/>iOn January 8, 2025, Massachusetts Governor Maura Healey signed into law House Bill No. 5159, “An Act enhancing the health care market review process” (“H. 5159”), which was passed by the Massachusetts legislature in the last few days of 2024.
The bill will implement greater scrutiny of certain health care entities and affiliated companies—including private equity sponsors, significant equity investors, health care real estate investment trusts (“REITs”), and management services organizations (“MSOs”)—as well as pharmaceutical companies and pharmacy benefit management companies (“PBMs”) in the Commonwealth.
The passage of H. 5159 follows debate between the House and Senate earlier in 2024 over similar bills, which failed to pass during the summer legislative session. Notably, similar bills included debt limitations on certain private investor-backed entities and bans of certain private equity investments, as well as significant restrictions on the MSO business model. However, these restrictions (among various others) were stripped from H. 5159.
Although H. 5159 has widespread implications for health care entities in the Commonwealth, a significant portion of the bill is clearly aimed at increasing regulatory oversight of for-profit-backed health care organizations through increased regulatory oversight of certain health care transactions and expanded reporting obligations. The bill also seeks to contain health care costs, including by increasing oversight of pharmaceutical company and PBM arrangements.
Below in this alert we highlight some of the more significant provisions of H. 5159.
Health Policy Commission – Notices of Material Change
H. 5159 extends the authority of the Health Policy Commission (“HPC”) in the context of notices of material change under M.G.L. c. 6D § 13 (“Notices of Material Change”) to indirect owners and affiliates of health care providers, such as private equity companies, significant equity investors, MSOs, and health care REITs.
The bill also broadens the transactions that are subject to the HPC’s Notice of Material Change requirements to include (i) significant expansions in capacity of a provider or provider organization; (ii) transactions involving a significant equity investor resulting in a change of ownership or control of a provider or provider organization; (iii) real estate sale lease-back arrangements and other significant acquisitions, sales, or transfers of assets; and (iv) conversions of a provider or provider organization from a non-profit to a for-profit.
In the context of the HPC’s review of a Notice of Material Change, the HPC will be authorized to require the submission of documents and information from significant equity investors, such as information regarding the significant equity investor’s capital structure, financial condition, ownership and management structure, and audited financials.
H. 5159 also implements other related changes, such as reducing the market share threshold for mergers or acquisitions to be subject to the Notice of Material Change process (from “near majority” to “dominant” market share), enhancing the HPC’s authority to monitor post-transaction impacts, and expanding the review criteria for a cost and market impact review.
Health Policy Commission – Registration of Provider Organizations
Under H. 5159, the data and information collected under the HPC’s Massachusetts Registration of Provider Organizations Program (“MA-RPO Program”) will now also cover ownership, governance, and operational structure information of significant equity investors, health care REITs, and MSOs. H. 5159 also amends the MA-RPO Program reporting threshold to include revenue generated from payers other than commercial payers, such as governmental payers.
Health Policy Commission – Annual Cost Trends Hearing
As a complement to the increased authority discussed above, the list of stakeholders required to testify at the HPC’s Annual Cost Trends Hearing is expanded to include, among others, significant equity investors, health care REITs, and MSOs as well as PBMs and pharmaceutical companies.
Testimony from significant equity investors, health care REITs, and MSOs must cover topics such as health outcomes, prices, staffing levels, clinical workflow, financial stability and ownership structure of associated providers or provider organizations, dividends paid out to investors, and compensation (e.g., base salaries, incentives, bonuses, stock options, deferred compensation, benefits, and contingent payments to officers, managers, and directors of provider organizations owned or managed by the significant equity investors, health care REITs, or MSOs.
Testimony from PBMs and pharmaceutical companies must cover topics such as factors underlying drug costs and price increases as well as the impact of aggregate manufacturer rebates, discounts, and other price concessions on net pricing (provided that the testimony will not undermine the financial, competitive, or proprietary nature of the data).
H. 5159 further expands the topics covered by HPC’s Annual Cost Trends Hearings to expressly include costs, prices, and cost trends of providers, provider organizations, private and public payers, pharmaceutical companies, and PBMs as well as any impact of significant equity investors, health care REITS, or MSO on those costs, prices, and cost trends.
Health Policy Commission and CHIA – Operations Assessments
H. 5159 expands the categories of entities required to pay assessments to help fund the HPC and Center for Health Information and Analysis (“CHIA”) to include “non-hospital provider organizations,” pharmaceutical companies, and PBMs. A “non-hospital provider organization” is defined as any provider organization registered under the MA-RPO Program that is a non-hospital-based physician practice with annual gross patient service revenue of at least $500 million, a clinical laboratory, an imaging facility, or a network of affiliated urgent care centers. The methodology for calculating the amount assessed against each entity is based on entity type and the total amount appropriated by the Massachusetts legislature for the operation of HPC and CHIA.
CHIA – Reporting Requirements
Under H. 5159, CHIA will collect additional information from acute and non-acute care hospitals regarding their parent organizations and significant equity investors, health care REITs, and MSOs. Such information includes the audited financial statements of parent organizations’ out-of-state operations, significant equity investors, health care REITs, and MSOs, as well as financial data on margins, investments, and any relationships with significant equity investors, health care REITs, and MSOs.
H. 5159 also expands the scope of CHIA’s data collection under the MA-RPO Program. Notably, information subject to annual reporting will include, in relevant part, (i) comprehensive financial statements that include data on parent entities (including their out-of-state operations), corporate affiliates (including significant equity investors, health care REITs, and MSOs, as applicable), annual costs, annual receipts, realized capital gains and losses, accumulated surplus, and accumulated reserves; and (ii) information regarding other assets and liabilities that may affect the financial condition of the provider organization or the provider organization’s facilities (e.g., real estate sale-leaseback arrangements with health care REITs).
