Vermont Legislature SmartTranscripts:

[Rep. Alyssa Black (Chair)]: Hi, welcome back everyone. It's '1 zero six, still on the January 30, and we're pivoting back to five eighty three, which is the Practice of Medicine bill, calling it the CPOM. And we have with us Michael, is it Fen or Fene?

[Michael Fenne]: It's Fene.

[Rep. Alyssa Black (Chair)]: Fene. Okay. Well, thank you for being with us today. And if you just introduce yourself and understand you're going to give us kind of a high level overview of the bill and what the bill is doing.

[Michael Fenne]: Yes, I'll go ahead and share my slides and thank you. Oh, I'm gonna send a request to share my slides with that. Okay. Thank you so much for having me. Yeah, my name is Michael Fenny. I'm a senior policy coordinator at the private equity stakeholder project. And I'm going to talk high level about health care policies. We're a nonprofit watchdog organization we're a non profit watchdog organization that focused on the growing private equity industry and the growing private funds industry. We were founded in 2017 to address the growing impacts of private equity and private funds. We focus on five key areas affected by private equity, climate and energy, workers and jobs, housing, health care, and detention and surveillance. And my specific focus is on state healthcare policy. But before getting into state healthcare policy, I'll start with a little background about why private equity draws state involvement. States regulate licensure access Medicaid financing, making them responsible when PE owned providers destabilize, which I'll get into in a following slide. PE ownerships can delay visibility into financial risk until financial closures, service cuts, or liquidity crises emerge. And then financial strategies that private equity firms often use, such as sale leasebacks, leverage, and dividend payouts, shift risk to operating entities and communities in favor of payouts for private equity firms. And when capital exits or fails, states are left managing access disruption, fiscal exposure, and regulatory response. So getting a bit more into looking into private equity, private equity has limited ownership disclosure requirements. They are generally not required to disclose acquisitions or ownership details at the state or federal level. States have begun exploring transparency laws, but there is limited ownership disclosure. And private equity stakeholder project has identified approximately four eighty eight US hospitals owned by private equity. That's as of early twenty twenty five, representing a significant share of proprietary facilities. There are opaque financial and transaction details. Key aspects of PE details including debt structures, related party payments, and intermediate entities are often not publicly reported, making it difficult for policymakers to assess risk before distress emerges. What kind of risk can emerge from private equity ownership? My colleague's research has identified that private equity is a of a risk screening indicator for heightened disclosure and monitoring because of the bankruptcies associated with private equity. In 2024 PE was connected to fifty six percent of bankruptcies with more than $500,000,000 in liabilities, eleven percent of all US corporate bankruptcies, and in the health care area specifically, twenty one percent of health care bankruptcies in 2024, and seven of the eight largest healthcare bankruptcies that year. Some of the other risks that can come from private equity ownership, and I'll just go through this quickly, can come to patient safety in hospitals, spending and utilization at physician practices, and mortality and staffing levels at nursing homes. And these are just a few examples of some academic research studies that have demonstrated these outcomes. Existing tools to address private equity related risks leave gaps. Available means to address current private equity risks often address downstream risks and impacts associated with private equity ownership, rather than regulating private equity financial tactics. That can mean oversight through hearings, data requests, Medicaid audits, licensure and reporting conditions. It can also mean enforcement through attorney general authority under consumer protection, antitrust or licensing statutes. And then it can also mean transparency through ownership disclosure, public transaction notices, or advanced closure and service fund change notice. One example of enforcement that I didn't include on this slide, but we've seen in our research at PSP is that private equity affiliated healthcare companies often have sometimes been charged with False Claims Act violations, and we've seen many settlements with private equity backed healthcare providers.

[Rep. Alyssa Black (Chair)]: Would you mind sort of expanding upon downstream risks and impacts? Like what types of things are you talking about here?

[Michael Fenne]: The downstream risk, I think the most clear example I could provide would be staffing cuts or limited resources related to financial tactics from private equity. So for example, if a private equity firm puts debt onto a healthcare provider in order to pay itself the private equity firm a dividend, the healthcare provider or entity can carry that debt and make it less flexible in staffing or in the provision of materials or in adjusting to any sort of financial headwinds because of the debt that comes from private equity.

[Rep. Alyssa Black (Chair)]: So you're saying that rather that we tend to address things like staffing issues rather than starting at the beginning

[Michael Fenne]: of Okay. Helpful. I'll get more into the upstream ways that states have started to recently try and identify private equity risk, but these are the tools that have existed up until the present day. They are more generally applicable, often not looking at private equity specifically. So one example is in orient of existing authority, so transaction there's a transaction review, proposed mergers, acquisitions, affiliation, sales, or other transactions will result in a material change of control review. The Oregon Health Authority conducts the review under health care market oversight and may approve with conditions or disapprove material change transactions. And one example that I've seen in another state, Rhode Island, which also would apply in this situation. If there were approval with conditions, a state healthcare authority may be able to put conditions on the amount of debt that an acquisition has. If a private equity firm wants to acquire a set of nursing homes, the approval may come with debt conditions.

[Rep. Alyssa Black (Chair)]: Got it.

[Michael Fenne]: Now getting into private equity financial tactics that increase risk, but often are not widely regulated. This includes sale leasebacks, dividend recapitalizations, and high leverage, such as leveraged buyouts, sale leasebacks are when hospitals or healthcare facilities sell their real estate and become long term tenants with fixed rent obligations. The proceeds from those sales sometimes go towards paying a dividend to private equity owners. The second tactic here is dividend recapitalizations. Those are debt funded payouts to owners of healthcare entities, which increase leverage at the entity without improving care delivery. So a private equity entity pays a dividend to its owner, but is responsible for that debt that was used to pay the dividend. High leverage with combined fees, management and advisory fees can reduce operating flexibility during downturns. And just a general point about how financial control often sits outside the licensed provider that the states regulate and oversee. One example that I'm sure many of you are familiar with is Steward Healthcare. It was a multi state hospital system owned by Cerberus Capital Management beginning in 2010. And Cerberus actually acquired Steward through a leveraged buyout transaction. So it used debt that fell onto Steward in order to take ownership. A few years later in 2016, was a $1,250,000,000 sale leaseback transaction with Medical Properties Trust making Steward entities tenants on the real estate that they had previously owned. That same year, Stewart reported a dividend of $790,000,000 with $719,000,000 paid to private equity firm Cerberus. And then in 2020 Cerberus sold its controlling stake to a physician led group. Cerberus profited approximately $800,000,000 over its entire ownership period of Steward and left Steward struggling financially so that in 2024, Steward filed for Chapter 11 bankruptcy with approximately $9,000,000,000 in bankruptcy or in liabilities, including $6,600,000,000 in long term rent obligations. So Stewart is an example of kind of the examples of existing policy tools. And in response to Steward and the broader private equity penetration into the healthcare industry, states have started to respond to private equity risks in a variety of ways. We have categorized them at PSP into four main categories: increased transparency and reporting, approval and enforcement authority, targeted prohibitions, and corporate practice of medicine limitations. And it really is, each of these is necessary and each of these, it really is an all of the above approach. So transparency in reporting would be increased disclosure of ownership, financing, and control relationships. Approval and enforcement authority would be expanded authority to approve condition or block transactions. Targeted prohibitions would limit specific financial practices associated with private equity risks, such as sale leasebacks and the highly leveraged transactions. And then corporate practice of medicine limitations would strengthen or clarify limits on non clinician control of medical practices, including through management services organizations or other management arrangements.

[Rep. Alyssa Black (Chair)]: Would you mind sort of describing for us that last bullet around the MSO management arrangements and how that sort of works? We haven't heard a great deal about that, but I know that's something that in Vermont we've seen, we're not seeing necessarily bad practice, but MSOs are really what we've seen as far as private equity within the state.

