Health Law Diagnosed – Health Care Transaction Review Laws and the New Normal

In the latest episode of Health Law Diagnosed, host Bridgette Keller discusses the evolving legislative and regulatory landscape impacting health care transactions, particularly for private equities and hedge funds. She is joined by Members Deborah Daccord and Daniel Cody, who share their insights on the likely impacts at the state level, including:

1. An overview of state health care transaction review laws
2. State approaches to material change transaction process
3. California’s changing laws: AB 1415 and SB 315
4. Key advice for contemplating health care transactions

Have questions or want to connect with the team? Reach out to us at [email protected].

Health Law Diagnosed – Health Care Transaction Review Laws and the New Normal - Transcript

Bridgette Keller (BK): Hi there, welcome back to Health Law Diagnosed, a Mintz podcast dedicated to health law, health policy, and social issues in the health care industry. I'm Bridgette Keller, your podcast host. Today, we're going to continue our conversation about health care transaction review laws, focusing on the growing wave of state legislation. These are laws that establish regulatory frameworks that require health care entities to notify, and in some cases get approval from state agencies before completing certain business transactions, like mergers, acquisitions, affiliations, or ownership changes. These laws have been enacted in response to a flurry of consolidation in the health care market among hospitals, health systems, physician practice groups, and the larger PE investment in these entities. Supporters say these laws promote transparency and protect communities and stakeholders holding corporations accountable, while critics argue that these reviews can delay transactions, deter investment, and burden health care systems already facing financial pressure. We are so lucky to have Deborah Daccord back with us today. And we're also joined by our colleague, Dan Cody. Welcome both of you.

Deborah Daccord (DD): Thank you, Bridgette.

Dan Cody (DC): Thanks, Bridgette.

BK: Dan, Deb, would you please give our listeners a quick introduction on your background and experience?

DC: My name is Dan Cody. I'm a Member based in San Francisco and New York here at Mintz. I'm a health care regulatory lawyer focusing on compliance, fraud, and abuse issues, and do a fair bit of government investigations. I'm also Chair of the firm's Digital Health Working Group. In the context of our discussion today, I'm often asked to provide strategic counseling to private equity groups, hedge funds, and health care providers regarding transactions. I am very much looking forward to the discussion today.

BK: Thanks, Dan, we're happy to have you.

DD: I'm Deb Daccord, a Member here at Mintz, based in the firm's Miami and Boston offices with almost 30 years of experience working on health industry transactions across the country. As you can imagine, I've had a lot of experience dealing with health care transaction review laws of all types. I've been following the laws we're going to be talking about today closely for some time now.

BK: Thanks so much Deb and why don't we jump right in. We ended our last discussion right here on this point. Would you mind starting us off with an overview of the state health care transaction review laws that have been proposed or even implemented since January?

Overview of State Health Care Transaction Review Laws

DD: New legislation proposals have been coming in fast and furious since January, notably in California, Colorado, Connecticut, Illinois, Indiana, Minnesota, New Mexico (which had the fastest turnaround time that I've seen), New York, Oregon, Texas, Washington, and Wisconsin. Before we dive into them, it might be worth noting that the goal of these laws tends to be one or all of the following: First, to enhance transparency. Who owns or wants to own a health care service or facility? What the health care entity is spending or intends to spend, and how much of that spending is on direct patient care and monitoring the quality of health care in a given community? Second, they seek to protect community access to health care and enhance or maintain competitiveness in the marketplace. And third, some of these proposals seek to limit the ability of non-health care providers, such as private equity, hedge funds, and management services organizations, or MSOs, to interfere with health care provider decisions, both clinical and financial.

BK: That's a really long list of new legislative proposals just since January. That's incredible. Do any of the laws stand out as taking a different approach or are they all sort of doing the same thing along those three goals that you just described?

State Approaches to Material Change Transaction Process

DD: That’s a great question. You can bucket these bills in one of four ways. I'll talk about each of them in that context. Firstly, there are bills that seek to amend or introduce material change transaction review processes, including pre-closing notice, review or approval, as well as post-closing reporting requirements. For example, in California, AB 1415 would amend the existing health care transaction review process under the Office of Health Care Affordability or OHCA to expand the definition of health care transactions that would come under OHCA's review. It would also expand the definition of health systems to include entities under common ownership and control. I won't talk any more about that one because I know Dan wants to get into that a little bit later in the podcast.