H. 5159 further provides that CHIA may require in writing, at any time, such additional information as CHIA deems reasonable and necessary to determine a registered provider organization’s organizational structure, business practices, clinical services, market share, or financial condition, including information related to its total adjusted debt and total adjusted earnings.
CHIA will also have the authority to require registered provider organizations with private equity investment to report required information on a quarterly basis and require disclosure of relevant information from any significant equity investor associated with a registered provider organization. CHIA may also assess increased penalties for non-compliance with these reporting requirements.
Acute and non-acute care hospitals and registered provider organizations should note that, pursuant to M.G.L. c. 12C § 17, the Massachusetts Attorney General (“AG”) may review and analyze any information submitted to CHIA under M.G.L. c. 12C §§ 8, 9, and 10. Thus, the AG may review and analyze all information regarding significant equity investors, health care REITs, and MSOs submitted to CHIA under H. 5159’s expanded reporting requirements.
Department of Public Health (“DPH”) – Determinations of Need
With exceptions, existing Massachusetts law forbids entities from making substantial capital expenditures for the construction of a health care facility or substantially changing the service of the facility unless DPH has approved a determination of need application (“DON”). H. 5159 expands and clarifies DPH considerations in reviewing a DON. These include (i) the state health resource plan; (ii) the Commonwealth’s cost containment goals; (iii) the impacts on the applicant’s patients, including considerations of health equity, the workforce of surrounding health care providers and on other residents of the commonwealth; and (iv) any comments and relevant data from CHIA and the HPC, and any other state agency. H. 5159 codifies a current DPH regulation allowing the period of time DPH has to review a DON to toll if an independent cost-analysis is required and clarifies the effective date of a determination of need issued to holders subject to cost and market impact reviews and/or performance improvement plans. Finally, the legislation adds that a party of record may review a DON for which it is appropriately registered and provide written comment or specific recommendations for consideration by DPH.
Department of Public Health – Licensure of Acute-Care Hospitals
H. 5159 adds provisions to the licensure process of acute-care hospitals, mandating that no original license shall be granted or renewed to establish or maintain such facilities if the main campus of the acute-care hospital is leased from a health care REIT (with an exemption for those acute-care hospitals leasing a main campus from a health care REIT as of April 1, 2024). An exempt acute-care hospital shall remain exempt “after a transfer to any transferee and subsequent transferees,” and those transferees shall be issued a license upon meeting all other requirements. “Main campus” is defined in H. 5159 as “the licensed premises within which the majority of inpatient beds are located.” Additional new licensure requirements for acute-care hospitals mandate the disclosure of documents to DPH relating to leases, licenses, or other agreements for the use, occupancy, or utilization of the premises occupied by the acute-care hospital. Acute-care hospitals also must remain in compliance with applicable reporting requirements.
Department of Public Health – Licensure of Office-Based Surgical Centers
H. 5159 mandates that DPH, in consultation with the Massachusetts Board of Registration in Medicine, establish rules, regulations, and practice standards for the licensing of office-based surgical centers by October 1, 2025. Such licensure will be effective for an initial period of two years and subject to renewal. Pursuant to H. 5159, DPH may impose a fine of up to $10,000 on (1) a person or entity advertising, announcing, establishing, or maintaining an office-based surgical center without a license and (2) a licensed office-based surgical center that violates DPH’s forthcoming rules and regulations. Each day during which a violation continues will constitute a separate offense, and DPH may conduct surveys and investigations to enforce compliance. Notwithstanding the foregoing, H. 5159 permits DPH to grant a one-time provisional license to applicant office-based surgical centers if such applicants hold a (1) current accreditation from the Accreditation Association for Ambulatory Health Care, American Association for Accreditation of Ambulatory Surgery Facilities, or the Joint Commission; or (2) current certification for participation in Medicare or Medicaid, and DPH determines that such applicants meet all other licensure requirements.
Attorney General’s Office – False Claims Statute
H. 5159 amends the Massachusetts False Claims Statute to extend potential liability to those with an “ownership or investment interest” in an entity that violates the statute, if such owner or investor knows of the violation and fails to disclose it to the Commonwealth within 60 days of identifying the violation. As a result, the AG has broadened authority to pursue actions against private equity companies and other owners or investors for not addressing a violation of the False Claims Act of which they are aware, regardless of whether the private equity company or other owner or investor caused the violation. Notably, the definition of “ownership or investment interest” captures significant equity investors, as defined elsewhere in the bill, as well as private equity companies with any investment or ownership interest in an entity that violates the statute.
Primary Care Payment and Delivery Task Force
H. 5159 also establishes a 23-member primary care payment and delivery task force (“Task Force”) charged with (i) studying primary care access, delivery, and payment; (ii) developing and issuing recommendations to stabilize and strengthen the primary care system and increase recruitment and retention of primary care workers; and (iii) increasing investment in, and patient access to, primary care in the Commonwealth.
Among other recommendations, the Task Force must create a primary care spending target for private and public payers that takes into account the cost to deliver evidence-based, equitable, and culturally competent primary care services and propose payment models to increase private and public reimbursement for primary care services.
The bill requires the Task Force to issue its first recommendations by September 15, 2025, and requires recommendations to be issued in a sequential manner thereafter, through May 15, 2026.
Takeaways
The true impact of H. 5159 will depend in large part on the regulatory bodies tasked with enforcement and implementation of its provisions. Importantly, we expect that HPC, which has been petitioning the legislature for greater oversight authority over the past several years to review private equity health care investments in Massachusetts, will play a central role in determining the level of scrutiny for-profit investors in hospital systems and provider organizations will face moving forward.
Ann W. Parks contributed to this article
