For certain healthcare transactions that will close on or after Jan. 1,
2020, parties to the transaction must now provide advance written notice to
the Washington state attorney general (AG) before closing the transaction.
Lawmakers explained that the intent behind the new law is to ensure
vigorous and robust competition in healthcare markets, supplementing the
federal Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR).
This alert details five things providers and dealmakers should know
House Bill 1607, which the governor of Washington signed into law earlier this spring.
1. Overview of the Law. Washington’s new law — which will
take effect for transactions with a proposed effective date on or after
Jan. 1, 2020 — requires hospitals, hospital systems and “provider
organizations” undergoing a “material change” to provide no less than 60
days’ advance written notice to the Washington AG. The term “provider
organizations” is broadly defined and includes corporations, partnerships
or other groups of persons (organized or not) that are in the business of
healthcare delivery or management and that represent seven or more
healthcare providers in contracting with carriers or third-party
administrators for the payments of healthcare services. The new law gives
examples of provider organizations, which include but are not limited to
physician organizations, physician-hospital organizations, independent
practice associations, provider networks and accountable care
organizations. Under the state law, a “material change” includes proposed
mergers, acquisitions or contracting affiliations between two or more
Washington healthcare entities that did not have previous common ownership.
Material changes also include proposed mergers, acquisitions or contracting
affiliations between one or more Washington entities and an out-of-state
entity if the out-of-state entity generates $10 million or more in
healthcare service revenue from patients who reside in Washington. Notably,
the state law does not otherwise include any thresholds that would limit
notification requirements to transactions that exceed certain size or
2. Notice Requirements. Each party to a transaction that
is required to provide notice to the Washington AG must submit a written
notice that includes, at a minimum, the following information: (i) the
names of the parties and their current business addresses, (ii)
identification of all locations where healthcare services are currently
provided by each party, (iii) a brief description of the nature and
objectives of the proposed material change, and (iv) the anticipated
effective date of the proposed material change. Importantly, if any party
to a proposed transaction is required to file a premerger notification with
the Federal Trade Commission and the U.S. Department of Justice in
compliance with HSR, such party must submit a copy of that notice to the
Washington AG, which will satisfy the state law’s notice requirements.
Following submission of the written notice, the Washington AG may request
additional information within 30 days of the notice submission. Failure to
request additional information does not preclude the Washington AG
from conducting an investigation or filing a lawsuit to challenge the
transaction under state or federal antitrust laws at a later date.
3. Penalties for Failure to Provide Notice. Any provider
who fails to comply with the new state law will be subject to a penalty of
up to $200 per each day of noncompliance. While the $200 per day penalty is
far less than the penalty that could be imposed for failure to comply with
HSR reporting requirements, if parties fail to provide advance notice, and
such failure is discovered later, the penalty could be extensive.
Healthcare providers should monitor how the Washington AG’s office
implements the new law and what, if any, guidance or flexibility it
provides around the notice timeline (i.e., whether the Washington AG will
allow “early termination” or expedited processing for transactions that
present no potential anti-competitive concerns).
4. The New Law Is Fairly Unique. While providers and
dealmakers have been well aware of HSR reporting requirements, broad state
laws such as this are more uncommon. Aside from Washington, we are only
aware of one additional state,
Connecticut, that requires reporting and advance notice of certain healthcare
transactions. The Connecticut law has been in place since October 2014 and
requires 30 days’ advance notice. Notwithstanding, many states do have
notice requirements that could be triggered by certain elements of a
transaction (e.g., a change of control related to the sale of an entity or
a change of ownership regarding licensure, credentialing or Medicaid
enrollment). Additionally, broader state laws, like Washington’s, that
appear tailored to antitrust concerns could be gaining traction. As
discussed in prior
McGuireWoods legal alerts, earlier this year, the Florida legislature proposed,
but ultimately did not pass, a similar law that would have required mandatory reporting of certain
hospital or group practice mergers, acquisitions and other transactions.
5. Practical Implications. Washington’s new law provides a
relatively low threshold with regard to when the Washington AG must receive
advance written notice of a transaction and, accordingly, will capture a
much broader array of transactions within the healthcare space than does
the HSR (with its $90 million minimum size-of-transaction threshold).
Accordingly, parties to even small transactions must consider and plan for
the additional time required in advance of closing a proposed transaction.
It is not yet clear the extent to which the Washington AG will enforce the
full 60-day notice requirement, or how aggressive the Washington AG’s
healthcare antitrust enforcement will be with this new pre-transaction
notice. Parties contemplating a transaction in 2020 should consult counsel
to carefully and thoughtfully consider whether the transaction will trigger
written notice and to facilitate communication with the Washington AG, in
preparation of these state antitrust obligations, similar to how dealmakers
would under federal law.
* * * * *
Washington’s new law, while rooted in antitrust considerations, will
necessitate additional planning and timing considerations for healthcare
transactions, which could influence investor interest. Further, other
states may elect to follow suit, either because of similar antitrust
concerns or out of an interest in regulating and/or monitoring transactions
more generally. Nonetheless, although Washington’s law is fairly unique,
most states have unique elements that dealmakers must consider prior to
structuring that can be swiftly and successfully addressed by dealmakers
and counsel. For additional information regarding Washington’s new law and
its implications, please consult one of the authors.