Elsewhere in Colorado, proposed SB 25-198 would revamp that state's current material change transaction review process, which currently only applies to licensed hospitals, to require a 60-day pre-closing notice to the AG for transactions involving a whole host of health care entities, such as medical and even dental professional service corporations, provider networks, long-term care providers, and even veterinary care providers. The AG out there would have the authority to assess whether a proposed transaction is contrary to public interest or even to convert its review to a formal investigation, bring an action in district court, or enjoin or even unwind a transaction. So, a pretty intense change there.

In Indiana, HB 1666 would require reporting of certain information, including ownership by a private equity group, by hospitals, certain health care entities, and importantly insurers, TPAs and PBMs, which is a recent area of expansion that we've started to see here in Massachusetts and elsewhere. This law would allow the AG to deny a merger or acquisition if they determine that the transaction would have adverse financial impacts or health care outcomes.

In New Mexico, HB 586 moved with lightning speed, as I mentioned, and was just signed into law last week. It amends the state's Health Care Consolidation Oversight Act and will broaden transaction reporting to include pre-closing notice and approval of private equity transactions involving hospitals and insurance company affiliated entities acquiring physician practices. The law also requires annual post-transaction reporting for three years, imposes higher penalties, and adds whistleblower protections.

Similarly in New York, the Fiscal Year 2026 Executive Budget included an amendment that would revise that state's disclosure of material transactions law that went into effect almost two years ago now. That amendment would change New York's "notice only" requirement to be a 60-day pre-closing notice and review requirement by the New York Department of Health. That department would now be able to conduct a preliminary review of all transactions and would have the discretion to initiate a 180-day cost and market impact review. This proposal would also expand the scope of information to be disclosed by a party, implement review and approval processes by the department, and implement a five-year post-closing reporting requirement on completed transactions.

Two more in this category. In Texas, HB 2747 would require health care entities, including providers, facilities, provider organizations, PBMs, and health carriers to provide 90-day pre-closing notice to the AG for material change transactions. While that's currently not defined and it doesn't appear that the AG would be authorized to deny a transaction, it would be authorized to impose civil penalties for failure to comply. We're going to be keeping an eye on that one.

Finally, in Wisconsin, AB-50 is a comprehensive finance and appropriations bill that includes a requirement for health care entities to provide a 180-day pre-closing notice to their Department of Health Services before closing a material change transaction. Like others, the DHS there would have 30 days to conduct a preliminary review. At that point, it could either approve the transaction with or without conditions or require a more comprehensive review. Of note, transactions involving transfer of over $20 million in assets would automatically require that comprehensive 180-day review. So again, we're going to be keeping an eye on that one.

BK: That is quite a laundry list of states who are taking a different approach to this material change transaction process. Do all of these laws mean that these states have the ability to deny transactions? I'm asking because do these state AGs really have the knowledge to just approve or disapprove of a transaction?

DD: I'll get into the first part of that question in just a minute because no, not all of these laws require a full review process. I'll talk about a few of those. But it's a great question about the attorneys general because in most of these instances, the attorneys general are not just making this decision on their own. They are authorized to hire their own experts, which by the way, the applicants have to pay those experts fees. In some of these states, the AGs also look to the regulatory agencies that oversee health care, finance, and operations. They are bringing in experts and definitely are not making these determinations without some real consideration on their part.

BK: That's good to know. It feels a little reassuring.

DD: Definitely, and then of course there's this the second category of health care transactions review laws that are just seeking disclosure. I mentioned earlier that one of the main goals of these laws is enhancing transparency. In several states there are proposals that would just seek disclosure either before a transaction or annually after a transaction. For example, in Connecticut, HB 6873 would require a 60-day pre-closing notice to the AG for transactions involving a whole range of entities, including provider organizations, group practices, hospitals, MSOs, ACOs, PBMs. As note to your point earlier, the AG has consultation with the Commissioner of the Office of Health Strategy. If they were to identify any issues of concern in evaluating the proposed transaction, and the transaction would not otherwise require a certificate of need, the AG may require a CON, which I found fascinating. The AG may also offer the parties conditions to meet for that transaction to proceed. That was actually a pretty cool example of how they use expertise to make these decisions.

BK: That's really interesting.

