SB 1507, An Act Prohibiting Private Equity Ownership And Control Of Certain Health Care Institutions And The Controlling Of Or Interference With The Professional Judgment And Clinical Decisions Of Certain Health Care Providers And Requiring An Evaluation Of The Appointment Of A Receiver To Manager Hospitals In Financial Distress

TESTIMONY OF THE CONNECTICUT HOSPITAL ASSOCIATION
SUBMITTED TO THE PUBLIC HEALTH COMMITTEE

Monday, March 17, 2025

The Connecticut Hospital Association (CHA) appreciates this opportunity to submit testimony concerning SB 1507, An Act Prohibiting Private Equity Ownership And Control Of Certain Health Care Institutions And The Controlling Of Or Interference With The Professional Judgment And Clinical Decisions Of Certain Health Care Providers And Requiring An Evaluation Of The Appointment Of A Receiver To Manager Hospitals In Financial Distress. CHA opposes the bill.

Connecticut hospitals and health systems care for patients, strengthen the state’s economy, and support vulnerable communities across the state. Every day, they work to improve healthcare access, affordability, and health equity.

Section 1

Section 1 of the bill would broadly prohibit any private equity company or real estate investment trust (REIT) from acquiring or increasing: (1) any direct or indirect ownership interest in a group practice or hospital and health system or (2) any operational or financial control over a group practice or hospital and health system. We acknowledge the damage that unregulated private equity investment has caused in certain situations in Connecticut when it controls a healthcare facility, however, as written, this bill could affect existing legitimate provider, hospital, and health system ownership structures and contracted services.

The definition of “private equity company” is extremely broad. It appears that the bill’s definition of “private equity company” was taken verbatim from the Center for Medicare and Medicaid Services’ (CMS) healthcare provider transparency and reporting regulations that were finalized in November 2023. The rules were enacted to require more in-depth and detailed reporting on the ownership structures of Medicare participating providers, not to prohibit these investments altogether. In fact, in the final rule, CMS made it clear that the definition was only applicable to the new CMS disclosure requirements.

Based on the bill’s private equity company definition, the proposed requirement could apply to myriad ownership structures. For example, if an independent group practice consists of two physicians who are retiring and two or more younger physicians would like to acquire the practice, the transaction could be covered by this legislation and could be prohibited depending on how the acquisition is structured because the younger physicians would be acquiring a direct or indirect ownership in the group practice.

We are also concerned that the bill’s application to “operational or financial control” could encompass arrangements that hospitals and health systems have with third parties to assist in the operation or management of certain administrative or clinical services. The definition of “operational control” applies to influencing or directing the actions or policies “of any part of a group practice, hospital or health system.” This could apply when a particular specialized clinical service is managed by a third party under the supervision of the hospital, or even to a contracted administrative or financial service within the hospital.

We support reasonable measures to ensure that investments are transparent and that we do not experience additional scenarios where a hospital’s financial health is jeopardized by interests other than those of the community it exists to serve. However, blanket prohibitions on certain activities are generally not the cure and the definitions used in Section 1 and the application of those definitions would diminish the ability for physician groups, hospitals, and health systems to operate efficiently and in the best interest of their communities.

Section 2

Section 2 prohibits healthcare facilities from directly or indirectly interfering with, controlling, or directing the professional judgment or clinical decisions of a healthcare practice or a healthcare provider who provides services at the facility. The section also describes, broadly, the prohibited activities.

Healthcare providers should have the ability to provide care in a manner that relies on their training and expertise and their professional judgement should be a part of that care delivery. In fact, hospitals rely on healthcare providers to do just that. However, as written, the bill would prohibit the effective management of a hospital because the bill defines prohibited practices that go beyond the scope of an individual healthcare provider and involve non-clinical, operational considerations. While we know it’s not the intent of the legislation, it would appear that a hospital couldn’t prevent an individual provider from “upcoding” or inserting into a medical record, diagnosis codes not supported by the care provided.

We understand the interest in ensuring healthcare providers can exercise their professional judgement in treating a patient and they do so but Section 2 of the bill as drafted would have unintended consequences for the appropriate delivery of patient care.

Section 3

This section requires the Office of Health Strategy (OHS) Commissioner to evaluate whether the Attorney General should be authorized to petition to the Superior Court for the appointment of a receiver to manage hospitals in “financial distress or operational crisis” and then report back to the Public Health Committee about the evaluation by October 1, 2026.

CHA opposes Section 3 of the bill, which would create even more administrative red tape but offers no solutions to avoid Connecticut hospitals being forced to operate in various degrees of financial distress. It is evident that Connecticut’s chronic underfunding of hospitals is not sustainable. The primary cause of hospital financial distress is the state’s insufficient support of the Medicaid program. CHA has offered overwhelming evidence to OHS and the Department of Social Services (DSS) that financial distress is virtually inevitable for many hospitals unless there is a course correction, soon.

A receivership law triggered by “financial distress or operational crisis” is not a credible way to build a sustainable healthcare system especially when the state’s Medicaid reimbursement policies are helping to create the distress and crisis.

If Section 3 of the bill moves ahead, we urge you to also task the OHS Commissioner with evaluating and reporting all feasible solutions that Connecticut could adopt to avoid “financial distress” and “operational crisis” for hospitals including but not limited to evaluating how a reasonable and stable approach to Medicaid reimbursement for hospitals would create financial sustainability. In addition, we urge that Section 3 be amended to require the OHS Commissioner to include significant stakeholder involvement in their evaluation.

Thank you for your consideration of our position. For additional information, contact CHA Government Relations at (203) 294-7301.