[Michael Fenne]: Sure. MSOs and I'm probably less knowledgeable about MSOs and management relations compared to one of the following speakers, but MSOs are management services organizations that perform administrative functions for physicians. Physicians can contract with them in order to do administrative billing sort of tasks so that the physician can focus more on the provision of care. And MSOs are often owned by private equity firms and are a way that private equity influence can of sneak into physician arrangements is through the ownership of these administrative bodies. Thank you. A couple of examples of states that have recently passed legislation. I'll talk first about Massachusetts signed H5159 into law in January and expanded the Commonwealth's healthcare market oversight framework. They broadened the scope to include a wide range of providers and organizations, including significant equity investors, health care, real estate investment trust, and management services organizations into market review and reporting structures. There's an emphasis on material change notice and financial reporting requirements, including more state visibility into ownership structures and debt, as well as real estate arrangements. And then something that Massachusetts has done that it's the first we've seen in The States is a targeted restriction on a private equity financial tactic on sale leasebacks. The Massachusetts law prohibits granting or renewing a license to an acute care hospital whose main campus is leased is leased from a real estate investment trust. Existing arrangements are grandfathered, but this is one of the first ways we've seen state legislators go after private equity financial tactics. Pennsylvania has also started to look at the tactics that private equity firms use. They are considering a bill of fourteen sixty, which would require pre transaction review and prohibits transactions deemed against the public interest. Part of the considerations in what is against the public interest, sale leaseback arrangements are defined as a relevant transaction type and treated as a factor in determining whether the transaction is against the public interest. So both Massachusetts and Pennsylvania have started to identify sale leasebacks as something to put limits on and something that may cut against the public interest. Another state that passed laws last year was California. They passed two laws regulating private equity, expanding notice and reporting and strengthening corporate practice of medicine enforcement. And the thing that I want to emphasize about the California laws is that there are still gaps compared to what was proposed in Pennsylvania and passed in Massachusetts. The California laws focus on notice transparency and clinical control, but don't prohibit or directly constrain debt funded payouts, dividend recapitalizations, real estate transactions such as hospital sale leasebacks. And then just briefly, it appears that the proposed legislation in Vermont includes all of the above, which would in the view of our organization make it a national leader in regulating private equity for not only increasing transparency, but also putting limits on debt driven extraction and closing CPOM and MSO loopholes. So very hopeful to see this legislation proceed and think that it goes much further than a lot of the other legislation we've seen in other states up to this point. Just a few key takeaways. Private equity ownership reshapes how financial and operational risk is created and shifted. Specific financial practices of sale leasebacks and leverage can undermine access and stability well before distress becomes visible, such as in the case of Steward. States already possess some overstate and oversight and approval tools, which are not sufficient to address private equity related risk, and early visibility and constraints on transactions are essential to preventing late stage crisis driven covenants. And that is the end of my slides, thank you.

[Rep. Alyssa Black (Chair)]: So you've looked at H583. Is there anything in there that you feel shouldn't be there? Or is there anything you feel creates, like, loopholes?

[Michael Fenne]: I haven't looked enough to think that everything that's included up to the in the bill is a step in the right direction. I haven't looked closely enough to whether there's loopholes. I think that right now a lot of states are just beginning to respond to private equity and are looking for ways to best tailor their legislation to addressing private equity. This, the Massachusetts and Pennsylvania laws are kind of the current leaders because there aren't a lot of examples from other states.

[Rep. Alyssa Black (Chair)]: And maybe just a question for myself, because I keep receiving this question. Why are we doing this now? This isn't a problem in Vermont. Is Vermont already immune to this? I mean, you've studied this on a national level. Is is there something special about Vermont that we don't need to worry about, boss?

[Michael Fenne]: I don't I don't I think that all states that don't have legislation limiting private equity tactics are exposed to the risk of those tactics. The reason that this is coming up now in many states, I believe, is because of the high profile steward bankruptcy that and because the measures by the private equity owner that led to that bankruptcy were legal, were reported, and some outlets were known. But the risks from private equity ownership are really only recently starting to begin to expose themselves because of how limited the transparency is into the industry.

[Rep. Alyssa Black (Chair)]: Thank you. Thank you so much, Michael. Really pleased you could join us today.

[Michael Fenne]: All right. Thank you for having Were

[Rep. Alyssa Black (Chair)]: there any other questions? Sorry, I feel like Do

[Rep. Karen Lueders]: I have a floor?

[Rep. Alyssa Black (Chair)]: You do? Yeah. Okay. We're a little light in committee today, unfortunately. Friday afternoon. Thank you. You. So Doctor. Singh, I believe. And I'm going to try. Yasa Sweeney? I shouldn't have even tried. Doctor. Singh.

[Dr. Yashaswini Singh]: Hi, hello. I'm Yasa Sweeney Singh. You so much for That having was almost it. Thank you for trying. Have a slide deck for us today.

[Rep. Alyssa Black (Chair)]: Yes. Thank you so much for joining us today.

[Dr. Yashaswini Singh]: Does that look all right on your end?

[Rep. Alyssa Black (Chair)]: It does. Wonderful. Well,

[Dr. Yashaswini Singh]: thank you again very much. Good afternoon to all committee members. I am Yatra Sweeney Singh. I am trained as a health economist and I work as assistant professor of health services policy and practice at Brown University. I have spent the last five years or so studying

[Rep. Alyssa Black (Chair)]: Oh, you froze on us.

[Dr. Yashaswini Singh]: Sorry about that. Are you able

[Rep. Alyssa Black (Chair)]: to hear me? We can hear you now.

[Dr. Yashaswini Singh]: Let me try and reset my video in case that works. How about now? Yep. All good. All right. So I'm Yasha Sweeney. Thank you again for the opportunity to testify. I am a health economist by training, and I work as an assistant professor of health services policy and practice at Brown University. My expertise is in healthcare markets, competition and consolidation. Specifically, over the last several years, I've spent a lot of time bringing systematic data and evidence to the topic of private equity investments in healthcare. As background for our time today, I know the committee has heard over the last week and several weeks private equity has sort of increased its footprint and foothold in the American economy as a whole, but if we look just within the healthcare system over the past two decades, both the number of investments made by PE firms as well as the amount of capital invested by PE firms has steadily increased starting from 2,000 all the way until 2023 and more recently as well. The focus has shifted, so if we look at sort of the early years in the 2000s, the emphasis was on investing in hospitals and nursing homes, more institutional facilities. Starting in about 2015 onwards, the investment focus has shifted towards outpatient practices. This includes things such as physician offices and ambulatory surgery centers. Starting in about 2020 during and after the COVID-nineteen pandemic, we've seen PE firms take up particular interest in more niche areas such as opioid treatment programs, which I'll share more on briefly. I thought it might be helpful, given that we've heard so much about private equity, I thought it might be helpful to offer some thoughts on what differentiates PE from other types of private for profit entities in the American healthcare system, given there are so many. First, because these are private firms or private investment firms that invest in other private companies, in general, there are very few transparency or reporting requirements, either at the federal level or at the state level. This makes it very difficult for researchers, policymakers, patients, healthcare workers, and other stakeholders to have sort of an objective common starting point to have a conversation around, you know, how much of private equity is in a local market and what are the impacts of these investments on communities that we care about. When we look at the private equity incentive structure in particular, PE firms, as I'm sure you've heard several times already, generally raise capital from institutional investors such as pension funds, sovereign wealth funds, university endowments, and so on. Importantly, this capital is combined with large amounts of debt, and the debt is placed on the balance sheet of the acquired entity, rather the PE firm itself, which can create obligations to service interest payments and loan repayments, which in healthcare is one reason why we see sort of changes in clinical and managerial operations after these buyouts. Investments, PE investments in particular, also tend to be of a shorter time horizon in contrast to other strategic buyers in healthcare that might seek to acquire entities with a long term goal of integrating the company into existing operations. In contrast to that approach, PE investors generally seek to exit their investments in a pre specified short time horizon, which theoretically is about three to seven years. There is also often a very high internal rate of return that they aspire towards in the ballpark of 20%, and this emphasis on rapid value creation is what in healthcare often held responsible for prioritizing short term gains over longer term investments in sustainability. I did want to highlight that PE investments, as we've studied them and we've heard numerous anecdotes in national and local media coverage, I did want to emphasize that from my work, we've come to learn that PE investments strategies do tend to be sector specific, and so there really is no such thing as a one PE strategy or a one PE firm playbook that plays out across healthcare, and so it's helpful to keep that in mind as we make sense of all of the evidence on the impacts of these investments in healthcare. To be a little bit more specific on this last point, some common strategies we've seen PE firms rely on include platform and add on consolidation, where a firm might make an initial acquisition of a large platform practice in a local market. This might be a practice that enjoys good brand recognition, has a loyal stream of patience, has good brand value, and then this initial platform acquisition is followed by a series of smaller add on acquisitions, each of which individually might be too small to trigger any sort of reporting or disclosure requirements, but the cumulative effect of all of these acquisitions might still be large from a competition perspective. I wanted to contrast this with strategies we've seen PE firms adopt in the hospital setting and nursing home settings where firms often in conjunction with real estate investment trusts have been documented to acquire the real estate of hospitals and then lease it back to the clinical entity or the hospital in what is known as PROPCOOPCO model, where the property company is separated from the operating company. The PROPCO in this example would be the land that the hospital sits on, and the OPCO or the operating company would be the clinical operations of the hospital separated sort of from its real estate. So, highlight these two examples. There are several others, and I'd be happy to share more on this point as we proceed. I also understand the committee has heard extensively on PE investments in hospitals, and for the remainder of my time, I'd like to focus on PE investments in physician practices in the outpatient setting,