DD: Just a few others that provide notice either pre-close or post-close. Minnesota has a law pending, SF-2939, that would require health care entities to report ownership and control details to the Commissioner of Health and would also require the Commissioner to conduct annual audits of a random sample of health care entities and report out on that. In New York, the Department of Health recently posted a set of FAQs to its website about its existing transaction notice law. Some of our colleagues wrote a really great post on that, which you can find on the Mintz website, going over some of those common questions that the department receives. Also, in Texas, there's a law pending there, SB 1595, that would require certain health care entities, including MSOs, DSOs, and providers to report ownership and control information to the Secretary of State annually, which is an interesting approach, and upon a material change transaction. And then finally in Washington state, HB 1686, which was just passed into law yesterday, will create a health care entity registry with annual reporting beginning in June of 2027.

BK: How interesting, a registry for health care transactions?

DD: For health care entities, so all health care entities, will need to report actually quite substantial detail, including identification of persons having ownership, control, or even management contracts with the reporting entity. So more to come on that one. We'll be keeping an eye on it.

BK: It definitely sounds like there's a trend of states looking for information, more transparency, and more disclosure. In this bucket especially, and then the first buckets, we also want the approval piece of things and we want to be more involved in this process. It's really interesting to think about the different types of law.

DD: That's right. And then there's a third bucket as well, and I'll just give one example of this one. That's bills that would enhance existing state antitrust laws. I mentioned in some of the bills that there is a component of wanting to protect the people in that state from reduced care or increased prices due to anti-competitiveness. For example, in Illinois, SB 1998 would revise that the current Illinois Antitrust Act require that the AG consent to any merger, acquisition, or contracting affiliation between two or more health care facilities or provider organizations if a private equity group or hedge fund provides any financing to the transaction. That was an interesting take in that state.

BK: And Deb, are those laws the ones that we call mini HSRs?

DD: Yes, that's exactly right. Those are the state-level antitrust acts that often go further, have lower financial thresholds, and as just noted, actually start getting into a broader set of requirements in order to complete a transaction. There's a fourth bucket that I want to mention before we bring in Dan, and that's the bills that seek to outright prohibit or substantially curtail private equity, hedge funds, REITs (or real estate investment trusts), and other corporate entities from investing in, or controlling health care entities, including new attempts at curtailing the corporate practice of medicine. For example, California SB 351, which I won't talk about here because I know Dan's going to talk about it, was just introduced in February and is currently in committee process that's specifically aimed at private equity and hedge funds.

In Minnesota, HF 2771 and a similar bill submitted on the Senate side, SF 2972, are aimed at regulating private equity companies and REIT acquisitions of nursing homes and assisted living facilities. In that case, private equity firms would be prohibited from acquiring ownership or control of a nursing home or assisted living facility unless the AG approves the acquisition.

Among the AG findings, there are factors such as the transfer can't have an adverse impact on the health, safety, or well-being of residents, cannot lead to unaffordable cost increase, and would not lead to a reduction in quality of services or maintenance of facilities. Interestingly, that law also would mandate that 75% of funds received from public programs would need to be directed into direct patient care.

The last one I'll just mention in Oregon – SB 951 – renews the corporate practice of medicine, or CPOM, overhaul that failed in 2024. That law would outright prohibit certain common ownership between MSOs and physician practices. It would limit the use of restrictive covenants, and it would prohibit the use of directed stock transfers, all of which are tools that are used between management companies and physician group practices that they provide services to.

BK: Thank you so much for that overview. It’s really interesting to hear about the four different buckets of these laws. The amending or introducing of material change transaction processes, bills seeking disclosure, bills seeking to enhance existing antitrust laws, and then the fourth bucket, which are bills seeking to prohibit or substantially curtail PE groups, hedge funds, and REITs. It's really interesting to think of how the states are taking different approaches, and what that's going to look like for our clients who are considering a variety of different health care transactions.

California’s Changing Laws: AB 1415 and SB 315

BK: I'd love to do a deep dive into a few of these California laws and Dan, we're so happy to have you join us today on the podcast. Will you tell us a little bit about the recent California proposals?

DC: Thanks, Bridgette. I am really excited to be here and thanks, Deb, for that fantastic overview. Obviously, there is a lot going on at the state level and I really like your approach of categorizing all the activity into those four different buckets. Let's talk a little bit about California. California is a state, along with Massachusetts, which was the subject of our podcast most recently, really at the tip of the spear when it comes to a lot of these health care transaction laws and also a lot of the activity specifically focused at private equity groups and hedge funds.

