Connecticut passes law to curb hospital sale-leaseback deals, favored by private equity firms
Connecticut is the latest state to pass new regulations on how private equity firms can operate in healthcare, with Gov. Ned Lamont (D) signing a bill into law late last month.
Senate Bill 196 aims to improve oversight on transactions in healthcare that involve an investment firm or fund, with emphasis on curbing hospital sale-leasebacks, where private equity owners ostensibly become landlords of care facilities.
Notably, SB 196 was inspired by the chaos at Prospect Medical Holdings, a health system in the state that was backed by Leonard Green that was forced to declare bankruptcy in 2025.
According to the nonprofit watchdog group the Private Equity Stakeholder Project (PESP), sale-leaseback deals “played a major role in Prospect Medical Holdings’ financial deterioration.”
In a statement praising the new Connecticut law, PESP detailed how the health system sold off its real estate after Leonard Green became the majority owner, at which time real estate investors were able to extract “hundreds of millions of dollars in dividends and fees,” contributing significantly to the hospital group’s downfall.
PESP said its data found that investors took home $658 million from the hospital chain, even as it foundered and struggled to stay afloat.
“Prospect became a warning sign for what can happen when hospitals are loaded with debt, stripped of valuable real estate, and pressured to generate returns for financial investors,” Michael Fenne, healthcare policy coordinator for PESP, said in a statement. “Connecticut lawmakers responded to a real and growing threat facing healthcare systems across the country.”
He added that SB 196 is an "important effort to address the kinds of arrangements that can undermine hospital stability, increase financial burdens, and create risks for patients, workers, and communities.”
The law will require hospitals to confirm by Feb. 15, 2027 that no private equity investor or firm has a controlling interest in day-to-day operations and patient care delivery. To that end, the law forbids investors from interfering with clinical decision making, which must be left up to healthcare providers.
As for sale-leaseback transactions, starting on July 1, 2027 SB 196 bars any such deals from being made with a hospital. For those in place currently or prior to the deadline, the state will force those entities to submit additional reporting, in an effort to keep regulators informed of what’s happening, so they can potentially react to stop another Prospect-type event from happening.
Moving beyond hospitals
Further legislation is already in the pipeline that would expand enhanced reporting requirements to nursing homes, which have been a target of private equity investors. PESP pointed to issues with private equity-backed nursing homes in the state, which have been accused of wild patient safety violations.
The proposed act, SB 125, would give regulators in Connecticut more information on who is investing in nursing homes and what levels of ownership they have. It would also compel interested parties to submit additional details before finalizing any new transaction.
PESP encouraged Lamont to sign the bill into law.
“SB 125 would give Connecticut better tools to know who owns nursing homes, how these facilities are financed, and how financial decisions are impacting care on the ground,” Fenne stated.
The full statement from PESP is available here.
Chad is an award-winning writer and editor with over 15 years of experience working in media. He has a decade-long professional background in healthcare, working as a writer and in public relations.