Private equity has become a major force in US healthcare over the past decade. Investment firms have bought physician groups, dental chains, ambulatory surgery centers, home health providers, behavioral health networks, and healthcare staffing businesses.
Supporters argue that private equity can professionalize operations, bring capital to fragmented markets, and modernize technology.
Critics point to a recurring pattern: consolidation, financial engineering, and short time horizons that push organizations to raise prices and cut costs in ways that can erode care delivery.
Key Takeaways:
- Private equity consolidation in healthcare drives up staffing agency bill rates through reduced competition and higher markups on travel nursing and locums.
- MSPs and VMS add fee layers that inflate hospital contingent labor spend, even as clinician pay stays flat.
- California’s SB 351 and AB 1415 curb investor interference in clinical decisions and mandate 90-day transaction notices to boost transparency.
- PE ownership correlates with clinician turnover and shortages, worsening reliance on premium agency labor.
- Audit ownership, diversify suppliers, and prioritize retention to control staffing costs amid rising PE influence.
California just made a decisive move to rein in some of the most controversial aspects of investor influence in clinical settings. Two new laws, SB 351 and AB 1415, took effect on January 1, 2026, and they are designed to increase transparency, preserve clinical independence, and limit contractual tools that can silence clinicians. See a summary of the laws and what changed in this legal overview of SB 351 and AB 1415.
These California reforms matter far beyond one state. They reflect a growing recognition that healthcare behaves differently from typical markets. Patients rarely shop on price in the moment of need. Quality is difficult for consumers to evaluate. And when consolidation reduces competition, price increases can follow quickly.
Below is a practical look at what private equity is doing in healthcare, why policymakers are reacting, and how consolidation affects one of the most visible line items for hospitals and health systems: the cost of hiring clinical labor through staffing agencies.
The Private Equity in Healthcare Playbook
Private equity firms typically raise funds from investors, buy companies using a combination of equity and debt, improve EBITDA, and sell the business within a few years. In normal industries, the “improve EBITDA” part can mean genuine productivity gains.
In healthcare, it often overlaps with three powerful levers.
1) Market power through consolidation
Buying many small practices or agencies and rolling them into a larger platform can increase negotiating leverage with payers and purchasers. In physician services, research has linked private equity acquisition with increased spending and utilization. See this JAMA Health Forum study on PE acquisition and spending/utilization.
2) Revenue optimization
This can include changing payer mix, increasing coding intensity, shifting site of service, adding ancillary services, and pushing volume. Even small changes in coding and billing practices can materially increase collections, which is one reason lawmakers are focusing on who controls billing and coding decisions in practice management arrangements. The statutory language on prohibited interference is detailed in the full text of California SB 351.
3) Cost compression
Labor is the largest cost center in healthcare. Investor backed organizations can pursue savings through staffing reductions, wage pressure, and operational policies that prioritize throughput and margin. Public reporting has highlighted concerns about staffing and outcomes in some PE owned hospital contexts, including emergency care dynamics discussed in this reporting on PE ownership, staffing changes, and outcomes.
The concern is not that every investor owned organization is mismanaged. The concern is that incentives and time horizon can make it easy for financial priorities to crowd out clinical priorities, especially when there is limited oversight and weak competition.
What California Changed on January 1, 2026
California’s SB 351 and AB 1415 are widely viewed as a major state level response to private equity’s expanding role in healthcare transactions and practice management structures. For broader context on how states are moving in this direction, see this overview of state actions affecting PE investment in healthcare.
SB 351: explicit limits on investor interference in clinical practice
SB 351 is aimed at private equity groups and hedge funds involved “in any manner” with physician and dental practices doing business in California. Its central idea is simple: non licensed investors cannot interfere with clinical judgment. The law spells out that investors cannot influence decisions related to diagnosis, treatment, referrals, and patient volume. That prohibition is laid out directly in the text of SB 351.
It also targets operational areas that can quietly control care. The statute restricts non licensed entities from exercising power over functions that can affect clinical outcomes, including decisions around coding and billing procedures for patient care services, and other practice controls that can steer clinician behavior. Those controls are also detailed in the statutory language of SB 351.