A little bit of history here is important. Let me just take a moment to do a little bit of that. In 2022, the state legislature developed and established the Office of Health Care Affordability, commonly known as OHCA. And that organization, that board, OHCA, has really three aims: The first is to slow health care spending in the California marketplace by both collecting and reporting on health care expenditures. The second piece is to establish and enforce hard spending targets. Last year, OHCA did establish a 3% goal for a spending target. The way that is structured, a phase in period occurring over several years, 2025 and 2026.

The spending target is 3.5% and then by 2029, the spending target goal is 3%. Just to give a little bit of flavor around what that looks like, the spending targets are focused from a consumer perspective. In other words, really seeking to limit and manage health care expenditures that consumers might spend on things such as deductibles, coinsurance, and the like.

The third, and most important for purposes of our session today, the missions and goals of OHCA is really focused on assessing consolidation in the health care marketplace, kind of defined broadly. Given that history with respect to OHCA, it's important to talk about some legislation that failed ultimately last year. Last year, AB 3129 actually ended up passing both the California Assembly and the California Senate.

The bill really called for specific attorney general pre-transaction review with respect to private equity group and hedge fund transactions. There were also provisions in that bill that addressed the longstanding prohibition here in California against the corporate practice of medicine. Against that backdrop of AB 3129, it's important because the two bills that were introduced in February of this year really seek to do some of the things that ultimately was vetoed by the governor under AB 3129. Importantly, one of the reasons for the governor's ultimate veto of AB 3129 was related to the fact that OHCA exists. The governor's position was that we already have a board and department here in California that's tasked with reviewing these types of transactions, and that was the justification for ultimately vetoing the bill.

The two new bills that were introduced in February of this year, AB 1415 and SB 351, in many ways fill the gaps of AB 3129. First, I am going to talk about AB 1415, which is the California Health Care Quality and Affordability Act. AB 1415 really seeks to broaden the scope of OHCA's review. Something like 12 transactions were reviewed, by OHCA prior to January of this year, and none of those transactions ultimately led to a cost and market impact review.

The introduction of AB 1415 is largely based on the fact that 12 transactions here in California is not very many, and as I mentioned, none of those transactions ultimately resulted in further review. Therefore, AB 1415 does a couple of things. First, really specifically, it includes management services organizations, MSOs, and it defines the types of services that those entities provide extremely broadly. Specifically, it defines MSOs as entities providing administrative services and support. Administrative services and support does not include just management type services that we traditionally think of, it also includes things very specifically like billing and collections and customer service.

Again, these are services that many providers leverage third-party entities to provide, not often, not always being management services organizations. In other words, there certainly are third-party entities providing billing and collection services, for example. The second piece under AB1415 relates to private equity groups and hedge funds.

As I mentioned, AB 3129 was specifically directed at these entities and again was ultimately vetoed. But AB 1415 specifically broadens OHCA's authority to review transactions involving both private equity groups and hedge funds. And the third piece from a definitional perspective under this new bill, AB 1415, seeks to broaden the definition of provider, not only public and private providers, but also entities that own, operate, and control providers. So again, really the definitional changes under AB 1415 seek to broaden the scope of OHCA, arguably in response to the failed bill from last year. And just as a reminder, under OHCA, there's a 90-day notice requirement for all material transactions and changes of control.

We've talked previously, both here in the podcast and in some of our thought leadership regarding the specifics of that. In terms of where we stand on AB 1415, there's a hearing at the Assembly Health Committee that is scheduled for April 22. We look forward to seeing what happens on that front.

BK: Any thoughts yet, Dan, on what stakeholders might do at that hearing or what the arguments might be on either side?

DC: Yeah, great question, Bridgette. You know, again, sort of harkening back to the history with respect to AB 3129 last year, lobbying was very, very aggressive, on both sides, but specifically with respect to the private equity and hedge fund community. I think I fully anticipate that there'll be significant opposition to AB 1415, again, both from those entities.

The other thing with respect to the definitional changes under AB 1415 is it's extremely broad and there's arguably entities beyond just private equity and hedge fund groups that could be under the ambit of review. I anticipate that in addition to those specific entities, you're likely to hear more from the telemedicine community, from other third parties that could arguably be subject to review under this new bill.

