Update: AB 3129 Passes in California Senate and Nears Finish Line

After its passage in the California Senate on August 31, 2024, Assembly Bill No. 3129 (AB 3129) is now headed to Governor Newsom’s desk.

As discussed in depth in our previous blog series on AB 3129,[1] the legislation would require that private equity groups and hedge funds involved in the acquisition or change of control of certain health care facilities, provider groups and other providers, file a comprehensive notice with the Attorney General (AG) and obtain the AG’s written consent before closing such transactions. If enacted, AB 3129 would impact transactions entered into on or after January 1, 2025.

Amendments Since May

Since our prior article, AB 3129 has undergone several notable amendments that in some ways could make the bill more palatable to private investors. The amendments approved by the Senate include:

• Exempting hospitals from the definition of “health care facility.”
• Exempting providers primarily offering dermatology services from the definition of “provider group.”
• Expanding the scope of transactions subject to the AG notice to explicitly include deals where health care facilities or providers directly or indirectly control, or are controlled by, a payor.
• Exempting several particular scenarios from the AG notice requirement, including renewals of a transaction entered into by December 31, 2024, which do not cause a material change in the corporate relationship between the private equity group or hedge fund and health care facility or provider.
• Revising the explicit prohibition on entities directly or indirectly controlled by a private equity group or hedge fund from contracting in a way that interferes with professional judgment to only entities that are under direct control.
• Striking the prohibition on a physician practice from contracting with any entity controlled “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…practice in exchange for a fee,” thereby potentially preserving the integrity of the Friendly PC-MSO Model. For more background on how earlier versions of this bill threatened the viability of the Friendly PC-MSO Model, see our original AB 3129 blog post.

Looking Ahead

AB 3129 is part of a larger emerging trend of state laws seeking to regulate private equity involvement in health care transactions. Massachusetts,[2] for example, has made similar legislative efforts in recent months. It remains to be seen whether California will carry this momentum forward.

Governor Newsom has until September 30, 2024 to sign or veto AB 3129 and, if enacted, parties potentially subject to the bill would need to start reviewing and navigating the new filing requirements on a relatively short time horizon. We will continue to monitor the bill’s status and keep our readers apprised of any updates.

FOOTNOTES

[1] Blog series:

[2] See our previous blog post, Massachusetts Senate Passes Bill to Increase Oversight of Private Equity Healthcare Transactions | Healthcare Law Blog (sheppardhealthlaw.com), published July 25, 2024.