Beyond Hospital Pre-Merger Notice: PESP Report Reveals States Are Targeting Private Equity Control via MSOs, Debt, and Sale-Leasebacks

What You Should Know

The Private Equity Stakeholder Project (PESP) released its comprehensive report, the 2026 State Healthcare Policy Review: Tracking Private Equity Oversight and Reform, examining nationwide legislative efforts to regulate private equity control across provider networks.As of August 2026, six states had enacted nine distinct healthcare oversight laws—one each in Washington, Vermont, and Delaware, and two each in Illinois, Maine, and Connecticut—while California and Oregon began implementing sweeping statutory frameworks passed in 2025.Highlights private equity’s footprint across acute and ambulatory delivery, tracking 1,029 private equity-backed healthcare transactions in 2025, with PE firms owning more than 550 hospitals (accounting for nearly 1 in 8 private, non-government U.S. hospitals) and operating over 500 healthcare facilities through joint ventures with non-profit health systems.Identifies a legislative shift: state policy has advanced beyond basic hospital change-of-ownership notice to target indirect levers of control, including management services organizations (MSOs), debt-financed dividend recapitalizations, real estate investment trust (REIT) sale-leasebacks, and parent holding company structures.

Four Key State Policy Approaches in 2026

The report groups emerging state legislative and regulatory strategies across four primary mechanisms:

1. Transparency, Ownership Disclosure, and Reporting

States expanded pre-closing notice requirements to unmask upstream holding structures and MSO agreements before deals become irreversible:

California (AB 1415): Implemented in 2026, bringing PE groups, hedge funds, MSOs, and provider holding entities under Office of Health Care Affordability (OHCA) review. Draft regulations require notice when an investor takes a 5% or greater stake in debt, equity, or liabilities, or gains operational veto rights.Washington (HB 2548): Broadened transaction notice to capture outside changes in majority ownership/control, substantial asset transfers, and hospital sale-leasebacks, granting the Attorney General expanded investigative review windows.Illinois (HB 5000 & HB 4728): HB 5000 makes transaction notice permanent and covers upstream entities owning or controlling two or more Illinois healthcare providers, including out-of-state entities generating $10M+ from Illinois patients. HB 4728 mandates quarterly ownership, debt, staffing, and fee disclosures for developmental disability service providers owned by asset managers.Rhode Island: Implemented an Attorney General rule requiring 60 days’ notice for deals creating medical practices of eight or more providers or involving PE-backed MSO acquisitions.Maine (LD 2202): Mandates that healthcare entities submitting federal Hart-Scott-Rodino (HSR) antitrust filings provide concurrent filings to the state Attorney General.Connecticut (SB 196 & SB 125) & Vermont (H.583 / Act 133): Enacted recurring ownership disclosures, MSO organizational filings, and mandatory governance attestations.

2. Administrative Approval and Enforcement Authority

While several states sought the power to block or condition deals, statutory authority remains rare:

Maine (LD 2201): Enacted the year’s only new administrative review and approval framework specifically targeting private equity, hedge fund, or qualifying MSO transactions. Requires 180 days’ advance notice and empowers the Department of Health and Human Services (DHHS) to approve, condition, or block transactions, mandating comprehensive reviews for deals exceeding $100 million in assets.Pending & Stalled Efforts: Pennsylvania’s review bill (HB 1460) was narrowed in the Senate (raising asset transfer thresholds from $10M to $25M), while Hawaii’s public-interest review bill (SB 3175) failed to advance. New Jersey companion bills (S4216 / A5204) targeting REIT hospital leases remain pending in committee.

3. Targeted Financial and Real Estate Prohibitions

To prevent capital extraction practices highlighted by high-profile provider bankruptcies (e.g., Prospect Medical Holdings in Connecticut and Rhode Island, and Crozer Health in Pennsylvania):

Connecticut (SB 196): Prohibits acute care hospitals from entering into sale-leasebacks involving their main campus or inpatient real estate.Delaware (SB 313): Enacted a temporary ban (through July 1, 2028) on for-profit entities acquiring control of nonprofit acute care hospitals, while permanently subjecting hospital real estate sales and encumbrances to the state’s Healthcare Conversion Act.Failed Restraints: Maine rejected limits on hospital debt-to-equity ratios above 50% (LD 2198) and REIT sale-leaseback bans (LD 2197), while Rhode Island held a bill (S2950) requiring private equity buyers to post an upfront one-year operating expense bond.

4. Modernizing the Corporate Practice of Medicine (CPOM)

States are updating CPOM doctrines to prevent non-physician investors from using MSOs, “friendly PC” structures, and administrative services agreements to dictate clinical operations:

California (SB 351 Enforcement): Entered 2026 enforcing restrictions barring PE firms and hedge funds from interfering with clinical judgment or operational autonomy. The Attorney General secured major enforcement restructurings and penalties against corporate entities, including settlements with Aspen Dental (2Mpenalty/300k restitution) and Carbon Health.Oregon (SB 951): Prohibits MSO contracts from exercising de facto control over provider compensation, staffing, scheduling, billing, and payer contracting, facing its first court test in Lane County emergency department staffing.Vermont (H.583 / Act 133): Barred PE groups and hedge funds from interfering with clinical standards, diagnoses, treatment, working hours, and medical staff hiring/firing decisions.Failed CPOM Bills: Proposals establishing strict licensee-only practice ownership or anti-retaliation provisions failed to advance in Washington (SB 5387), Maine (LD 2199), and Rhode Island (S2459).

Strategic Takeaways for Dealmakers and Health Systems

The 2026 legislative cycle demonstrates that state legislatures are shifting toward regulating operational control rather than strictly direct equity ownership. While wholesale bans on private equity ownership largely failed to pass, states are successfully establishing pre-closing review gates, hospital real estate sale-leaseback restrictions, and corporate practice enforcement that limit traditional financial engineering tactics. Healthcare private equity sponsors, MSO aggregators, and joint-venture hospital operators face increasing compliance overhead, mandatory holding disclosures, and state-level antitrust review windows that lengthen deal closing timelines.

For information about the report, visit https://pestakeholder.org/reports/2026-state-healthcare-policy-review/