LA Healthcare M&A Hits Regulatory Wall
Antitrust scrutiny is becoming a major gatekeeper for M&A deals in Los Angeles, particularly in the healthcare sector. Legal experts warn that a higher percentage of deals are being delayed or modified due to regulatory concerns. As a result, firms are using creative deal structures like joint ventures and asset swaps to navigate the complex environment, where valuation now heavily depends on modeling for policy changes and reimbursement risks.
A major driver of this heightened scrutiny is California's Attorney General, Rob Bonta, who has actively partnered with the Federal Trade Commission (FTC) to challenge healthcare deals. Their joint lawsuit successfully blocked John Muir Health's attempted acquisition of San Ramon Regional Medical Center, arguing it would have illegally stifled competition in the I-680 corridor and led to higher patient costs. This aggressive stance isn't limited to hospitals. The FTC and California's DOJ also jointly challenged Amgen's $28 billion acquisition of Horizon Therapeutics, marking the FTC's first-ever legal challenge to a pharmaceutical merger. The concern was that Amgen could leverage its market power to monopolize drugs for rare autoimmune diseases, ultimately harming patients by reducing affordability and access. Fueling the regulatory fire are two new state laws that took effect on January 1, 2026: AB 1415 and SB 351. These laws specifically target private equity groups and hedge funds, requiring them to provide a 90-day notice to the state's Office of Health Care Affordability (OHCA) before closing most healthcare transactions. This creates significant potential for delays as the OHCA can conduct a lengthy "Cost and Market Impact Review." The new legislation, particularly SB 351, codifies and strengthens California's long-standing prohibition on the "corporate practice of medicine." This explicitly bars private equity firms and hedge funds from interfering with a physician's clinical judgment, including decisions on patient care, hiring of clinical staff, and even the selection of medical equipment. In response to this high-stakes environment, dealmakers are increasingly turning to joint ventures to achieve the benefits of a merger while managing antitrust risk. Unlike a full merger, joint ventures are typically analyzed under the "rule of reason," which weighs pro-competitive benefits—like expanded services or lower costs—against anti-competitive effects, offering a more flexible path forward. The increased regulatory oversight is a direct reaction to years of consolidation in the California healthcare market. For example, the Attorney General previously sued Sutter Health, Northern California's largest hospital system, for anti-competitive practices that resulted in inflated patient costs, a case that began in 2014 and resulted in a settlement.