[Prof. Erin C. Fuse Brown]: which is sort

[Dr. Yashaswini Singh]: of where the bulk of my research sits. So again, some context for looking at physician practices in particular, kind of if we zoom out from this issue, we know that the corporate employment of physicians in The U. S. Has been a steady and increasing trend over time. At present, over eight in 10 physicians are employees of hospitals, health systems, or corporate entities, which includes but is not limited to private equity firms. However, if we look just over the last five years or so between 2019 and 2023, about two thirds of all mergers and acquisitions of physician practices have been led by private equity firms. So while there are a whole variety of corporate entities that are reshaping physician employment, PE firms seem to be the dominant force, at least in recent years. I mentioned this already, but I wanted to highlight with an illustrative example how the classic model of PE investments in physician practices works. I mentioned already PE firms raise capital from limited partners and then combine this capital with large amounts of debt to create a PE fund. Importantly, this combination of debt and capital is used to make investment in a platform practice. This majority stake acquisition is also what differentiates private equity from other types of financial investments in healthcare, such as those made by venture capital firms or hedge funds. After the platform acquisition, in this example, it takes the form of a practice with three physicians in one practice. The PE firm can also rely on the role of a management services organization to complete this acquisition, depending on the nature of the corporate practice of medicine doctrine in the state where the acquisition is being made. Following this initial platform acquisition, PE firms can embark on an add on acquisition, in this example of practice A with two physicians, a second add on acquisition of a single practitioner and a third add on acquisition of a practice with four physicians. So what starts out as an initial platform acquisition of three physicians in one market very quickly gives the firm control over 10 physicians in the same market without triggering any sort of notification requirement. From the firm's perspective, this type of consolidation gives the firm greater market in the market, which it can leverage in negotiations with commercial payers. It also allows the firm to benefit from economies of scale, which can improve the efficiency of care delivered overall, but most importantly, given the incentive of firms to exit over short time periods, this type of consolidation allows the firm to sell the practice for a higher valuation because the financial markets reward scale and size in terms of valuation. Theoretically, PE firms can exit by selling to other PE firms in the form of a secondary buyout. They might also exit transactions by selling to strategic buyers, in healthcare can be a hospital or a health system. It can also be an health insurer affiliate, such as Optum. And then the third exit option that we've seen theoretically, although in the physician practice context, it's rare, is by taking the company public and having an IPO listing it on the public stock exchange for the first time. I wanted to next spend some time sharing with you the quantitative evidence that my research has generated, and I welcome questions and clarifications as either I go through the research, but also happy to take questions once I wrap up. And so first, what I have with you is just data on national trends and some evidence on what our research has shown to be true nationally, and then I'll conclude by sharing what we know about the Vermont landscape so far and where in particular we've seen investors go in Vermont. And so nationally, if we look at this graph on the slide, we see that there really isn't any specialty within the physician practice domain that has been untouched by investments. There are some notable patterns here that I'll highlight for you. The early targets of PE investments in physician practices were specialties where care is largely delivered in a fee for service environment. This includes things such as dermatology, gastroenterology, and ophthalmology. Starting in about 2020, we've seen the investment focus shift towards specialties where care is reimbursed largely or increasingly through value based care incentives, and this includes specialties like primary cardiology, as well as oncology. It's very difficult to estimate what proportion of physicians are in these arrangements given the lack of systematic data or reporting requirements. Nevertheless, some of the work I've including with a team of researchers at Brown, has developed methods to help us identify not just the extent of PE penetration, but also which communities across the country are most impacted by these forces. And so what I have up on this slide is one example of that work. We see from the map that PE investors have certainly identified certain pockets of the nation that stand out as lucrative investment targets. Across specialties, investors have found states such as Texas, Florida, Arizona, but also the Northeast as lucrative investment areas. The table on the slide is a little bit dated at this point, but it really is our best estimate of the share of physicians across each specialty that are private equity affiliated, and this is consistent with the graph I shared on the previous slide with specialties like gastroenterology and dermatology representing a high share of physicians in these arrangements, and then primary care where we've only really seen investments pick up pace after the COVID-nineteen pandemic at about one point five percent of all physicians nationally. It's important to consider how do we get here. It's also important to consider, you know, as part of every acquisition and investment is a physician partner or a physician practice that makes the decision to sell their practice to investors, and so I'll acknowledge upfront that we don't have quite systematic research on the factors that motivate physicians to sell their practices, but despite that, there are anecdotes that are worth considering. A commonly cited reason for physicians who make their decisions to sell to PE firms is the desire or the need to keep up with the regulatory complexity of healthcare in The United States. This includes things such as billing, revenue cycle management, but also compliance with value based care contracts and the like. The physician perspective is very important to consider. It is one that is difficult to quantify or incorporate systematically in research because a lot of these employment arrangements are also accompanied by non disclosure terms and other GAG clauses, which makes it very difficult for physicians to share their experiences during or after a buyout. Despite that, here is a study that I have up on the slide, which you might have seen before, that surveyed about 500 physicians to get a sense of what physician perspectives are on private equity, and there's some interesting heterogeneity here where physicians think of PE as being worse than independent or nonprofit hospitals, which I understand most of Vermont's hospitals to be, but then about the same as other types of corporate entities, and so this is the only study that I'm aware of that shed some light on the physician perspective. I am an economist by training, and so a lot of the research I have is drawing upon data and quantitative methods rather than, you know, qualitative methods that get at physician perspectives. And so for the next several minutes, I'll share with you what some of that research has found when it comes metrics such as healthcare prices, implications for the workforce and so on. And so we've documented that PE acquisitions in dermatology, gastroenterology and ophthalmology practices over a four year time period have increased prices about 11%, and this includes negotiated prices between providers and commercial payers, but also chargemaster prices or list prices that increased by about 20%. This study also found some so called productivity pressures that are placed on physicians as they are required to see a larger number of patients. We see unique patients at the practice increased by about 26%, and this increase is largely driven by patients who are new to the practice that increased by about 38%. The study also documented changes to coding and billing practices that emerge after acquisitions, and we found that office visits or sort of your general evaluation and management visits increased by about nine percent or the ones that are coded as being longer than thirty minutes increased by about nine percent. The study I shared on the previous slide has interesting findings around what drives the utilization changes we see after buyouts. These are largely driven by ancillary services, such as diagnostic imaging tests as well as lab tests. There is some concern with these investments changing clinical decisions made by physicians. In particular, there are concerns that PE investments, with their emphasis on short term profitability, might prioritize profitable service lines or patient populations while paring down care for either services or patients that are not great for the bottom line. And so sort of in response to that concern, we conducted a study looking at the provision of one such surgery that is critical from the patient's perspective, but the reimbursement level does not always cover the cost of providing that surgery. And so we found here that PE investments of ophthalmology, in ophthalmology clinics in particular, decrease the provision of retinal detachment surgery, which is, you know, the one where if you don't get a surgical attention within days of diagnosis, it can lead to permanent blindness, and this decrease was in the ballpark of about twenty percent, which raises important concerns around access to care for patients who need them the most, but also what happens to the burden of care for the neighboring health institutions that are in the vicinity of entities that become acquired by PE who might then face a disproportionate burden in caring for these patients that are turned away by private equity backed entities. When we look at effects of PE on the clinical workforce, there are a couple of studies here that I wanted to share with you. First, we found PE firms to increase heavily their reliance on advanced practice providers. The figure on the slide presents a metric referred to as the clinician replacement ratio, which is simply a ratio of the number of entering clinicians in a practice over the number of exiting physicians in a practice. And so a ratio greater than one suggests that while there might be growth happening at the practice, it is concealing workforce disruptions and some turmoil, which can have implications for the overall care continuity and quality of care from a patient perspective. We see from the graph that the mustard bar is greater than the teal bar across specialties and across types of providers for both physicians, as well as advanced practice providers suggesting that the clinician replacement ratio or the workforce disruptions that emerge at PE firms tends to be quite higher than those that emerge at non PE acquired physician practices. Because of all of these reasons that I've highlighted to you before, perhaps it's of no surprise that other work we've done has also shown that following PE buyouts, physician turnover increases from about 5% of baseline to over 20%, which in percentage terms is an increase of more than 250% in physician turnover. A

