bleed that could have been stopped with an embolization coil, but the hospital’s coils had been repossessed a few weeks earlier because Steward had not paid for them. When Steward shut down, communities lost a healthcare hub that provided essential services, and over 3,000 workers lost their jobs.

Steward’s bankruptcy was followed soon after by Prospect Medical Holdings in 2025, a hospital system previously owned by PE firm Leonard Green and Partners that had served mostly low-income communities in several states including Texas, Pennsylvania, and Connecticut. Its bankruptcy was preceded by the bankruptcy of KKR-owned Envision Healthcare in 2023, a national physician staffing firm that supplied doctors to 540 hospitals and other facilities that outsourced their ER, radiology and other departments.

Physician practices have been a favorite target for corporate takeovers. They have been acquired by insurance companies — UnitedHealth Group’s Optum subsidiary, which employs 90,000 doctors, is the largest owner of doctors’ practices. They have been taken over by private equity firms like KKR and Blackstone in emergency medicine and by firms like Welsh, Carson, Anderson and Stowe that increased PE-acquired physician practices in primary and specialized care from 816 practices across 119 MSAs in 2012 to 5,779 practices across 307 MSAs in 2021. Increasingly these practices are owned by separate corporations established by hospitals to employ the doctors that staff their operations. By January 2022, three-quarters of physicians (77.6 percent) and nearly three-fifths of practices (58.5 percent) were employed by corporations.

Many doctors report a loss of autonomy that affects their ability to provide quality care for their patients. In a 2022 physician survey by the National Opinion Research Center (NORC) at the University of Chicago, almost 60 percent of doctors reported reduced autonomy that negatively affected their ability to deliver quality care, and 45 percent said that the ownership changes undermined their relationships with patients. Seventy percent said employers used incentives to push them to see more patients, and 61 percent said they had little ability to refer patients to specialists outside their ownership structure. This poses serious ethical dilemmas for physicians who are now at-will employees of corporations — whether to follow corporate policy or uphold their own ethical standards and risk being fired.

As Federal Action Stalls, States Move Forward

Congressional initiatives to address these problems with the health system failed to gain traction. This includes Senator Elizabeth Warren’s Corporate Crimes against Health Care Act that would impose stiff penalties for investors that profit personally while allowing the healthcare business to fail, and the Health over Wealth Act introduced by Representative Pramila Jayapal and Senator Ed Markey, which would require financial transparency.

California’s legislation is the most recent of the state-level initiatives intended to plug the holes in the regulatory dike that enable investors to capture public funds intended to improve patient care. In too many instances, the money lines the pockets of wealthy investors at the expense of patients, workers, clinical staff and communities. The legislation is significant in that it expressly prohibits a PE or hedge fund involved with a physician or dental practice from interfering with the professional judgment of physicians or dentists. It also prohibits non-compete clauses in contracts that bar providers from competing with the practice in the event of termination or resignation. Enforcement is in the hands of the state’s Attorney General.

California’s legislation follows on the heels of an even stronger bill that passed in Oregon in June 2025. Oregon’s legislation prohibits investors who are not physicians from owning doctors’ practices. The immediate impetus for the bill may have been the experience of Oregon Medical Group based in Eugene, Oregon. It was acquired in 2020 by Optum, a subsidiary of UnitedHealth Group, and was criticized by doctors, many of whom left the practice, for prioritizing money and quotas over care of patients. The Oregon law erects a high barrier to PE in healthcare and limits its involvement in managing doctors’ practices.

Both bills are viewed as breathing new life into old state laws barring the corporate practice of medicine (CPOM). These laws, passed decades ago, were intended to limit corporations or other non-medical entities from practicing medicine. They were supposed to protect the autonomy of clinicians and assure that patients got the best treatments available. But they have largely been viewed as old-fashioned and out-of-step with modern medicine. As of 2023, 30 states had laws banning CPOM on the books, but the laws tend to be weak and are rarely used.

By July 2025, following an increase in bankruptcies of health organizations that have imposed costs on state governments, some 26 bills had been proposed in 13 states tightening laws that require greater financial transparency and increased oversight of healthcare mergers and acquisitions. Maine passed a moratorium on private equity takeovers. Massachusetts, Indiana, New Mexico and Washington passed laws requiring greater transparency about financial organizations’ investments in health care. Model state legislation to accomplish transparency and oversight has been developed. The Massachusetts law is the most stringent, with very detailed ongoing reporting requirements of financial transactions related to private equity, REITs, and managed services organizations; increased penalties of up to $25,000 per week for failure to comply; and the first ban on sale-leaseback transactions between hospitals and REITs.

State-level policies provide at best a patchwork of regulation of PE, hedge funds and other financial players in healthcare. They face serious challenges related to writing the regulations that will govern implementation and provide enforcement of the recently passed laws that must still be overcome. But, in the absence of movement at the federal level, states are showing that it is possible to address corporate greed in healthcare.

*Author’s estimates based on the best available data from Pitchbook, an industry data aggregator that compiles publicly available data on private equity and other private investment funds.