There has been an increase over the past few years in state oversight for transactions in healthcare. Specifically, certain U.S. states have passed laws requiring prior notice or even approval related to “material” healthcare transactions. Many of these new laws could affect the structure and timing of proposed transactions and could require, among other information, the disclosure of upstream and indirect ownership interests to government agencies (which may then be required to publicly disclose such information). These laws also reach a wide range of entity types and transactions. In 2024 and beyond, buyers and sellers considering entering into healthcare transactions should carefully evaluate the applicability of these new laws.
Below is an overview of the current landscape of these laws as well as an analysis of their potential implications.
Overview of Enacted State Laws
As of January 1, 2024, several states — for example, Connecticut, Illinois, Massachusetts, Minnesota, Nevada, New York, Oregon, and Washington — have recently enacted healthcare transaction review laws, with California’s set to go into effect later this year.1 Among the more burdensome requirements:
- prior approval required for certain proposed healthcare transactions
- disclosure of upstream and indirect owners of healthcare entities involved in certain proposed transactions
- lengthy healthcare transaction review timelines in certain states
- coverage of behavioral health services, dentists, health insurers, management services organizations (MSOs), and out-of-state entities under certain state healthcare review laws
Many of these laws are based on the Model Act from the National Academy for State Health Policy, which was created as a tool for states to increase oversight pertaining to healthcare transactions that have the potential to result in provider consolidation and increased cost of care.
Not all recent state efforts have been successful. Legislation introduced in Florida, Maine, and North Carolina failed to pass the state legislature. Legislators in California spent years attempting to pass its healthcare transaction review law, which failed twice before it was signed into law. Additionally, some states’ laws, as originally drafted, required prior approval of certain proposed healthcare transactions but were ultimately enacted as requiring only prior notice.
Given the overall trend among states toward expanding regulatory oversight of proposed healthcare transactions and the increased attention on private equity sponsor investment in healthcare, it is possible that more states will consider healthcare transaction review legislation in the coming year. A measure introduced in Pennsylvania is under consideration.
In states with existing laws, parties entering into covered healthcare transactions will be required to navigate a patchwork of state requirements. Furthermore, as many of these laws are newly passed, state agencies have yet to implement detailed regulations or guidance, and there is limited precedent in the marketplace for compliance.
Transactions and Entities Subject to Review
The enacted healthcare transaction review laws generally apply to a broader range of transactions than just direct mergers and acquisitions of traditional healthcare providers. For example, many of these laws bring other types of transactions, including those often favored by private equity-backed entities such as indirect and partial acquisitions and minority changes in ownership, into the scope of review. We also note that many of the laws contain exceptions.
Additionally, while most laws apply to “health care entities,” the scope of how that term is defined varies. The types of entities included range from hospitals and physician practice groups to health insurers, MSOs, and pharmacy benefit managers. Some laws require both sides to a transaction to be “health care entities,” while others are triggered even if only one party is. Oregon’s law contains a broad catch-all provision that covers entities that provide any healthcare service in the state, which could include behavioral and dental health services. Entities that indirectly control a healthcare entity (including at the parent and sometimes grandparent level and above) and out-of-state entities (including multistate operators) are not exempt from the scope of many transaction review laws.
Finally, several healthcare transaction review laws include materiality thresholds. For example, some states require that an out-of-state entity generate at least $10 million in revenue from in-state patients to be subject to the state’s transaction review law. Other states’ materiality thresholds consider market concentration, and most filings require projections detailing the expected impact of the transaction on measures such as the cost and availability of care, quality of care, and accessibility of services.
Effect on Timing
The state transaction review laws covered here all have preclosing filing requirements, ranging from 30 days preclosing to up to 180 days preclosing. California’s law, which is set to apply to transactions closing on or after April 1, 2024, includes a 90-day preclosing notice requirement under proposed regulations and will apply to transactions involving entities operating in one of the country’s largest healthcare markets.
These timing requirements may extend the postsigning, preclosing period and require additional resources to complete the submission process. In states that require approval of the transaction, a denial could prevent a transaction from taking effect indefinitely. Because of these timing considerations, parties considering a healthcare transaction should make an early determination as to whether any state transaction review laws will apply.
Private equity sponsor investment in the healthcare space remains a focal point for state legislators. In enacting these healthcare transaction review laws, many states noted an aim to increase transparency around the funding and ownership interests of healthcare providers, including by private-equity-backed entities. To this end, several state transaction review laws require disclosure of upstream owners. In addition, certain states make transaction details publicly available. In some states, the reviewing agency will publicly disclose certain transaction information, such as the healthcare entity’s governance and ownership structure and executive and board member conflicts of interest.
The authors of this article are not licensed to practice law in each of the jurisdictions mentioned.
1 Delaware and Rhode Island have limited-scope transaction review laws, which we do not cover in this article.
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