Just as important, SB 351 voids certain restrictive contract provisions in covered management agreements. It limits post transaction non compete and non disparagement provisions that can prevent clinicians from speaking honestly about care quality or business practices. A practical breakdown of these contractual limits is included in this explanation of what the new rules prohibit.
SB 351 also reinforces California’s longstanding corporate practice of medicine doctrine. California already limits corporate control of medical practice. The new law strengthens how those principles apply in modern MSO arrangements, where a management services organization provides non clinical services while a professional corporation employs clinicians. Additional perspective on these structures is discussed in this analysis of the MSO and PE regulatory direction.
AB 1415: expanded transaction oversight and 90 day notice
AB 1415 expands the state’s healthcare transaction oversight rules by requiring “noticing entities” to provide written notice to the Office of Health Care Affordability (OHCA) at least 90 days before closing certain transactions. Noticing entities include private equity groups, hedge funds, MSOs, and other entities that own, operate, or control providers. OHCA’s plain language explanation is available in OHCA’s AB 1415 FAQ.
The notice requirement targets agreements that involve the sale or transfer of a material amount of assets, or the transfer of control, responsibility, or governance of a material portion of operations. A transaction focused summary of the notice requirements appears in this overview of California’s increased scrutiny on healthcare deals.
This is not a technical filing change. It is a transparency and accountability move. By pulling more deals into a structured notice process, California is trying to reduce the odds that consolidation and cost impacts go unnoticed until they are difficult to reverse. OHCA’s description of how the notice process works is again covered in the AB 1415 FAQ.
Why Lawmakers Are Reacting: Price Increases and Quality Concerns
California’s action did not occur in a vacuum. A growing body of research and policy analysis has linked private equity ownership or acquisitions to higher spending, price increases, and in some settings, worse outcomes.
Physician practices: spending increases after acquisition
Multiple analyses have found that private equity acquisition of physician practices is associated with increases in spending and utilization. One widely cited source is this JAMA Health Forum research on PE acquisition effects. Commentaries in medical journals have also highlighted pathways such as higher negotiated prices, utilization growth, and operational pressure to expand profitable services, including this JAMA Health Forum discussion of mechanisms and incentives.
The important point for hospital leaders and payers is that these shifts can affect total cost of care without an obvious “innovation” headline. Consolidation can also change referral patterns, contracting leverage, and billing practices in ways that are hard to see until prices move.
Hospitals and nursing homes: cost cutting can show up as staffing reductions and outcomes
In hospitals, research and reporting have raised concerns about post acquisition staffing and compensation changes, particularly in emergency settings, along with patient outcome impacts for vulnerable populations. One example of this concern is discussed in this reporting on PE hospital ownership and emergency care outcomes.
In nursing homes, widely cited research has associated private equity ownership with higher mortality and changes consistent with cost pressure, including fewer caregivers and higher management fees. A concise summary of that evidence is available in this NBER Digest overview of PE acquisition effects in nursing homes.
The throughline across settings is not that investment is always harmful. It is that when the business model depends on extracting financial returns quickly, labor and clinical operations become tempting targets, and the consequences can land on patients.
How Private Equity Impacts the Staffing Market, and Why Hospitals Pay More
Healthcare staffing is an essential pressure valve. When hospitals face shortages, seasonal surges, or hard to fill specialties, staffing agencies can keep units open. But consolidation in the staffing market can raise the cost of that flexibility.
Private equity firms have increasingly acquired staffing agencies and built large national platforms, especially in travel nursing and locum tenens. Policy research has described how large intermediaries can control access to requisitions and capture fees across the supply chain, creating upward pressure on total contingent labor spend. For a discussion of investor dynamics in contingent staffing and travel nursing, see this policy report on private equity and the travel nursing market.
Here is how costs can rise, even when the underlying clinician wage does not.
1) Consolidation increases pricing power
When a market shifts from many independent agencies to a few dominant platforms, buyers have fewer options. Agencies can negotiate higher markups, enforce less flexible terms, and resist downward pressure on bill rates. This is standard consolidation economics, but healthcare feels it faster because hospitals cannot simply choose to buy less labor when patient volumes remain.