[Rep. Karen Lueders]: lot

[Dr. Yashaswini Singh]: of the physicians who we have documented as quitting or exiting private equity affiliated practices also tend to be mid career professionals. So this isn't simply a case of physicians retiring early after selling their practices to PE firms. Most of them tend to be sort of in the ballpark of 50 to 60 years old, and interestingly, a lot of these physicians move over 100 miles on average in search of their next PE or next non PE employment, which can reflect perhaps the extent and scope of non compete terms that are in these physician contracts. Finally, I did mention at the beginning that PE firms invest with a fairly short term investment horizon in mind, and a big part of how PE firms realize their expected profitability is by exiting or reselling their investment target to be it another PE firm or another strategic acquirer. Some of our work has shown that for all physician practices between twenty sixteen and 2019, we've seen the majority of targets to be resold to other PE firms within only three years between investment and exit. And this highlights some specific concerns. I think one, the short investment timeline of just three years introduces ownership change and disruptions to care as the practice changes hands from one owner to the other. But also, I think given the nature of the exit, which involves sale from one PE firm to another, it essentially restarts the cycle of buying to sell. And it's very difficult to study PE investments. As I mentioned at the outset, it's even more challenging to study PE exits because once again, no part of this process is reported in any systematic way. I did want to share some thoughts and research on how private equity fits in sort of to this broader conversation around healthcare consolidation. I think we all know and appreciate the various forms of consolidation that have been reshaping healthcare markets in recent years, the dominant one of which is vertical integration between hospitals and physician groups. And so to that end, we've done some work sort of putting private equity into this broader context. And so what I have up here on the slide is in the specialty of primary care, we wanted to examine what the share of primary care physicians have looked like separately if we look at hospital affiliated PCPs and in contrast, private equity affiliated PCPs. And so this study looks at this data for over a decade and finds that hospital affiliated PCPs at a national level have increased from about 25% to nearly 50%. And so it is the case that nationally, about half of all PCPs are affiliated with hospitals and health systems. And in contrast for all of the attention that private equity investments have received in healthcare, PE constitutes a fairly small share, around less than 2% of PCPs nationally. In Vermont in particular, I have data from two national studies where I call out specific estimates for Vermont. On the left is a map once again just looking at primary care, and on the right is a similar map but looking at specialist physicians in cardiology and gastroenterology. So there's a lot of variation across the country. If you look at Vermont in particular, across primary care and specialty care, it is the case that over half of physicians, whether they're generalists or specialists, are as of most recent data employed or affiliated with hospitals and health systems. So it does seem consistent with national trends, which is that, you know, if we look at different types of corporate entities in healthcare, hospital affiliation of physicians certainly seems to be far more dominant and increasing than private equity investments. These trends also have similar, but slightly nuanced implications for healthcare affordability. This is research we have done using federal price transparency data that is available to us through the transparency and coverage rules. So we are able to take those publicly available, disclose negotiated prices between providers and insurers and compare what the price levels look like for the same service, the identical service based on the ownership affiliation of the primary care physician. And we found that hospital affiliated PCPs have prices that are 10% higher on average than independent physicians and private equity backed physicians have prices that are about 8% higher. And so while there is a differential between hospital affiliated versus PE affiliated, the general takeaway is that corporate affiliation does appear to increase the cost of care. Their relative magnitude might differ, but these types of ownership affiliations definitely increase the cost of care relative to independent practice. One last area where I have Vermont specific evidence is in the realm of addiction treatment facilities, and so private equity investments in opioid treatment programs has been an area of growing federal interest. There has been a lot of scrutiny and interest in understanding the role of private investment in general in expanding addiction treatment given the ongoing opioid epidemic. The screenshot on the left is from reporting done in Stat News that highlights the specific concern that private equity firms might sort of entrench their market power and monopoly position in addiction treatment without necessarily expanding access to methadone, which is a critical treatment that can help with the effects of the opioid epidemic, and it critically is only available at opioid treatment programs. On the right, I have a screenshot just to highlight the significance of this issue. I think we'll probably continue to see a lot more focus on this issue at a federal level, but just is an example of a letter sent by US senators to PE backed opioid treatment programs, highlighting specifically concerns around whether investments expand treatment in this critical domain or if they simply increase the market share of entities without doing anything for the communities that are most impacted. And so we have done a study published in Health Affairs a couple of months ago. On the map, on the left is a map from the study that shows sort of the location and geographic prevalence of PE backed OTPs. In Vermont in particular, about 57% of OTPs in operation are currently affiliated by private equity firms or one firm in particular. And then national data show that there really doesn't seem to be any evidence that these investments either result in the opening of new facilities or expansion of facilities and communities that have the most need or an increase in methadone supply. And so greater scrutiny of the role of PE in addiction treatment in Vermont in particular, may be a promising area to focus on. And so to conclude, I have one tool that I wanted to share with you and highlight and put on your radar. This is a private equity risk index developed by the private equity stakeholder project whom you just heard from. I also serve on the advisory council of the private equity stakeholder project and I'm aware of all of the work they do across different sectors of the economy. This tool in particular has developed an index for all states in The US and puts Vermont at medium level of risk across sectors such as housing, healthcare, as well as jobs and pensions. So, you know, to begin to conclude here, I'll just say in the healthcare landscape in Vermont at present, to the best of our ability that we can see in the data, we understand that there are no identified hospitals at present that are backed by private equity firms. It is difficult to quantify the true magnitude of PE penetration in physician practices, given the lack of reporting and disclosure requirements. My research and data so far, they are a little bit dated at this point, but as of 2020 at least, we do not see any PE activity in Vermont, but I understand this is a rapidly evolving landscape and numbers from 2026 might look a lot different than they did even just a few years ago. Nursing homes, I haven't talked about too much today, but I understand you've heard from folks on this before, but about a quarter of nursing homes in the state are PE backed and opioid treatment programs, as I just shared with us, the majority of opioid treatment programs in the state are PE backed. And so just to conclude briefly here, I think our work has shown that private equity investments in healthcare reflect this broader trend of healthcare corporatization, where we see not only rapid consolidation, but also a heavy and extensive involvement of financial firms in the way healthcare is delivered. Within the physician practice realm, my work has shown that private equity firms increase the cost of care, also increase service utilization for ancillary services, and then have some workforce implications, particularly higher physician turnover, which can reflect broader dissatisfaction with these investment models. I also wanted to emphasize that private equity strategies do tend to be sector specific, and so while what I've shared with you today applies largely for physician practices, we must exercise caution in extrapolating too far beyond the specific domains in which studies have documented harms. I also wanted to highlight why it is difficult to study these questions on a more granular level. A lot of what we have in the evidence base so far is national in nature. State specific studies are very limited in particular because state specific data are very difficult to come by, and this makes it very challenging to have an informed conversation around what specific harms are we trying to mitigate benefits we might want to encourage and incentivize more of. So the key regulatory challenge, as I'm sure we all can appreciate, is the desire to balance private investment and private capital in healthcare, which increasingly is becoming a more and more capital intensive endeavor, while also safeguarding the interests of patients and healthcare workers who might be most vulnerable to some of the undesirable effects of these investments. So I will stop there. Thank you so much again for the opportunity to testify, and I welcome any questions you might have for me.

[Rep. Alyssa Black (Chair)]: Thank you. Is everyone done with the slide? I think you can take the slides down so we can see you. I know we have a question from Brian. You

[Rep. Brian Cina]: said that fifty seven percent of opioid treatment centers, I think that's the terminology used, in Vermont were backed by private equity. I was wondering if you could explain what those opioid treatment centers exactly are, because that could mean rehab, or that could mean a methadone clinic, or it could mean a recovery center. Can you clarify what specific components of our healthcare system doing opioid treatment are backed by private equity? And if you have the information, what might be ways that that's profitable for private, like how are they profiting off of that?

[Dr. Yashaswini Singh]: Sure. So opioid treatment programs in this setting are methadone clinics. And so the specific concern is with respect to access to methadone because OTPs or methadone clinics are the only setting where methadone can be dispensed. The specific revenue strategy for investors, I think we are still beginning to understand. One explanation there expanded role of public insurance programs. So Medicare started paying for a lot of these services in 2020. I understand there have been favorable Medicaid reimbursement changes as well, although I'm not sure of the Vermont landscape, so that might not hold here, but it essentially represents an untapped revenue source for investors that previously didn't exist. In addition, I think we've heard extensively, and this is true across settings, but staffing cuts is one common way for investors to draw profits from their acquired entities, and we've seen that anecdotally to appear in the OTP setting as well. The New York Times did an excellent investigative report on other sort of strategies that might exist in the methadone clinic space, including things such as, you know, billing for counseling and other ancillary services without actually providing that support to patients. Those are metrics that are very difficult to quantify, but there is some excellent media reporting on that.

[Rep. Brian Cina]: Yeah, I was gonna ask you specifically. I'm gonna ask you anyway, you kind of just alluded to it, but like in an opioid treatment facility, there's many services that one could provide. And if they were cutting staff, but trying to make the most money, I would think cutting the counseling out would be the way to go because you're still giving people the pill, which you're billing for, and you're still doing the urine screens, and you could do that with minimum staffing. And it sounds like you said that there's some evidence nationally, maybe not, we can't say this about Vermont yet because we haven't studied it, but then naturally there's evidence that it's the counseling component that's being cut.

[Dr. Yashaswini Singh]: That's correct. And there's also anecdotes that what you said is exactly right, urine screening increases because it's something that you can increase without relying too heavily talented staff who you've invested in hiring and retaining.

