Earlier this month, Massachusetts Governor Maura Healy enacted H.5159, a law that will expand the state’s oversight of certain healthcare transactions by private equity and real estate investment trusts (REITs) investors and change the scope of the state’s healthcare transaction review law notice and requirements to capture additional transaction types and entities. The current version of the law, effective August 6, 2012, implemented a requirement for a notice filing to be made with the Massachusetts Health Policy Commission (HPC) 60 days in advance of certain “material” transactions primarily involving two healthcare entities. Notably, the updated law will now capture many transactions involving private equity firms and REITs that previously would previously not have required a filing with HPC. H.5159 also extends liability under the Massachusetts False Claims Act to healthcare entity upstream owners (discussed here in further detail), as well as various other provisions. H.5159 will go into effect on April 8, 2025.
Healthcare Transaction Review Law Updates
Changes to Massachusetts’s healthcare transaction review law will require material change notice filings and cost and market impact reviews (CMIR) for additional transactions. New or amended types of “material” transactions that may be required to provide notice under the law include the following:
- Significant expansions in a provider or provider organization’s capacity
- Transactions involving a significant equity investor (including any amount of private equity investment) resulting 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 non-profit entity to a for-profit entity
- Mergers or acquisitions of provider organizations resulting in a provider organization having a dominant market share in a given service or region
The law does not define potentially vague terms such as “significant” or “dominant.” As such, their meaning may remain unclear at least until new corresponding regulations are issued.
Notably, prior to these changes, a filing was typically only required related to transactions between two healthcare entities and therefore the law generally did not cover transactions involving a healthcare entity and a private equity sponsor or REIT. H.5159’s broad requirements will potentially capture private equity or REIT investments resulting in the change of ownership of a healthcare entity and “significant” real estate sale leaseback agreements.
H.5159 also allows HPC to consider additional market factors when deciding whether to require a CMIR. As a result, we expect that more transactions may undergo the CMIR process, which can take up to six months to complete. If HPC decides to conduct a CMIR, the transaction cannot close until 30 dyas after publication of the final CMIR report. While there is no formal mechanism for HPC to block a transaction under this law, the information received and collected could potentially used by the Massachusetts Attorney General to attempt to block the transaction using different authorities. The law also allows HPC to continue to monitor the impact of transactions following closing of a transaction, potentially requiring healthcare entities and upstream owners to submit data and information for five additional years.
HPC and CHIA Healthcare Investment Review
Under the new law, private equity firms, REITs, and the management services organizations (MSOs) they own may be required to disclose certain information to HPC and the Massachusetts Center for Health Information Analysis (CHIA) for use in state cost, impact, and utilization reviews. The Massachusetts Attorney General will also be authorized to issue civil investigative demands for this information.
These requirements include CHIA data collection and analysis of healthcare investments, investors, and audited financial statements which may include information about out-of-state operations. HPC may also require submission of testimony and supporting documents for use in annual reports discussing state healthcare entity financials and operations.
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These changes in Massachusetts indicate that states will continue their efforts to monitor or even restrict private equity investments in healthcare. Last year, the California legislature passed a bill that would have required state approval of healthcare transactions involving private equity sponsors and hedge funds and would have had a significant impact on changes of control and acquisitions of healthcare facilities and provider groups by such entities. Though California Governor Newsom ultimately vetoed this bill, California and others states will likely continue to consider similar measures. The Sidley team has discussed these developments in our Updates here and here and will continue to closely monitor state activity. For a summary of all enacted state healthcare transaction review laws, see our heat map tracker here.