After Prospect Medical Holdings, the formerly private equity-backed owner of three Connecticut hospitals, declared bankruptcy in January, Gov. Ned Lamont and state officials from both sides of the aisle proposed measures aimed at reining in private equity in the state’s health care system.
But when the 2025 legislative session drew to a close in the first week of June, Connecticut had failed, for the second year in a row, to pass any legislation related to private equity ownership of health care facilities.
Two competing bills, one from the governor and one from the Senate, each laid out an approach for protecting the state’s health care system from potential bad actors.
The governor’s proposal sought to increase oversight of major health care industry transactions — such as hospital mergers and acquisitions — by broadening the types of deals that would require state review to include those typically used by private equity-backed operators. The Senate bill focused on banning private equity involvement outright in certain parts of the health care system.
Rob Blanchard, a spokesperson for the governor, laid the blame for the failure to make progress on the issue of private equity squarely at the feet of legislators.
“Despite the Governor’s best efforts to work collaboratively with the public health committee on private equity, the co-chairs chose to not bring out a single bill on this issue and took no action. Only the legislature can bring out legislation and move it forward. Any inaction on this issue lies with them,” Blanchard wrote in an emailed statement.
Rep. Cristin McCarthy Vahey, D-Fairfield, co-chair of the Public Health Committee, said lawmakers failed to thread the different approaches in time to get a bill passed.
“It’s like a funnel,” McCarthy Vahey said. “As we get closer to the end of session, it gets harder to get anything through, let alone something that involves the complex systems that we have in health care.”
Sen. Saud Anwar, a South Windsor Democrat and McCarthy Vahey’s co-chair, blamed the governor more directly. Anwar, who championed the Senate bill, said he had amended the proposal to address concerns from the health care industry and had buy-in from hospitals and physician practices. But when Anwar felt like he had reached a deal, he said Senate leadership informed him the chamber would not be taking up the bill at the direction of the governor’s office.
“We had a responsibility to pass a bill, and I still to this day cannot understand why we did not do that,” Anwar said, calling it “legislative malpractice not to pass a bill after what the state has endured.”
Several states have tried and failed to pass legislation regulating private equity in health care. But earlier this year, facing similar impacts from private equity ownership of hospitals, Massachusetts enacted a law that combined increased transparency with bans on certain transactions.
Massachusetts also added increased oversight for significant equity investors, including private equity investors. And the law banned hospitals from selling off their main campus buildings in transactions known as “sale-leasebacks,” a popular tool for private equity-backed hospital operators looking to generate profits.
Increased oversight
Gov. Lamont’s bill sought to, among other things, broaden the scope of health care transactions that require Attorney General review and require health care operators to notify the state 60 days in advance of any “material changes,” such as changes in ownership, transfers of assets and merging of practices.
The proposal would have required health operators to report to the state the types of transactions executed by Prospect, including sale-leasebacks, which many believe sacrificed the financial health of the company’s three Connecticut hospitals in order to generate profits for investors.
Sale-leasebacks work like this: Hospital operators sell the land and buildings from the hospitals it owns to a real estate investment trust, or REIT, and then lease that property back from the trust. The operating company gets the profit from the sale, but the hospitals are stuck paying rent that, in the vast majority of cases, amounts to a new major expense.
In 2018, Prospect took out a $1.1 billion loan that it used to pay its executives and shareholders a $457 million dividend, CBS News reported. To repay the loan, Prospect entered into a sale-leaseback agreement, selling the land and buildings from the hospitals it owned in Connecticut, California and Pennsylvania to a real estate investment trust for $1.4 billion.
Prospect Medical Holdings did not respond to a request for comment.
The state’s current approval process for major health care transactions is known as “certificate of need.” Over the past several years, legislators from both sides of the aisle, as well as providers, have voiced concerns that the process needs major overhauls. A bill that effectively expanded the requirements for state approval of major transactions was a non-starter, Anwar said.
“There was value in what [the governor] was proposing, except they were asking for a new [certificate of need] process. And I was informed by my Republican colleagues that that bill would never pass the Senate,” Anwar said.
There was also disagreement between the Connecticut Hospital Association and the state’s Office of Health Strategy over the measures in the governor’s bill that “we weren’t really able to overcome,” McCarthy Vahey said.
A spokesperson with the Connecticut Hospital Association said the industry recognizes the negative outcomes of unregulated private equity in certain situations and that hospitals support “balanced measures” to protect the interests of patients and communities.
“Any solution must be carefully crafted to avoid unintended consequences, such as discouraging modest yet important investments that can support and sustain healthcare delivery in Connecticut,” the spokesperson wrote in a statement.
OHS commissioner Deidre Gifford wrote in a statement that the agency has “seen the detrimental impact of private equity” and supported the governor’s “sensible proposal to enhance the oversight and monitoring of private equity in health care.”
“As with all proposals that impact health care business interests, there was intense lobbying by interested stakeholders,” Gifford stated.
McCarthy Vahey also noted that the governor’s proposal would have required funding not included in the budget for additional staff in both the Attorney General’s office and the Office of Health Strategy.
A private equity ban
Anwar instead threw his efforts into reaching a deal on Senate Bill 1507which originally sought to prohibit private equity ownership of hospitals and group practices and also sought to ban health care entities from selling their land and property to REITs through sale-leaseback agreements.
After hearing feedback from the hospitals and physician practices, in particular, Anwar amended the original bill language to remove any regulation of private equity ownership of physician practices and allow hospitals to access private equity investment in certain joint ventures, including urgent care centers and outpatient surgical sites. He also changed the language to permit sale-leasebacks of hospital real estate in situations of extreme financial distress.
Blanchard, the governor’s spokesperson, didn’t address a question regarding whether the governor’s office directed Senate leadership not to vote on the bill. But he acknowledged the governor’s office expressed concern to Senate leadership that the amendment as proposed could have favored some potential bidders for the hospitals over others.
Leadership from both chambers said, from their perspective, the bill never got to a place where it was ready for a vote.
“Since no agreement was reached between the Governor’s office and the General Assembly, the Senate chose not to take up SB 1507 in the final two weeks of legislation,” Senate President Martin M. Looney of New Haven wrote in an emailed statement.
House Speaker Matt Ritter, D-Hartford, agreed and said in the future there would need to be more of a “meeting of the minds of the Public Health Committee leadership” in order to get legislation passed.
McCarthy Vahey vowed to continue the effort.
“We are going to go back to this right away. We have to,” she said.