[Rep. Brian Cina]: Would you say that there then becomes an incentive to keep people on methadone for these companies, like in terms of the way they carry out treatment versus trying to use methadone to end any kind of opioid dependence?

[Dr. Yashaswini Singh]: So we have, again, anecdotally heard of reports that are consistent with that. I think when we look federally at some of the opposition to expanding methadone, be it by expanding who can prescribe methadone or where methadone itself can be accessed, some of the loudest opposition to that kind of reform has been backed by private equity firms. And so there is an incentive there from the firm's perspective to preserve their growing monopoly power, especially given the role of methadone clinics as the only licensed setting where at present methadone can be accessed.

[Rep. Brian Cina]: It's just methadone and not buprenorphine or Suboxone or recovery centers or other kinds of rehab. It's specifically methadone clinics that they're targeting?

[Dr. Yashaswini Singh]: That is correct.

[Rep. Alyssa Black (Chair)]: Okay, thank you. Any questions for Doctor. Singh? I have a question. Just have you had a chance to glance at the bill that's in front of us, H583?

[Dr. Yashaswini Singh]: Yes, I have.

[Rep. Alyssa Black (Chair)]: And I think one of the things that we've heard concerns for from in the provider community is you have this on your last slide is the need to balance for investments, but also how we protect patients and healthcare providers. I think we've heard concerns that if we were to pass this bill, we would lose investment and capital investment. And we heard from a dermatologist who works in a practice that was acquired several years ago by a PE backed dermatology organization. Is there anything in this bill that you think would stop the type of investment we want and Or not allow that?

[Dr. Yashaswini Singh]: So, I think that that's a critical question, and I might answer that by maybe answering the reverse, like what is in the bill that might still preserve access to capital and investment, and I think that's where revisions to corporate practice of medicine to safeguard the clinician's ability to still make decisions for their patient based on what's right for the patient, not what's right for the bottom line, but solely what's in the best interest of the patient. I think that is one approach to ensuring you can still preserve access to capital, but then retain clinical decision making in the hands of those who have taken the oath to do no harm. The other provision, I think ownership transparency underpinning all of the conversations that we've had, and I'm sure you've heard over the last several weeks is this recurring theme of lack of transparency and lack of accountability. Oftentimes, despite the involvement of entities that are out of state, perhaps even investment funds that are out of the country. And so just having more ownership, transparency, and transparency in general, I think can only be a good thing. And it is not in any way designed to deter any kind of investment. I think when it comes to the use of, you know, whether the investment is financed by debt or financed by some other mechanism, I think we get into the weeds of corporate finance and how various healthcare entities may choose to finance operations to either expand existing operations or construct new facilities for growth in addition to things such as leveraged buyouts, which I understand to be the big concern with the private equity model.

[Rep. Karen Lueders]: Thank

[Rep. Alyssa Black (Chair)]: you. Thank you so much for your time today. We really appreciate you joining us.

[Dr. Yashaswini Singh]: You for the opportunity to testify.

[Rep. Alyssa Black (Chair)]: And can I make the assumption that Erin Brown is a colleague that you're both at Brown or? Yes,

[Prof. Erin C. Fuse Brown]: we actually sit next door to each other. We work together and we are friends and we Oh, okay. But we're not sitting next door to each other today because I think we're not in the physical office at Brown today.

[Rep. Alyssa Black (Chair)]: I was gonna say, is your background so slightly different even though they're blurred? Right. Thank you, Doctor. Brown, joining us.

[Prof. Erin C. Fuse Brown]: Yes, thank you. I'm going to share mine screen.

[Rep. Karen Lueders]: So

[Rep. Alyssa Black (Chair)]: let me pull up the

[Prof. Erin C. Fuse Brown]: screen sharing. Alright. Can you see the slideshow? We can. All right, so wrong

[Rep. Brian Cina]: one.

[Prof. Erin C. Fuse Brown]: All right, so here I wanted to just go through again, thank you know, for having us to talk about your bill. We're really, really heartened by the level and the depth to which you're studying this issue. It is something that, you know, obviously those of us who are working on this from a research perspective, I think it's a very important issue that states are out there leading on. And I think this is quite a bill that you know, again, very much taking the evidence into account. So Chair Black and the rest of the committee, thank you so much for inviting me to testify today. I'm Erin Fousse Brown. Unlike Yasha Sweeney, I am not an economist, but I'm a lawyer. And so my role at the School of Public Health and in our Center for Advancing Health Policy Through Research is to work with the economists and the health services researchers to really identify the legal and policy levers and tools that various policymakers, whether it's at the state level, the federal level, local administrative, legislative can use to address these pressing issues of affordability, of corporatization, of consolidation in the healthcare space. So I'm gonna really talk about three major points today in this conversation. The first is I'm really gonna unpack, I heard the question earlier today about the management service organization, like what is this entity? How do they work? What are their functions? How do we know when we have one? Why should we regulate them? And so I'm gonna talk about that. And then I'm going to also then turn to what are the policy concerns? Why should state policymakers like yourselves be concerned about corporate management service organizations obtaining control over physicians, whether it's through contracting or whether through other mechanisms? And then finally talk about what those policy options, if we are concerned, would be including strengthening the corporate practice of medicine, banning physician non compete and other restrictive covenants in their employment contracts, as well as ownership transparency. So I'm going to focus more on the sort of components of the policies more than, and the policy concepts than the evidence, which was so well laid out by Yasha Swinney. Okay, so first, and I'm going to spend a little bit of time here, but the source of this document is one that our team developed for Milbank Memorial Fund, which is to really explain what an MSO is and how it functions and how it's evolved to become a corporate vehicle for investing in physician practices. Because most states have a corporate practice of medicine doctrine, and I'll get into that in a minute, that prevents corporations that can't go to medical school, can't obtain a medical license to practice, are prohibited or restricted in some way from acquiring control, whether it's ownership control or employment control over physicians in most states in the country. There's some doctrine either on the books or implied through the prohibition on the unlicensed practice of medicine. So for many years, you might scratch your head and say, well, if most states have such a prohibition, why do we see this rise of corporate investment, PE owned practices or PE acquisition of practices, but not just PE, and I wanna be clear here that a lot of what I'm talking about today is not restricted to PE. And I would actually, my general view is that all of the strategies that we see being utilised by private equity are used by other types of corporate investors as well. So just as a caution, not to restrict the focus of legislation unnecessarily to look at maybe private equity today, which could be a different corporate vehicle tomorrow, or could be emulated by other types of actors in the future to do the same thing. And we see that the definition of an MSO really tells us a little bit about what they are and how you might be able to identify them in the market. So a management service organisation is an entity that provides non clinical services, what we think of as administrative backend services to a physician practise. MSOs are generally seen as the primary vehicle through which these lay corporations, and by lay corporation, I just mean a corporation that's not a professional corporation, one that isn't owned or run or controlled by licensed physicians or professionals. This is the primary means through which you can acquire control over a physician practice and invest in a physician practice and still comply with the corporate practice of medicine, it's basically a workaround. So MSOs originally were sort of designed to or marketed as providing these very basic back office administrative services that a practice run by, you know, physicians and clinicians and nurses and others are not necessarily, you know, well equipped to or interested in doing themselves. Think of like, purchasing supplies or setting up the billing and collection policies or functions. So those types of things, again, are offered as the administrative operational supports that a practice needs to run. And in this historic sort of maybe anachronistic view of an MSO, the MSO was just a service provider that worked for the practice, right? It offered a service. However, in this sort of modern iteration, an MSO has come to be the reverse of that arrangement, right? Where the practice is in charge and the MSO works for the practice. Now you have management service organizations that operate practices that you know, take control of all of the practices revenues, that take control of all of the practices hiring and firing and clinical and staff decisions, scheduling, compensation, you know, management, the whole thing. It basically takes control over the practice and it becomes the vehicle through which private equity can invest in the MSO. And then the MSO can control the practice and its revenues and its assets without necessarily having a direct line where the private equity fund buys the practice itself. It does it through this pass through corporate entity called the MSO. So the significance of this is that MSOs are used to bypass state prohibitions on corporate practice of medicine. And what it does functionally, means is that large corporations and investors can own medical practices without owning them on paper, they can control them. And so this control inevitably influences clinical care. So what are the core functions that we observe? MSOs again are somewhat heterogeneous, they don't necessarily all do the exact same things, but typically if there are sort of like core functions, we see that, at the very least, MSOs will provide this backend administrative services, again, revenue cycle management, billing and collecting, human resources functions, and then as you go up the chain of sort of control over the physician practice, then you see the next level number two, you see network aggregation. What does this mean? Well, to be a participating physician or provider in an insurance network, you need to negotiate with those payers to be part of their network. And so MSOs have offered themselves as being able to build networks and just sell the network on whole to the payer. So not only do they take over payer contracting, but they will offer to clinically integrate those practices that are part of that network with common information technology, for example, like an EHR system and create data sharing capacity. And this is also heavily resource intensive, capital intensive. And so as the MSO provides these capital intensive IT supports, they obtain more and more control over all the practices that they manage. And then finally, the highest level of, at number three, the third function we see is like total capital investment and control. So this is where the MSO takes basically all the incoming revenue of the practice for itself, and then pays out the clinicians, decides what the profits are gonna be, decides on how it's gonna invest, how it's gonna grow, what happens to the equity interest, the shares that the physicians used to own in their own practice, they manage all, the MSO manages all of that, and basically captures all the revenue of the practice, keeping some of that, a lot of it for the investors themselves. So there are two primary types of MSO arrangements, and I think it's important to understand the two, because if you regulate one but not the other, you are not controlling the presence of MSOs and their ability to control physicians. The typical one, probably most easily understood grows out of this old fashioned notion of an MSO, is basically an MSO is just a third party service provider that contracts with physician practices where the physicians still own their own shares in the practice, but they enter into these management contracts with the MSO. So the corporate owned MSO contracts to run physician practices more or less at arm's length, but basically then takes increasing controls through contractual means over that practice. This is actually less common. I think we don't have like, again, it's very opaque, we don't have a strong view of just like how much less common, but this is, it's sort of a common view, but it's actually not common in practice. The much more common model is what we call the friendly physician. The friendly physician model is where the management service organisation installs a friendly physician, someone who is friendly to the MSO, meaning they are someone who's being paid by or owns shares in, or is basically, an officer or director of the MSO, someone who's a manager picked by the MSO who happens to have an MD, who happens to have an MD and a license to practice in that state to be the straw owner, the necessary physician owner of the practice. And they put all of the shares and all of the stakes in the practice in the hands of this person who the MSO controls financially. And so the friendly physician is a straw owner and what we mean by that is they may not set foot in the practise, they may not live in the state, they may not see patients at all, right? They may be the straw owner of 300 practises across the country. So that is what we mean by they are a manager who on paper looks like they comply with the corporate practice of medicine because they're a physician, they can go and get a license in the state, and then again, on paper, they own all the shares of the practice, the practice is not owned by any corporate entity in violation of the corporate practice of medicine. However, one of the common ways to control the straw owner, not only is through compensation terms for like the MSO pays the straw owner, the friendly physician, but the other thing is that the friendly physician's shares, remember they own all or most of the shares in the practice, the MSO says, you get to be this straw physician and make a lot of money, but if you ever want to sell your shares or exit and leave, you can't sell it back to the physicians in the practice, you can't sell it to another person of your own choosing, you have to sell it back to someone we approve of, to the successor straw physician that we chose. So basically that's a stock transfer restriction agreement. So that basically says not only do we control the current friendly physician, but any future friendly physician has to be someone that MSO controls. So that is a way to sort of in perpetuity control the physician practice, even though on paper, again, it looks like it complies with the corporate practice of medicine. Ways in which the corporation, the corporate MSO can control like the, does this look in practice? Again, it's total financial control by selecting compensation models, both over the friendly physician, as well as saying the terms of compensation for all the physicians in the practice and all the other clinicians in the practice. Again, stock transfer restriction agreements, particularly for the owner, physician or physicians, imposing non compete and strict non compete, non disclosure and non disparagement clauses in all of the contracts with the clinicians, meaning you can't, this is not just that you can't speak ill of your MSO, but it also sometimes means you can't tell your patients if you leave where you're going, You can't communicate with them. You can't tell them that you're actually still taking patients just at a new of clinical site. And then the non compete terms, as Yasha Sweeney points out, are a way of, again, chilling physicians from feeling that they have the ability to leave a situation they don't like, because oftentimes the radius or the distance that a physician would have to move after leaving employment would be 50 to 100 miles or functionally out of state. So that really does disrupt the physician patient relationship. Again, hiring and firing of staff, all up and down the practice, but also setting the terms of compensation, setting the penalties, bonuses, who's going to be penalized, who's going to be rewarded through compensation, so you can control people through their pay. And then you could also control people through their work schedules. So if you want to have the holidays off, then you have to hit your revenue targets, or you need to be a team player when it comes to our coding recommendations. Dictating patient volume, the length of visits, making them shorter and shorter, agreeing that basically a manager can maximize diagnostic or coding choices that the physician or clinicians might enter by basically saying, well, if we think that there's a higher revenue coding opportunity here, we can either ask you to do that, to hit those coding targets, establishing clinical standards or protocol, billing and collection, and controlling payer contracting. So

