The latest entrant in a national wave of policymakers enacting health care market oversight laws that have a significant impact on providers and investors, Massachusetts Governor Maura Healey has signed into law House Bill 5159, “An Act enhancing the health care market review process” (the Act). The product of nearly five months in conference committee following disagreeing votes of the House and Senate, the Act substantially broadens the applicability of one of the oldest state health care market review laws in the country. The changes brought about by the Act will increase financial transparency and the Commonwealth’s ability to examine both the anticipated and long-term impact of health care transactions. 

The Act expands the authority of the Massachusetts Attorney General’s Office (AGO), the Center for Health Information and Analysis (CHIA), and the Health Policy Commission (HPC) to require financial, structural, and operational information from a wide array of health care providers and those seeking to provide them with investment, management, and other services. The scope of these agencies’ authority now applies well beyond traditional health care providers to include significant equity investors, providers of administrative and management services (MSOs), real estate investment trusts (REITs), pharmaceutical manufacturing companies, pharmacy benefit managers (PBMs), and commercial, governmental, and self-insured payers. The Act also imposes certain requirements on the Department of Public Health (DPH) relating to office-based surgical, urgent care centers, and acute care hospitals that lease from health care REITs. Finally, the Act updates the Massachusetts False Claims Act to create liability for investors in entities that violate the False Claims Act. The Mintz health team will also be discussing the other significant piece of health care legislation signed by Governor Healey today, Senate Bill 3012, “An Act relative to pharmaceutical access, costs, and transparency”—stay tuned! 

Massachusetts is just one of at least 35 states that require health care providers – hospitals, physician groups, various types of ambulatory care providers, and the firms that invest in or manage these providers or their property – to notify state agencies of a proposed transaction (pre-closing, post-closing or both). But Massachusetts was the first to create, over 12 years ago, an independent state agency, the HPC, to administer the process and to conduct a cost and market impact review (CMIR) when deemed necessary. Other states, such as California, have followed suit. Now, based on more than a decade of experience reviewing health care transactions and monitoring their aftermath, the Massachusetts legislature and governor have expanded the scope and authority of the HPC, CHIA, and AGO to be among the most comprehensive in the nation. 

The impact of the changes in the Act will be broad and far reaching, but the following are a few of the major takeaways for existing and future players in the Massachusetts health care market: 

Expanded Scope of HPC’s Notice of Material Change Process

Some of the most significant changes in the Act involve expanding the types of transactions that will be subject to review by the HPC. In addition to the existing transaction types subject to review, the statutory definition of material change now includes:

• significant expansions in a provider or provider organization’s capacity, 
• transactions involving a significant equity investor which result in a change of ownership or control of a provider or provider organizations, and
• real estate sale lease-back and similar arrangements, and conversions of a provider or provider organization from a non-profit entity to a for-profit entity. 

The addition of transactions involving a significant equity investor which result in a change of ownership or control of a provider or provider organization in particular represents a substantial expansion of HPC’s authority to review transactions. “Significant equity investor” is broadly defined to include

• any private equity company with a financial interest in a provider, provider organization or MSO; or 
• an investor, group of investors or other entity with a direct or indirect equity ownership totaling more than 10 percent of a provider, provider organization, or MSO. 

“Management services organization” and “private equity company” are similarly broadly defined, such that, without further guidance from HPC, it will be difficult for parties to determine which entities in the corporate structure are required to file the Notice of Material Change; providers of purely administrative services, such as billing and collection, and equity owners multiple layers up from the transaction participant may be included. Helpfully, the definitions of “significant equity investor” and “private equity company” include limited carveouts for venture capital firms exclusively funding startups or other early-stage businesses.

Historically, the HPC transaction review process focused primarily on transactions between providers, provider organizations, and carriers (all of which are relatively narrowly defined), and excluded, for example, certain MSOs that did not contract with carriers. Now, subject to materiality thresholds set by the HPC, equity investments by any entity with equity in other providers, provider organizations, or MSOs could trigger the notice requirement. 

The Act also provides that, for any material change involving a significant equity investor, the HPC may require certain information to be submitted as part of the notice, which shall be protected from public records requests. This information may include information regarding the investor’s capital structure, general financial condition, ownership, and management structure and audited financial statements – information that many investors may be unwilling or unable to provide. The Act also codifies HPC’s ability to request additional data and information necessary to assess the impacts of the transaction for a period of five years following the transaction closing.

Additional Authority for the AGO, HPC, and CHIA to Monitor the Health Care Market

In addition to the changes to the Notice of Material Change process, the Act provides the AGO, HPC, and CHIA with additional authority to monitor the health care market in Massachusetts, especially with respect to cost trends. Notably, the Act draws in additional actors in the health care market who previously were not under the purview of HPC and CHIA. Pharmaceutical companies, PBMs, private equity investors, health care REITs, and MSOs should all be prepared for this additional oversight and the fact that information about their finances and operations will be required to be disclosed to regulatory bodies.

