A Mintz Health Care Roundtable: Current Trends in State Health Care Transaction Review and What to Expect in 2024

States are increasingly exercising regulatory oversight of health care transactions by enacting laws requiring prior notice or approval of certain health care transactions. Currently, 15 states have enacted health care transaction review laws applicable to for-profit transactions. On Wednesday, March 20, 2024, Mintz members Daniel A. Cody, Deborah A. Daccord, and Karen S. Lovitch engaged in an insightful discussion with Lois Johnson, General Counsel of Massachusetts Health Policy Commission, to discuss the latest developments surrounding these laws and gain valuable insight from Ms. Johnson’s expertise, as Massachusetts was one of the first states to implement a health care transaction review process. The highlights of this informative conversation are summarized below, and the webinar can be viewed here.

First, the panel took turns providing an overview of the state health care transaction review laws, including the goals behind them and the process they typically follow. States seeking to implement these laws are often looking to: 

• Monitor the impact of certain health care transactions on cost, quality, competition in the industry, access to health care, and the public interest more broadly; 
• Increase transparency and post-closing oversight of certain health care transactions, most recently including those involving institutional investors such as private equity firms and hedge funds; and 
• Promote equitable access to care and improve the quality of health care delivery while reducing the cost of care. 

The review process for health care transactions varies by state, but at a minimum, all of the states with these laws require certain covered entities to provide notice of a covered transaction. Some states also will undertake additional review, such as conducting a cost and market impact review (CMIR) or holding a public hearing. Notably, Oregon and New Mexico also grant the state agency authority to block the transaction. 

Who Must Provide Notice?

The threshold inquiry in each state is to determine whether the interested parties meet the definition of a covered or health care entity required to provide pre-transaction notice under the applicable law or regulation. However, states vary widely with respect to which health care entities are covered under their law. For example, Massachusetts’s law is limited to health care providers and provider organizations, whereas California’s law also includes insurers, plans, payors, pharmacy benefit managers, and a variety of ancillary service providers such as ambulatory surgery centers, laboratories and imaging facilities. Additionally, an increasing number of states seek to cover entities that would not have otherwise been subject to regulatory review, such as private equity firms and management service organizations. 

What Types of Transactions Are Covered? 

While virtually every state’s health care transaction law covers mergers and acquisitions, asset sales, and other transactions resulting in a change of control, some also include affiliations and joint ventures. However, the more critical, and often complex, analysis is determining whether the transaction meets the state law’s materiality threshold. This determination is typically based on the fair market value (FMV) of the transaction, the projected increase of in-state revenue resulting from the transaction, or certain changes in control, responsibility, or governance that occur as a result of the transaction. Additionally, a number of states aggregate transactions that involve the same or affiliated entities and/or the same or similar health care services for purposes of the materiality threshold. However, there are certain exceptions to the types of transactions covered under these laws, such as transactions that occur in the usual or ordinary course of business, or certain types of traditional corporate restructuring transactions. Ultimately, states have generally developed these thresholds to cover health care transactions not meeting the threshold for federal anti-trust review, but are sufficiently material to require the state’s involvement in review. 

Notice Requirements

Parties contemplating a covered health care transaction should keep the notice requirements front of mind as they may require significant lead time and preparation. 

• Timing. Generally, notice is required 30 to 90 days pre-closing. However, some states require significant lead time; New Mexico requires 120 days’ notice and Oregon requires 180 days’ notice. Parties must also be mindful of any post-closing notices required by several states. 
• Contents. Generally, the parties will need to describe the purpose of the transaction, the interested parties, the location and type of health care services provided, and any impact on (1) cost or reimbursement, (2) reduction or elimination of services, (3) participation in a particular health plan or network, or (4) changes to care referrals.
• Supporting Documentation. The parties should be prepared to provide copies of definitive agreements (purchase agreement, management agreement, etc.) and to disclose any exchange of funds between the parties. In addition to the purchase price, the parties will need to inform the state about any arrangement where one party will provide the other with discounts, rebates, or payments for health care services. 
• Confidentiality. While these disclosures generally are made available to the public, states have provided mechanisms by which the parties may request that certain documents and information be kept confidential. 

Cost and Market Impact Review Process

In addition to the notice requirement, four states (including California and Massachusetts) have opted to include a CMIR analysis in their review process. Ms. Johnson discussed Massachusetts’ review process and the panelists agreed that agencies seeking to complete a CMIR analysis are generally focused on four factors: 

(1) Cost. States will analyze the transaction’s impact on health care costs for consumers and purchasers.  

(2) Quality. States will analyze the transaction’s impact on quality of services and the patient experience. 

(3) Market Access and Competition. States will analyze the transaction’s impact on market competition and on access and availability of services. 

(4) Public Interest. States will analyze the transaction’s impact on health equity, and how the transaction will specifically affect underserved or at-risk populations. States also have articulated their specific concerns; for example, California’s law uniquely focuses on the potential impact of the transaction on the labor market, and Massachusetts’ law uniquely focuses on consumer-related concerns, such as unfair or deceptive market competition.

Impact of Health Care Transaction Review Laws 

The panel discussed both the positive and negative impacts of the increase in state regulatory oversight of health care transactions. On one hand, these laws may have a chilling effect, especially amongst health care investors, including private equity, which could reduce access to necessary capital for providers, payors, suppliers, etc., and prevent them from scaling, operationalizing efficiencies, negotiating lower rates, and ultimately improving patient outcomes. However, Ms. Johnson noted that parties may also be able to use the required notice as an opportunity to demonstrate the positive impact of their investment by ensuring their presence will benefit the market. For example, they could commit to maintaining certain service levels in the community or making beneficial capital expenditures, and thus abate the heightened concern around institutional investment in the industry. 

Conclusion 

The panel speakers concluded their discussion with a few final pieces of advice for interested parties: 

Daniel Cody predicted that the industry will likely see other states hop on board the oversight train, and states with existing laws may also issue sub-regulatory guidance to provide clarification as to what parties or transactions are included. Ms. Johnson noted that this is true for Massachusetts; the Commission has already provided its legislature with recommendations for updates to Massachusetts’ health care transaction law based on the agency’s experience and observations of other state laws.

Deborah Daccord recommended that parties contemplating a transaction consider the state’s review and reach out to regulators early in the process. Parties should think through the specific state’s review factors, and assess the transaction’s value, size, revenue, overall cost, and any potential change or impact on equity, competition, or availability of health care services. 

Lois Johnson echoed the recommendation to engage in communications with regulators early in the process. If parties are able to provide as much information as possible and share concerns about timing early on, she suggests regulators are likely to be more cooperative and willing to assist buyers and sellers achieve their targets for the transaction, including exercising flexibility or expediting reviews when necessary. 

Karen Lovitch recommended that parties contemplating a covered health care transaction also consult their health care counsel early in the process to ensure they best position themselves for a smooth regulatory review.

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