[Dr. Yashaswini Singh]: as we

[Prof. Erin C. Fuse Brown]: know, I go through that, if you think about that from the perspective of the clinicians, these may seem like backend, they're marketed as backend administrative services, but they have moved very forcefully into the domain of influencing clinical decisions. They very much affect the way the clinician can practise medicine and the way that they can either in their minds, serve the needs of the boss or to serve the needs of their patient. And they know that they have a fiduciary legal and ethical obligation to put their patient interest first, but it's very difficult to do so potentially if you were under one of these contracts. Okay, so just, I'll get into, the policy here in a second. Examples of corporate MSOs that we know of, again, it's not just PE, insurance companies, use this model as well very extensively, United Optum. United Optum does this, the Friendly PC, MSO model, Humana and Centra well. Retailers use this model, CVS and Aetna, which are also an insurance company, have this model with Oak Street Health. Amazon One Medical uses this approach as well, as well as the private equity or venture investor backed types of investors. And we know that like Walgreens, Acigna have Summit Health, which again, there's an asterisk here, all three. It's both an insurer and a PE backed entity and it is a retailer as well. All right, so the policy concerns about the corporatization or sort of what happens when you see physicians become under corporate control are really one, Yascha Sweeney laid out the evidence for this very well, is that this leads to the consolidation of physician practices, which leads to higher commercial prices. And the evidence there is quite clear. The sort of secondary concern of all this workforce effects is that the corporatization of physician practises, again, this is very hard to capture in evidence, but both what evidence we do have, but also anecdotally, we understand that this leads to an erosion of professional autonomy, of professional morale and the trust that the patients and community can feel in their physicians when there's this conflict of interest present, which again, can be just the pressure to put profits over patients, that becomes palpable. We also see that this erosion of morale can lead to a worsening of clinician supply issues, so there's more exit from the market, whether it's through retirement or whether it's for people leaving the market entirely, or just changing practices and being unable to be reached by their former patients, it disrupts the physician patient relationship. And then these restrictive employment terms chill physicians from being able to speak out against these practices that they think might be harming patient care. They can't leave, they're sort of locked into their current arrangement, even if they're very unhappy because they would need to go very far away or violate their non disclosure agreement if they were to speak out. This of course has equity implications because all of these effects, as we see of any sort of health effects, have a disproportionate burden, burdensome impact on safety net providers, on those who see Medicaid and uninsured patients, because they have thinner margins to begin with, they tend not to be targeted for as much of the opportunities for capital, but also feel a lot of the effects of the consolidation happening when the rest of the market is becoming much more powerful and they're left behind. And then finally, there's competitive concerns as well to the market, pressure to steer patients and self preferencing, particularly by the insurer backed practices.

[Rep. Alyssa Black (Chair)]: Yeah. Oh, no, I think somebody was just coughing.