• HPC. The Act expands the scope of the HPC’s annual Cost Trends Hearings and subsequent reporting to include an examination of the costs, prices, and cost trends of pharmaceutical manufacturing companies and PBMs. The Act also expands the authority of HPC to include the impact of significant equity investors, health care REITs, and management services organizations on costs, prices and cost trends. In furtherance of the goal of examining these cost trends, the HPC will be required to call as witnesses for the hearings (i) any significant equity investor, health care REIT or MSOs associated with a provider or provider organization; (ii) at least two representatives of the PBM industry; and (iii) at least three representatives of pharmaceutical manufacturing companies (including at least one representative from a publicly traded company, one from a specialty drug manufacturer, one from a generic drug manufacturer, and one from a company that has been in existence for fewer than ten years).
• AGO. The AGO has historically had authority to monitor trends in the health care market, including traditional antitrust and competition oversight, and has been empowered to obtain relevant information from health care providers and payers. The Act expands the AGO’s authority by allowing it to obtain information from significant equity investors, REITs, and MSOs. These entities may be compelled to produce documents, answer interrogatories and testify under oath regarding health care costs and trends. While such information must generally be kept confidential by the AGO and is not subject to disclosure under public records requests, the information may be used in cases brought by the attorney general “if the attorney general believes that such disclosure will promote the health care cost containment goals of the commonwealth” and will be in the public interest. 
• CHIA. The Act directs CHIA to require registered provider organizations to report annually on financial information related to their parent organizations (including the out-of-state operations of such parents) and their corporate affiliates, including significant equity investors, health care REITs, and MSOs. It also gives CHIA the authority to require, by regulation, that acute and non-acute hospitals file not only their own financial statements but also the audited financial statements of their parent organization’s out-of-state operations, significant equity investors, health care REITs, and MSOs. The Act also significantly increases the penalties for entities who fail to timely comply with their reporting obligations. 

Massachusetts False Claims Act Updates

In a move that could have a substantial impact on upstream owners of health care providers in Massachusetts, the Act also amends the Massachusetts False Claims Act by creating potential False Claims liability for entities with an “ownership or investment interest” in any entity that violates the Massachusetts False Claims Act, knows of that violation, and fails to disclose such violation to the Commonwealth within 60 days of the identification of the violation. The definition of an “ownership or investment interest” is broad and goes beyond the definition of a “significant equity investor” as used in the remainder of the Act. For example, any interest, no matter how small, held by a private equity company in a health care provider would be sufficient to constitute an ownership or investment interest. While there have been efforts by the Department of Justice and state Attorneys General to impose False Claims Act liability on private equity investors, we are not aware of any other state that has codified liability for investors in entities that are alleged to have submitted false claims. 

Investors should consider the ramifications of this change when conducting due diligence on health care targets doing business in Massachusetts and when structuring their level of involvement in the operations of their operating companies. 

Financial Assessments Against Regulated Entities to Fund the HPC and CHIA

Since their inception, the HPC and CHIA have been funded, in part, by financial assessments levied against hospitals and ambulatory surgical centers (ASCs). Consistent with the Act’s emphasis on additional market oversight for other actors in the health care market, the Act updates the types of entities required to pay an assessment and the methodology for determining the amount assessed against each entity type and each individual entity. Under the Act, in addition to acute hospitals and ASCs, assessments will also be levied against non-hospital provider organizations (NHPOs), pharmaceutical manufacturing companies, and PBMs. 

Under the Act, an NHPO is a provider organization that is required to register with the HPC as a “registered provider organization” (RPO) that also meets one of the following criteria: 

• is a non-hospital-based physician practice with not less than $500 million in annual gross patient service revenue, 
• a clinical laboratory, 
• an imaging facility, or 
• a network of affiliated urgent care centers. 

The following types of entities are required to register as RPOs: 

• entities in the business of health care delivery or management that represent one or more health care providers in establishing contracts with insurers and third-party administrators that collectively receive at least $25 million in net patient service revenue from insurers and TPAs in the prior fiscal year and have a patient panel of more than 15,000 patients in the same fiscal year, and 
• risk-bearing provider organizations subject to the requirements of the Division of Insurance.

The following chart summarizes the method for calculating the amount of the assessment for providers (acute hospitals, ASCs, and NHPOs), pharmaceutical manufacturing companies, and PBMs, and the allocation of the assessment between entities in each category. Notably, all amounts are tied to the amount appropriated by the Massachusetts legislature for the operation of HPC and CHIA.

Other Considerations

As a reminder, health care market and transaction review processes like those described above are intended to address factors other than those conducted for a license or determination of need (DON) process. The latter tend to regulate the establishment of health care services ranging from hospitals to imaging centers and focus primarily on the need for and cost of services by preventing unnecessary capital expenditures on duplicative services within a specific geographic area, and also to review the character and competence of the operator. But the Act’s changes to DPH’s oversight and regulatory authority, including requiring DPH to establish regulation and licensing standards for office-based surgical and urgent care centers, and importantly, prohibiting it from issuing a license to an acute care hospital if its main campus is leased from a REIT (with exceptions for such leases that existed as of April 1, 2024), demonstrate that the primary focus of the Act – increased scrutiny of the Massachusetts health care market – is far-reaching. 

For providers and others whose transactions will now be subject to greater pre-closing scrutiny, the delay to closing a transaction caused by the HPC process – including the waiting period while the HPC determines whether to conduct a full CMIR – could be significant (four to nine months). While this state-level review process can run concurrently with other regulatory processes, such as the Federal HSR review and, as applicable, other agencies’ processing of license change of ownership or DON, it will be important for parties to assess the impact of these requirements on their transaction or arrangement early, even at the term sheet stage, to plan for both the scope of disclosures and the timeline. In order to avoid additional delays, transaction participants should be prepared to respond to all information requests and ensure that their notices adequately address the Commonwealth’s review factors, such as overall cost, equity, competition, and ongoing availability of health care services when assessing both a potential transaction partner and structure. Importantly, health care providers and their investors and administrative service providers must be prepared to comply with new levels of ongoing financial disclosure and transparency after the transaction is completed.