On May 27, 2026, the Governor of Connecticut approved legislation restricting certain hospital sale-leaseback transactions and imposing new requirements relating to private equity entity involvement in hospital governance and operations (the “Act”).[1] The Act prohibits hospitals[2] from entering into certain sale-leaseback transactions involving the main campus of a hospital, and requires annual attestations relating to private equity entity ownership, governance, and operational control.
Restriction on Hospital Sale-Leaseback Transactions
Section 1 of the Act prohibits hospitals from entering into “sale-leaseback transactions” on and after July 1, 2027.[3] The Act defines a “sale-leaseback transaction” as “a transaction in which a hospital enters into an agreement with a person or another entity to sell and lease back hospital-owned real property that constitutes the main campus of a hospital”[4] and defines the main campus of a hospital as “the licensed premises within which the majority of inpatient beds are located.”[5] Notably, the Act does not prohibit all healthcare real estate transactions or all leasing arrangements involving hospitals. The prohibition applies specifically to sale-leaseback transactions involving the hospital’s main campus, rather than other affiliated facilities or ancillary healthcare properties such as ambulatory surgery centers, outpatient facilities, physician offices or administrative properties. While hospital sale-leaseback arrangements have historically been used to monetize real estate assets, generate liquidity, and support ongoing operations, the Act restricts such arrangements where they involve real estate comprising the hospital’s main campus.
Annual Attestation Requirements Regarding Private Equity Entities
Section 2 of the Act requires hospitals to submit certain attestations related to private equity entities to the Connecticut Commissioner of Public Health no later than February 15, 2027 and annually thereafter.[6] The statute broadly defines a “private equity entity” as “any entity that collects capital investments from individuals or entities and purchases, as a parent company or through another entity that the entity completely or partially owns or controls, a direct or indirect ownership share of a hospital.”[7]
Each hospital must attest that “no private equity entity has (A) a controlling interest in [the] hospital, or (B) ultimate governance control and authority over any asset or activity of the main campus of [the] hospital,” which includes any clinical, operational, managerial, financial, or human resources matter.[8] The Act defines “controlling interest” as the “direct or indirect power to direct the management and policies of the main campus of a hospital, whether through ownership of voting securities, contract or other means.”[9] It is worth noting that this is not an outright ban of private equity investment involving healthcare entities or all private equity affiliations with hospitals. Instead, the legislation focuses specifically on controlling interests, governance authority, operational control, and interference with clinical judgment relating to hospitals and their main campuses.
Hospitals must also attest that no private equity entity is permitted to direct the adoption of any policy or procedure that would interfere with the professional judgment or clinical decisions of authorized clinicians.[10] The Act specifically references, among other matters, patient evaluation timing, discharge timing, observation status decisions, palliative care determinations, diagnostic coding, and diagnostic testing decisions.[11] The Commissioner may impose civil penalties of up to $2,000 per violation for failure to provide a required attestation.[12]
The Act also includes noteworthy carveouts, providing that nothing in Section 2 of the Act shall be construed to:
- prohibit a hospital or hospital affiliate from investing in a joint venture;
- prohibit a hospital or hospital affiliate from having agreements with physicians or physician groups to provide services at the hospital; or
- interfere with coordination between a hospital and its parent healthcare system.[13]
Practical Considerations
The Act may have significant implications for hospitals, health systems, investors, private equity-backed healthcare platforms, and other parties evaluating Connecticut transactions or operational structures. In particular, hospitals considering real estate monetization strategies in Connecticut should evaluate whether prospective transactions may fall within the scope of the sale-leaseback prohibition and consider whether alternative structuring approaches are warranted.
The annual attestation requirements may increase diligence and compliance obligations relating to governance structures, contractual rights, management arrangements, and operational oversight involving private equity entities or affiliated organizations. Given that the legislation reaches both direct and indirect control “through ownership of voting securities, contract or other means,” hospitals should consider whether their existing governance arrangements, management services agreements, ownership structures, or other contractual relationships could be viewed as giving rise to a “controlling interest” or “ultimate governance control and authority” over hospital operations or assets.
Looking Ahead
The Act aligns with a broader wave of legislative and regulatory activity across the country targeting healthcare ownership, operational control, and private equity participation in provider operations, as multiple jurisdictions have adopted or proposed healthcare transaction review statutes, increased reporting requirements, and strengthened oversight of management and governance structures.[14] By prohibiting hospital main-campus sale-leaseback transactions and imposing annual attestation requirements regarding private equity entity control and operational authority, the legislation may affect healthcare transaction structuring, governance models, and compliance considerations involving Connecticut hospitals. Future regulatory guidance may provide additional clarity on the scope and application of the Act’s requirements.
FOOTNOTES
[1] See Substitute Senate Bill No. 196, Conn. Pub. Act No. 26-22 (effective June 1, 2026).
[2] As used herein and in the Act, “hospital” means “any short-term acute care general or children’s hospital licensed by the [Connecticut] Department of Public Health . . . .” Id. at § 1(a)(3).
[3] Id. at § 1(b).
[4] Id. at § 1(a)(6).
[5] Id. at § 1(a)(4).
[6] Id. at § 2.
[7] Id. at § 1(a)(5).
[8] Id. at § 2(a)(1).
[9] Id. at § 1(a)(2).
[10] Id. at § 2(a)(2).
[11] Id.
[12] Id. at § 2(b).
[13] Id. at § 2(d).
[14] See New York FY 2026-27 Executive Budget Advances Proposed Expansion of Healthcare Transaction Oversight, Sheppard Mullin Healthcare Law Blog (Mar. 12, 2026).