[Prof. Erin C. Fuse Brown]: Okay, so finally to the policy options. So the three policy options to address corporatization of physicians we see in the bill and in general, I participated in the drafting of the NASHB model. I know you spoke with Maureen Hensley Quinn last week from NASHP. And so we developed three different proposals to address this issue. One is to strengthen the corporate practice of medicine to address the policy concern of reduced professional autonomy or the encroachment on professional autonomy, these workforce effects and interference with clinical decision making by corporate entities that have different priorities, frankly, than the clinician. And then sort of subsumed within the corporate practice of medicine, but I wanna pull it out just because some states are pursuing these separately, are bans on restrictive employment clauses like non competes, non disclosure, and non disparagement, same policy concerns their mobility on workforce. And then finally, as Yasha Sweeney mentioned, transparency of ownership and control addresses the fact that it's very difficult at this point to identify who owns physician practices, who controls them because of these complex contractual and corporate arrangements. Okay, so I'm going to start with the corporate practice of medicine prohibition. Again, the policy concern is the control and erosion of clinical decision making autonomy, and what it is, is that the corporate practice of medicine is a legal doctrine that generally bans unlicensed lay entities, and that includes, you know, corporations, private equity, MSOs operated by insurance companies, and in some states it also includes hospitals, from owning, employing or controlling medical practices, And the origin of this concept is quite old, it stems from the ban on the unlicensed practice of medicine. Basically only physicians can go to medical school, become licensed and take an oath, so only clinicians and physicians should be making clinical decisions on behalf of patients. What the corporate practice of medicine doesn't do is also important to keep in mind. One of the confusions when we talk to states is that they're worried about corporatization of healthcare. And I think Yasha Sweeney's point was very well taken, that corporate practice of medicine is really a targeted approach to addressing corporate control of physicians by the MSO model. It does not address in any way, shape or form, nor was it ever designed to corporate investment or private equity investment in facilities. So it doesn't address hospital acquisitions, nursing home acquisitions, and perhaps not even OTPs that might be dealt with in a separate facility type of regulatory regime, where you ban certain types of ownership or control of facilities, but this is really designed to be centred around physicians and clinical decision making entities, like clinicians. So the reason to strengthen it is that because, as I mentioned, many states have had corporate practice of medicine laws on their books in some way, shape or form, either statute or common law or administrative decisions for decades. However, it's basically become a non entity in most states, even where it exists, just because there've either been exceptions that have been carving out HMOs and hospitals, or it's been unenforced, so it sits on the books, but it basically is a paper tiger, and then finally, as I mentioned, the MSO model has really meant that it is possible to totally evade the corporate practice of medicine, either through the management service organisation contract or through the friendly physician model. So it might be helpful for a state to strengthen its corporate practice of medicine law, or in the case of Vermont articulated in legislation for the time, to really codify this statement of policy that corporations shall not own or control physicians and interfere with their clinical decisions. Now, does have a requirement that professional corporations have to be owned entirely 100% and exclusively by licensed clinicians. And so you do have some form of prohibition on corporate direct ownership of physician practices, but there's nothing there, which is common to many States to address the MSO model. So you want to both restate the top line principle, but also potentially address, and then I think importantly, address the MSO model and all of these contractual and friendly physician workarounds. So you have to clarify what types of arrangements are and are not permissible for MSOs to engage in. And then finally create mechanisms for enforcement, so it doesn't become again a paper tiger that is not enforceable and doesn't have any effect on the behaviour of entities. So the NASHP model, on which your legislation draws extensively, does all of these things. So it clarifies the corporate practice of medicine doctrine in a manner meant to be codified in statute, again prohibiting unlicensed land entities from owning or controlling, employing medical practices or practitioners and prohibit those same corporate entities from interfering with clinical decisions. And then it goes on to enumerate what types of specific conduct would be either prohibited or regulated, and it's important to keep in mind the differences between the two. So one is to regulate the Friendly PC structure and to basically, there are some bans, it doesn't ban MSOs from existing, it doesn't ban private equity from investing in MSOs and working with physician practices, again, in a principal agent where they are the agent and the practice is the principal manner in the future. It just means that there are certain things MSOs can't do. And one of them is to use the friendly physician model where it installs a friendly straw physician as a mechanism to control the practice. So it restricts dual compensation, meaning the friendly physician or the physician owner or owners of a practice cannot receive compensation both from managing the practice and from the MSO, pick one or the other, you either work for the MSO or you work for the practice, you can have a conflict of interest and do both. Advance stock transfer restriction agreements, so that again, it's not a permanent lever of control where the friendly physician is always someone who is approved and selected by the MSO. I wanted to

[Rep. Alyssa Black (Chair)]: highlight, because I think this is really important because I think we've had a lot of confusion around this. There's a difference between banning and regulating. And I shouldn't say as I read it because when I read it, I barely understand it. But as it's explained to me by people who do understand it, we've had all these concerns of, well, we won't be able to do that and then this won't be able to We're not actually banning these We're not banning private equity. We're not banning MSOs. We're just regulating them and ensuring that they're investing in the ways that we want investment within our healthcare system. Right.

[Prof. Erin C. Fuse Brown]: And it's an attempt to, as Yashaswini put on the last bullet, and I think as Doctor. Song talked about last week, it's an attempt to put guardrails on that investment. So there are things that MSOs can't do under this bill, and one is to engage in dual compensation with the friendly physician. So basically it does put a hard line around the friendly physician saying, you can't be a straw physician anymore, you have to have a meaningful presence in the state, you have

[Rep. Alyssa Black (Chair)]: to have a

[Prof. Erin C. Fuse Brown]: meaningful participation in the practice, you can't just be someone who's sitting in a different state, who's just lending your name to be at the top of the org chart of this practice because you have a license. So yes, there are some things that are banned, and then there are some things that are regulated and the things that are regulated are, again, it doesn't stop the MSO from doing billing and collection. So it doesn't stop the MSO from helping with HR or helping with payer contracting. Again, that's still things that MSOs can do. So physicians, if they're saying, I'm worried that I'm going to have to do all of that myself, that the answer is no, you can still hire a service provider to do that on your behalf, but you get to set the terms of that contract. You get to fire them if they're operating in a way that you don't like. It's not the other way. You don't work for them, they work for you.

[Rep. Alyssa Black (Chair)]: Thank you. You can go on. I just wanted to Yeah.

[Prof. Erin C. Fuse Brown]: No, I thank you for that comment. The So moving on from the things that are The friendly physician model is more or less banned. I mean, I think that because there's no way to manage that relationship and without the You have to kind of eliminate the conflict of interest in order to eliminate the control. But then moving on to the sort of types of conduct that would be allowed that MSOs could still perform on behalf of practices, and that would be, you know, those things that the practice says it needs to maintain, again, ultimate control, think of this as veto power, over these types of business decisions that have been identified through looking at, case law, looking at other contracts that have been, again, uncovered through litigation in places like California, that are common strategies that are used in think of that red box on my slide of like techniques that the mechanisms for MSO control, it's all of those things. It's like, hiring and firing, the MSO can do it, but it can't be over the objection of the practice. Billing and collection, MSO can do it, but not in a way that the practice objects to or would not like. So again, it enumerates all of these types of clinical and business decisions that do tend to implicate or are intertwined with clinical decisions and implicate the operation of the practice that could affect patients. And therefore, again, the MSO can do these things, have to be done in a way where the practice has the ultimate say over the method in which these decisions are made. And then finally, it does ban or limit non compete scag clauses like nondisclosure and nondisparagement clauses for employed physicians and other clinicians so that they are not afraid to speak out and that they have some workforce mobility and freedom. There are, again, a significant number of clinicians, physicians in particular who are already employed, particularly by health systems in Vermont and across the country. And so there's a separate set of provisions that would protect those employed physicians. Not saying that they need to come back out of employment, that they need to break their current employment contracts, but for those employed physicians, again, there would be additional protections for them to ensure that their employer would also not interfere with their clinical decision making, limit the use or ban the use of non competes and gag clauses, and then also certain clinical decisions like how much time you spend with a patient, where you discharge a patient in the hospital, they're setting their diagnostic status, things like that, that those again are enumerated as things that, no matter who the employer is, that the clinician is the only one who has the professional expertise and obligation to make those decisions on behalf of their patients. And then finally, are, oops, there's multiple routes of enforcement in the NASHP model, and I will talk about this in the next slide when we get to comparing this to Vermont's law. Oh, so this, I'm not gonna go through these because I just did in quite some detail, but unpacking the corporate practice of medicine model law, I'd be happy to answer any questions about sort of straw ownership, about dual ownership and interest, restriction agreements, but I feel like I've spent quite a bit of time talking about those, but these are just sort of explainers as to what these are, why these terms are in the model. And then looking at this sort of non exhaustive list of activities that MSOs may still do for practices without the practice, as long as the practice retains ultimate decision making authority over these decisions. Okay, and this is the employed physician protections. Okay, so this is Vermont's bill. And so this is the same list as I showed before, and the differences, it tracks pretty closely with the NASHP model, and the differences are highlighted in red. So there are slight differences in the nonprofit hospitals for who continue, again, in Vermont employ a significant number of employed physicians, and then it also includes ambulatory surgery centers. I just would query just to think about what that means in terms of how many ASCs do employ physicians or do physicians typically own ASCs? Who are the owners of ASCs? I think that that's worth asking. One thing I do wanna note is on the enforcement piece, right now there is administrative enforcement by the attorney general, but there is no private enforcement capability by an aggrieved employee or by a competitor. The reason this was in the NASH model is that these are often private contracts that are very difficult for any administrative body to get their hands on. And if you rely on administrative enforcement, it often requires a complaint system, investigations, it's resource intensive, whereas allowing the parties to the contract, the folks who are in the room negotiating these terms or who are talking to their MSO and looking at the agreement that's coming across the table at them or are aware or a competitor is aware of these practices taking place could potentially bring these enforcement actions. Again, it's not just like any person at all, but it has to be someone who is either, again, party to the contract, a competitor, or someone who has specific interest in this prohibition being maintained. So that's the reason that private right of action was in the NASHP model, and it's just worth thinking about. I know that there are lots of policy considerations and trade offs to including a private right of action, but it allows a supplemental mechanism for individuals who are aggrieved to get, particularly for things like their non competes, get those, go to court and get them set aside, declared null and void, get a declaratory judgment that they're not bound by those terms. Okay, I realize I'm going on and on. The twenty twenty five past year legislative session saw quite a bit of action for the first time on these topics, particularly on corporate practice of medicine and also non compete. So that's why many states, even if they aren't considering corporate practice of medicine legislation, they are willing to move forward with non compete legislation separately, and some of course are doing both. With Oregon and California being the notable states that have enacted stronger or codified corporate practice of medicine bills, if I'm happy to entertain in the Q and A or the time after the presentation, a comparison of the Oregon versus California models, because there's some questions about differences in how they would apply. And then finally, I won't dwell on this too long, of ownership and control as we've established today is really sort of a baseline requirement for understanding who's present in the market. And so the policy would require all existing healthcare entities to periodically report information on their ownership and control entities, their business structures, including all the way up to their ultimate owner, their parent company, the controlling entities, even if they are not, again, owners, there's difference between contractual owner, contractual control versus outright ownership, but as well as you wanna find out who the related parties, who are the entities under common control, who else is in the org structure, who could be part of the larger corporate, again, organizational picture for that provider group. To make these entities to report changes of ownership or control as well, and make this information available to the public. And the required information includes elements such as the name of the entity, obviously, the location, its registered address, its taxpayer ID, its national provider identifier for all the affiliated clinicians, the employer number. So all of the sort of relevant numbers, identification numbers so that you can create a really comprehensive picture. So someone could potentially at some point in the future say, I wonder who owns my doctor? And actually be able to find out. Okay, so the NASHP model does all of these things and it requires the applicability to extend to group practices where there currently is a pretty large gap in understanding from a federal level of full connecting the ownership up to the parent for physician practices and other outpatient settings, as well as hospitals and other health systems, nursing homes, insurers, PBMs, MSOs, and significant equity investors, meaning private equity or other types of large investors. So again, states can decide whether they want the entire list or they wanna start with just certain types of facilities and owners of interest and to require, again, how often periodically this will be required. So Vermont's law bill would track the NASHP model biannually instead of annually, that's sort of where Massachusetts started with their registry. Enforcement again is one of the other differences And I think here in the original bill is upon any material change transaction, which is a defined term if you have market oversight capability, but I think that refers to change of ownership. The one difference would be that the Attorney General under Consumer Protection Act doesn't have audit authority and so maybe that's just, again, a policy choice from a burden standpoint, but just to, one of the things that we've seen in other federal regimes of ownership transparency is that without enforcement, there's very little compliance. There've been state ownership transparency, bills and laws enacted in 2025. Some of them are limited to certain types of providers, hospitals only, for example, some include hospitals and physician practices, others like Washington only establish a plan to establish an ownership transparency registry. Massachusetts is probably the model of having gone the furthest with establishing, implementing, and in the process of, and already have collected this information. All right, so I will stop sharing and then take questions.

