A newly enacted state law places an explicit, first-in-the-nation block on hospital sale-leasebacks—a tactic critics and legislators describe as a key vehicle for private equity funds to extract funds and bankrupt the health systems they controlled.
On May 27, Connecticut Governor Ned Lamont signed into law a bill with several new restrictions on private equity’s influence on hospitals and healthcare providers.
Senate Bill 196 outlines requirements, effective Feb. 15, 2027, for hospitals to attest that private equity has no controlling interest in the facility, no governance control or authority over the hospital’s various operations, and no mandates requiring the hospital to adopt policies that interfere with clinician decision-making.
However, also included is a flat requirement that “on and after July 1, 2027, no hospital shall enter into a sale-leaseback transaction,” or a deal in which a hospital sells its owned real estate to another entity, from which it then must lease and pay rent.
While state-level legislature surrounding private equity’s role in healthcare has gained steam in recent years, the latter restriction appears to be the first state bill that targets the practice of hospital sale-leasebacks, a representative from the Private Equity Stakeholder Project (PESP), a nonprofit that scrutinizes private equity deals and advocates for greater transparency, told Fierce Healthcare.
A separate law signed early last year in Massachusetts had indirectly limited “some” hospital sale-leasebacks by preventing its public health department from granting new or renewed licenses to acute care hospitals that lease their main campus from a real estate investment trust, the representative noted.
“But the CT bill seems to be the first bill that goes towards restricting the tactic directly,” the PESP representative said.
Appetite for new healthcare private equity legislation has been strong in Connecticut, where officials and communities have been navigating the fallout of Prospect Medical Systems’ January 2025 bankruptcy.
Prominent lawmakers have pointed to the involvement of Leonard Green & Partners—which majority owned Prospect from 2010 to 2021, and in 2019 signed off on a $1.55 billion sale-leaseback deal—as a driver of the health system’s decline. Bipartisan state legislators have reportedly tried to reform healthcare private equity ownership for years without success, until the latest package that was introduced by the General Assembly’s Public Health Committee in February.
“Private equity’s presence in Connecticut hospitals and healthcare, regarding Prospect, worsened patient outcomes and weakened the resources offered to entire communities,” State Senator Saud Anwar (D-South Windsor), Senate Chair of the Public Health Committee, said in early March when S.B. 196 advanced through the committee. “While I’m confident new ownership will infuse new life into those hospitals, those years set a negative precedent our state cannot afford to continue.”
The Connecticut Hospital Association, shortly after the act’s introduction, said in a testimony (PDF) that it supports the bill and acknowledges “the damage that unregulated private equity investment has caused in certain situations in Connecticut when it controls a healthcare facility.” The bill and its restrictions are “a measured approach to this issue,” as opposed to a flat prohibition on private equity investment that could have blocked needed funds from Connecticut hospitals.
PESP also celebrated Connecticut’s new law, pointing to its past research that found Leonard Green & Partners had pulled at least $658 million out of Prospect.
“Prospect became a warning sign for what can happen when hospitals are loaded with debt, stripped of valuable real estate and pressured to generate returns for financial investors,” Michael Fenne, healthcare policy coordinator for PESP, said in a statement. “Connecticut lawmakers responded to a real and growing threat facing healthcare systems across the country.”
High-profile hospital and health system bankruptcies like Prospect and Steward Health Care have spurred stricter oversight of private equity within a handful of states.
Last fall, California, for instance, enacted legislation prohibiting private equity groups from several actions that would interfere with clinicians’ medical decision-making or other care delivery operations, which it is now working to implement. That bill was preceded by a similar, but more sweeping, restriction passed in Oregon, as well as other transparency-focused laws passed in states like Massachusetts, Indiana, New Mexico and Washington. Another pair of bills focused on transaction oversight and transparency are also on its way to Illinois Governor J.B. Pritzker’s desk for his final approval.