BLOG: New law in Massachusetts increases regulatory hurdles for transactions
Key takeaways:
- Providers will be required to give at least 60 days’ notice to the state before making certain changes to their operations.
- The new law may significantly delay the closing of many health care transactions.
On Jan. 8, Massachusetts Gov. Maura Healey signed a law that will require all providers and provider organizations to give at least 60 days’ notice to the state before making certain changes to their operations or governance structure.
As a result, this new notice requirement, effective April 8, will increase regulatory oversight of most health care transactions in Massachusetts, affecting private equity sponsors, equity investors, real estate investment trusts and management services organizations.
The new law (H. 5159 § 24 et seq.) will require notice to the Health Policy Commission of any of the following changes:
- significant expansions in a provider or provider organization’s capacity;
- a corporate merger, acquisition or affiliation of a provider or provider organization and a carrier;
- mergers or acquisitions of hospitals or hospital systems;
- acquisition of insolvent provider organizations;
- transactions involving a significant equity investor that result in a change of ownership or control of a provider or provider organization;
- significant acquisitions, sales or transfers of assets including but not limited to real estate sale lease-back arrangements;
- conversion of a provider or provider organization from a nonprofit entity to a for-profit entity; and
- mergers or acquisitions of provider organizations that will result in a provider organization having a dominant market share in a given service or region.
A provider or provider organization is defined broadly under Massachusetts law and includes any “any person, corporation, partnership, governmental unit, state institution or any other entity qualified under the laws of the commonwealth to perform or provide health care services.” For transactions involving significant equity investors, the commission may require the provider or provider organization to disclose information about the capital structure, general financial condition, ownership and management structure, and audited financial statements of such equity investors.
Following receipt of notice from the provider or provider organization, the commission will conduct a preliminary review within 30 days. If the commission finds from its preliminary review that the transaction is likely to impact the state’s ability to meet its health care cost growth benchmark, the commission may conduct a cost and market review. Before conducting the cost and market review, the commission will give notice to the provider or provider organization who must respond within 21 days with all information requested by the commission.
The cost and market review will examine a variety of factors related to the provider or provider organization’s business and its relative market share. Following the conclusion of the cost and market review, the commission will issue a preliminary report describing the provider organization’s post-transaction market share, the likelihood that prices for services will increase as a result of the transaction and whether the transaction is likely to increase the provider organization’s cost to treat patients.
The provider organization will have an opportunity to respond to the preliminary report before the commission refers a final report to the attorney general. A proposed transaction cannot close until at least 30 days after issuance of the final report. Additionally, based on findings described in the commission’s final report, the attorney general may initiate an investigation or bring an action seeking to enjoin the transaction under state consumer protection laws, and in which case, a transaction cannot close during the pendency of such an investigation or legal action.
Even though this new law does not expressly prohibit a transaction from proceeding to close, the law is likely to have a chilling effect on transactions in Massachusetts and will delay closing of many health care transactions significantly. Providers, management services organizations and investors considering transactions in Massachusetts should be familiar with the contours of this new law and watch for forthcoming regulations from the commission, which will provide additional details about the new requirements and process.
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