BK: Just learning more about what's happened in California over the past couple of years with these bills, it'll be really interesting to see what happens at the hearing on April 22 and where things go from there.

DC: The second bill I wanted to briefly touch on is SB 351. Again, harkening back to AB 3129 from last year, SB 351 covers the corporate practice of medicine provisions that were previously in that prior bill. Specifically, SB 351 is a standalone bill that really reinforces California's longstanding prohibition against the corporate practice of medicine. It applies specifically to private equity groups and hedge funds. Additionally, and we see this in other states as well, there's a push to really ban and prohibit restrictive covenants that several entities beyond both private equity groups and hedge funds often use.

SB 351 seeks to ban both the use of non-competes and non-disparagement clauses vis-a-vis physicians in these types of transactions. Under SB 351, there's affirmative ability of the California attorney general to enforce these corporate practice prohibitions by seeking both injunctive relief and then actually having the ability to recover attorney's fees and costs.

In terms of where we are with respect to that bill, there was a Senate Appropriations Committee hearing on April 21 that should be relatively performatory. Typically in California, the Appropriation Committee just determines at this stage of a bill, whether there's any fiscal impacts, which there obviously are. But more importantly, later in the month on April 29, there is a Senate Judiciary Committee hearing to talk about SB 351.

Similar to AB 1415 we definitely anticipate a lot of opposition to the bill that likely will be evidenced at the judiciary committee hearing on April 29.

BK: It's really interesting to hear about how much change there is and how quickly things are happening now given that we've had a long history with some states having these laws in place for many, many years. Dan, we will definitely be following up with you to hear more about what happens later in April in California. We know that this process is particularly important and of interest to our clients.

Key Advice For Contemplating Health Care Transactions

BK: This discussion has been really interesting and I've learned so much from it. But before we go, I would love to ask: What do you think the key piece of advice is to anyone contemplating a health care transaction? Dan, do you want to go first?

DC: A couple of thoughts here. We’re at the point where we're having foundational changes to how entities involved in health care transactions have to think about things, given all the bills and approved legislation that Deb went through at the top of the podcast. We're in a totally different world. It's a little unclear what's going to happen from a federal antitrust perspective, but it's clear that states are very much concerned about health care transactions from a cost perspective to consumers, from an access perspective in terms of transparency, as Deb noted, and also from a quality perspective. Thinking about these state laws, obviously early in the planning stages when you have a transaction that's contemplated is absolutely vital. States have notice and consent provisions that vary widely. So, you need to be proactive in thinking about those and strategizing how to think about those.

The other piece before I let Deb jump in is really thinking about interacting with the regulators in most instances and enforcement agencies and others to talk about your transaction. There's value in opening the lines of communication early and there's inevitably things that come up that you want to have discussions with them about. Confidentiality obviously is a very important consideration when you're thinking through these issues, so encourage folks to open those lines of communication as well.

BK: Dan, I think that all sounds like great advice. And Deb, will you wrap us up? What do you think the key piece of advice is to anyone contemplating a health care transaction?

DD: Well, I'll repeat everything that Dan just said, especially about interacting with, and communicating with the state regulators early and often in the transaction. State legislators and regulators are emboldened now to push further in regulating transactions in the health industry and the parties involved in those transactions, including the non-health care party to the transaction more than ever before.

We're advising our clients not only with respect to the impact on the timing of their transactions that these pre-notice review laws will have, but also on the scope of the disclosure requirements. Some of these require substantial information to be provided not only pre-transaction, but for years after the transaction is completed.

BK: Deb, again, that's great advice. You both hit the nail on the head. It's going to be critically important to consider the timing and the scope of the work associated with any of these disclosure requirements and obtaining approvals if they're needed. It gives folks who are contemplating transactions in the health care space, even the non-health care entities, a good reason to give us a call and talk through what they might be thinking at the outset of a transaction.

Deb, Dan, thank you both so much for sharing your expertise on all of these new laws that have been enacted recently and what's going on in California. Listeners, thank you for joining us for this episode of Health Law Diagnosed. If you have any questions at all, please feel free to reach out directly or you can email us at [email protected]. I'm Bridgette Keller and this was Health Law Diagnosed.

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