We have previously reported that a number of states have proposed legislation to address growing concerns about the potential negative impacts of private equity (PE) investments in healthcare businesses. Vermont has now joined this list by passing legislation on June 15 (H.583, “An act relating to clinical decision making”) that imposes significant limitations on the role that PE investors (including hedge funds) can play, as well as annual reporting obligations regarding the nature of the investment and the financial statements associated with such businesses.
The new law does not prohibit such investments nor investor-owned management service organization (MSO) relationships with healthcare providers, but seeks to broadly limit the potential for influence over clinical decision-making in the following areas:
- Clinical staffing levels
- Selection of clinical equipment/supplies
- Establishing pricing/fee schedules
- Determining patient volume targets
- Influencing clinical referrals
- Coding/billing decisions
The new law also requires mandatory annual reporting of investment interests of 5% or more, together with organization charts and the most recent financials (both profit-and-loss statements and balance sheets).
In a novel approach, the law allows not only enforcement by the state Attorney General, but also a private right of action by providers to claim that they have been aggrieved by improper PE arrangements. Finally, the law imposes financial penalties of up to $10,000 annually for failure to report required information and up to $25,000 for each material misrepresentation.
As we have reported, while concerns have been expressed about the negative impacts on patient care and providers resulting from some PE investments, private equity certainly benefits the healthcare industry by, among other things, bringing needed capital for technology and facilities. We will continue to monitor state law and other developments in this fast-changing area.
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