On Jan. 8, 2025, Massachusetts Gov. Maura Healy signed “An Act Enhancing the Market Review Process” (the Act). The Act increases regulatory reporting obligations and oversight of healthcare transactions involving private equity sponsors, healthcare real estate investment trusts (REITs) and management services organizations (MSOs).
The Act will have widespread implications for healthcare businesses throughout Massachusetts, illustrating the commonwealth’s increased focus on monitoring the involvement of private equity companies and other significant investors in the healthcare market after recent high-profile healthcare bankruptcies. The Act expands the scope of information the commonwealth collects from registered provider organizations about their ownership, governance and organizational structure and amends the commonwealth’s false claims act to impose potential liability on those who have an ownership or investment interest in providers.
Material Change Notices
Massachusetts law already requires notice of material changes to the Massachusetts Health Policy Commission (the Commission) sixty (60) days prior to a change for certain healthcare transactions such as mergers or acquisitions of providers and provider organizations. The Act expands upon the scope of the material change notices to include providers with significant equity investors and requires new information to be included with such notices. Changes include:
- Expanding Scope of Material Changes. The Act broadens the types of transactions that require a notice of material change to include transactions with “significant equity investors.” This is a new definition introduced by the Act to mean (i) any private equity company with a financial interest in a provider, provider organization or MSO; or (ii) an investor, group of investors or other entity with direct or indirect possession of equity in the capital, stock or profits totaling more than 10% of a provider, provider organization or MSO. Under the prior law, a material change notice was not required for transactions involving a significant equity investor. Other transactions now covered by the Act include: (i) significant expansions in a provider or provider organization’s capacity; (ii) transactions involving a significant equity investor that result in a change of ownership or control of a provider, provider organization or insurance carrier; (iii) significant transfers of assets including, but not limited to, real estate sale lease-back arrangements; (iv) conversion of a provider or provider organization from a nonprofit entity to a for-profit entity; and (v) mergers or acquisitions of provider organizations that will result in a provider organization having a dominant market share in a service region. The Act now requires material change notices of transactions that result in a provider organization’s having a dominant market share when the prior law only required notice when the provider organization would have a near-majority market share. The Act does not define what constitutes a dominant market share. The definition will likely be addressed by the Commission in regulations or guidance.
- Covered Parties. The Act expands the scope of information that may be required for material changes involving a significant equity investor, allowing the Commission to require details such as the significant equity investors’ capital structure, general financial condition, ownership, management structure and audited financial statements. The Commission may also require any provider or provider organization to submit data necessary for the Commission to assess the impacts post-transaction for a period of five years following the transaction.
- Market Impact Review and Attorney General Review. As with the prior process, the Commission may initiate a cost and market impact review to gauge potential impacts on cost, quality and access to healthcare in Massachusetts as a result of the material change. Historically, the Commission considered a variety of factors during similar reviews. The Act expands these factors and allows the Commission to consider the size and market share of any corporate affiliates or significant equity investors of a provider or provider organization. The Act still provides that a material change cannot be completed until at least 30 days after the Commission issues its final report but now provides that the change cannot be completed if the Attorney General brings an action challenging the change. The Attorney General also has expanded authority to require that significant equity investors, REITs or MSOs produce documents, answer interrogatories and provide testimony under oath.
Other Areas of Expanded Regulatory Oversight
The Act also expands the information that registered provider organizations must report to the Massachusetts Center for Health Information and Analysis, which is also made available to the Attorney General. Registered provider organizations are entities in the business of healthcare delivery or management that represent healthcare providers in contracting with insurance carriers. Registered provider organizations must collectively receive at least $25 million in net patient service revenue from insurance carriers and have a patient panel larger than 15,000. In addition to information previously required, registered provider organizations must annually report (i) the name, address and capacity of all other locations where the provider organization or any affiliates delivers health care services; (ii) comprehensive financial statements that provide details about the provider organization and their parent entities (including their out-of-state operations and corporate affiliates to include significant equity investors, REITs and MSOs); (iii) information on stop-loss insurance and any non-fee-for-service payment arrangements; (iv) information on expenditures and funding for payroll, teaching, research advertising and taxes; (v); information on charitable care and community benefit programs; and (vi) information on other assets and liabilities that may affect the provider organization’s financial condition or facilities (such as real estate sale-leaseback arrangements with REITs).
Massachusetts False Claims Act
The Act amends the Massachusetts False Claims Act (MA FCA) to increase scrutiny over private equity involvement in healthcare. The MA FCA amendment creates liability for entities with an “ownership or investment interest” in an entity when the owner or investor knows of a violation or overpayment and fails to report it. Ownership or investment interest includes (i) direct or indirect possession of equity in the capital, stock or profits totaling more than 10% of an entity; (ii) interest held by an investor or group of investors who engages in the raising or returning of capital and who invests, develops or disposes of specified assets; or (iii) interest held by a pool of funds by investors. This amendment expands MA FCA liability to private equity companies.
Following in the footsteps of other states, Massachusetts aims to increase regulatory oversight and scrutiny of private equity companies’ involvement in healthcare as scrutiny of private equity companies and REITs continues nationwide. The Act increases reporting requirements for entities experiencing a material change and will incorporate review of private equity companies involved in the material change.
If your entity is anticipating or planning for a transaction in Massachusetts, incorporating legal review to determine your reporting requirements will be a vital step. McGuireWoods will continue to monitor the implementation of the Act and similar laws in other states.