[Rep. Alyssa Black (Chair)]: It's so much good information. Thank you. And sometimes it's mind boggling. I'm sorry, I'll say it. I think the one question I have is, are there any states that you think have gotten this right? You know, we keep hearing allusions to California and Oregon and Massachusetts, but as a complete package, Are there any states that you think have really gotten this right?

[Prof. Erin C. Fuse Brown]: I don't know if there is any state that has done the whole NASHP model. I think the two states that go the farthest would be Oregon because it has very comprehensive market oversight, which was part one of the NASHP model. It just enacted a corporate practice of medicine law that contains a dual ownership and dual compensation ban, so it actually addresses the friendly physician. It has some significant carve outs, it had to negotiate along the way, but it's still the strongest version of corporate practice of medicine legislation to date. It does not have ownership transparency in its model, it bans non competes as well. So I would say Oregon maybe gets two thirds of the way there, Massachusetts has ownership transparency and it has market oversight, but it doesn't have corporate practice of medicine, that didn't make it into its 2025 legislation. And California did something, as we heard, just for private equity and hedge funds. It previously has market oversight for other parts of the market. It also has a corporate practice of medicine, newly enacted law for private equity and hedge funds. It's against a backdrop of like California in general has very strong corporate practice of medicine, common law and administrative opinions and guidance, and so seen as a strong corporate practice of medicine state already, and so it didn't really need to do as much. However, there's plenty of private equity, there's plenty of insurer and other investor backed physician entry because of the use of the friendly physician model. So California's bill or law, three fifty one did not contain any, restrictions. It focused only on sort of the conduct, that MSOs can't do, you know, take control over on behalf of practises and only MSOs that are backed by physicians, equity. And so it really leaves untouched the friendly physician model. So if there's been a question that we've been wrestling with or we see states wrestling with, like, let's just do California. And the reason that the investor backed physician community is very much excited about saying, let's do California, is because it does nothing to actually protect against the friendly physician model, which I said is the predominant model used. So, if you do California, it's fairly symbolic, but it doesn't necessarily get all the way there. So I would say California is probably not at the same level as Oregon, as far as that's concerned, and were this bill to pass as is in Vermont, it

[Rep. Alyssa Black (Chair)]: would be the strongest corporate practice of medicine law in the country. We've explicitly been encouraged to, why don't you just adopt what Oregon did? Is that a good idea or a bad idea?

[Prof. Erin C. Fuse Brown]: Oregon's I think in some ways it's like Oregon had a different set of issues, every state's its own, it has its own history and these things. And so it had some other issues it was trying to do, like it was trying to close a loophole for LLCs that didn't exist for professional corporations. It has all this, like the Oregon language is like, I don't know if anyone's done or read SB nine fifty one, it's really hard to follow. And so I worry that the Oregon approach, because it's sort of like, it's like the sausage making produced that bill and there was some negotiation at the end that then like carved out certain exceptions that might, I'm still wrapping my head around the scope of those exceptions. As hard as it is to understand the NASHP model, I think the Oregon bill is just like, it's just more complex because it was both negotiated and it was fixing issues that are Oregon specific and idiosyncratic in that way. So I would just say, to not literally adopt the Oregon bill, just because I think it may not be a perfect fit for another state, but also that the Oregon bill, I think started out with, and we based the NASHV model on this sort of the policy approach that Oregon was trying to reach. And so in that regard, I think, it gets very much into the weeds very quickly, but I would, instead of starting with Oregon, I would just say like, use it as comparison, you know.

[Rep. Alyssa Black (Chair)]: That's great, thank you. Go ahead, Karen.

[Rep. Karen Lueders]: Thank you for all of this work and research, it's really great. We've heard testimony both from hospitals and physicians groups about feeling that this inhibits useful or productive affiliations. All the hospitals right now are non profit, and there could be real advantages for sharing something, specializing, and they were concerned about debt and whether this bill prevented some of those preferred or really useful ways of organizing that would be better for the system and so forth. So trying to navigate some of the prohibitions with the things that could be really good.

[Prof. Erin C. Fuse Brown]: Yeah. Yeah, that's a great question. One thing I didn't talk about in my presentation was subchapter two of your bill, which was the prohibited transactions part of the bill. And I think part of that is because I wanted to really focus on the corporate practice of medicine piece of it. But I think your question goes to, well, what do you do about the facilities? How do you prevent corporatization that might be against the public's interest among facilities like hospitals without necessarily preventing them from making affiliations or investments or leveraging the bond market, which most nonprofit hospitals rely heavily on municipal bonds and taxes and bonds for their capital. And so you don't want to structure prohibitions on debt potentially that might inadvertently constrain their ability to access other forms of debt, which don't come with the same risks. Risks. So I think that that's a fair question. And so my sense is, were I just sort of designing a model law to address the issues that you're trying to address in subchapter two, based on my sense of where that is going, I might just say, hey, it might be a good idea to really just in the sense of not trying to regulate the debt or the terms of the transactions and to ban certain types of transactions, but just to say, if you're concerned about having a moratorium on certain types of ownership structures, whether it's private equity or other for profit coming into the facilities, hospitals, and potentially the nursing homes that haven't already been acquired by private equity, and the OTPs that haven't already been acquired by private equity, then it may be worth articulating that in just in a cleaner way. Like we don't want sale leasebacks with REITs, we don't want private equity investment or we want the ability to be notified or stop it before it happens. Those types of things, I think would be, we don't want for profit hospital conversion from all of our nonprofit hospitals. So I think that there are ways to allow, and that wouldn't touch, can you go get debt? Can you make affiliations? Can you do municipal bonds? Can you go get a bank loan? You know, other types of forms of capital.

[Rep. Alyssa Black (Chair)]: Thank you. Thank you. Any other questions? Thank you. Thank you so much for coming with us today and your colleague.

[Prof. Erin C. Fuse Brown]: Yes, thank you so much for having me.

[Rep. Alyssa Black (Chair)]: Sitting right next to you, but not sitting next to you. Yeah, really wonderful information. Thank you. We appreciate your time. Thanks. Okay. I think I'm going to say go off of live and we're done. We'll see you two