AB 1415’s emphasis on transaction notice reflects the state’s view that deal visibility matters because market structure can shift quietly, one acquisition at a time.
See OHCA’s AB 1415 FAQ for how California is framing those notifications.
2) Fee stacking across intermediaries
Many hospitals use managed service providers (MSPs) and vendor management systems (VMS) to centralize staffing procurement. In theory, that should create efficiency, compliance, and standardization. In practice, it can also create additional fee layers and a structure where access to work is gated through a single channel.
When vendor access is concentrated and multiple entities take a percentage of spend, the all in rate to the hospital can rise even if the clinician’s pay does not rise proportionally. The result is a widening gap between what facilities pay and what clinicians take home. That gap is where frustration grows on both sides, and it is part of why staffing has become a flashpoint in discussions about cost and sustainability.
3) Rate cards and rigid controls can reduce competition on value
VMS rate cards can standardize pricing, but they can also reduce a hospital’s ability to negotiate directly based on specialty scarcity, speed of fill, clinician quality, or local market realities. When procurement is optimized for administrative simplicity, the system can unintentionally reward scale over performance. Consolidated platforms tend to benefit most from that structure because they can staff across multiple regions, absorb compliance overhead, and influence standardized pricing.
4) Clinician experience can degrade, which worsens shortages and increases reliance on agencies
When clinicians perceive more pressure, less autonomy, or reduced support, turnover increases. That can create a feedback loop: turnover leads to more vacancies, which leads to more reliance on premium labor, which raises costs, which increases pressure for cost cutting elsewhere.
This is one reason California’s SB 351 focuses so directly on clinical independence and on limiting contract terms that chill criticism. It treats autonomy and transparency as cost issues, not only ethical issues, because clinician retention and workplace stability are operational necessities. The scope of SB 351’s restrictions is detailed in the bill text.
What Healthcare Leaders Can Do Now
The goal is not to eliminate investment from healthcare. The goal is to align incentives so that capital supports care rather than extracting value from clinical operations. For hospitals and staffing purchasers, a few practical steps can reduce risk.
1) Ask harder questions about ownership and incentives
If a staffing supplier is part of a private equity backed platform, understand how pricing is set, how margins are targeted, and whether there are related party fees. AB 1415’s transparency direction is a signal that ownership structure matters. See OHCA’s AB 1415 FAQ for how noticing entities are defined and why notice exists.
2) Audit the full cost of procurement models
MSP and VMS programs can be valuable, but the true cost is the total spend per filled shift, including embedded fees and sub vendor spreads. Compare that to direct contracting models where appropriate.
3) Preserve optionality
Over dependence on a single channel reduces negotiating leverage. Diversifying supplier access, and maintaining the ability to contract directly for certain roles or departments, helps prevent price lock in when market conditions tighten.
4) Treat clinician retention as a staffing strategy
Every avoided vacancy reduces premium labor spend. Operational choices that preserve autonomy and reduce burnout are not just culture initiatives. They directly affect labor costs and agency reliance, and they are part of the broader policy motivation behind limits on investor interference with clinical judgment. The legislative intent and restrictions are described in the SB 351 text.
Why California’s Move is a Signal for the Rest of the Country
California’s SB 351 and AB 1415 do two things that other states are now debating. First, they draw bright lines around what investors cannot control in clinical practice. Second, they expand transaction visibility so regulators can see consolidation earlier. A broader look at how states are responding appears in this analysis of state action affecting PE in healthcare.
For healthcare organizations, the message is straightforward. Ownership structure, contracting terms, and procurement models increasingly affect not only finance, but also clinical governance and workforce stability. If private equity backed consolidation continues to reshape staffing and provider markets, hospitals will need better tools to see where costs are coming from, where fees accumulate, and where incentives are misaligned.
That is the environment this next decade will be defined by: more scrutiny, more demand for transparency, and a growing expectation that healthcare economics must serve clinical care, not the other way around.
For a concise summary of what California’s new rules require, see this SB 351 and AB 1415 overview.
