On March 1, 2024, New Mexico joined a growing number of states in enacting legislation that increases oversight of certain health care transactions. Senate Bill 15 (S.B. 15), which adds a new section to the New Mexico Insurance Code (the Code) titled the “Health Care Consolidation Oversight Act” (the Act), takes effect on May 1, 2024.

Overview of the Act

The Act gives New Mexico’s Office of Superintendent of Insurance (the Office) the power to review and approve, conditionally approve, or disapprove proposed transactions involving New Mexico hospitals.

Like health care transaction review laws in other states covered in previous blog posts, the law is focused on the impact that hospital consolidations may have on access to services, health care quality, and costs. In particular, New Mexico’s law is concerned with acquisitions by larger hospital systems of smaller community hospitals, often in rural areas, that result in a change of control of the community hospital. These acquisitions will now be subject to the written approval of the Superintendent of Insurance (the Superintendent).

Transactions Subject to the Act

A “transaction” is defined to mean any of the following:

• a merger of a hospital in New Mexico with another hospital;
• an acquisition[i]of one or more hospitals in New Mexico;
• any affiliation[ii] or contract or other agreement that results in a change of control of a hospital in New Mexico, including with a management services organization[iii] or health insurer;
• a formation of a new corporation, partnership, joint venture, trust, parent organization or management services organization that results in a change of control of an existing hospital in New Mexico; and
• a sale, purchase, lease, new affiliation or any agreement that results in control of a hospital in New Mexico.

The term “control” means the power to direct or cause the direction of the management and policies of a hospital, whether directly or indirectly, including through the ownership of voting securities, through licensing or franchise agreements, or by contract other than a commercial contract for goods or nonmanagement services, unless the power is the result of an official position with or corporate office held by an individual. There is a presumption that control exists if a person, directly or indirectly, owns, controls, or holds 15% or more of the power to vote the voting securities of any other person. The presumption may be rebutted by the filing of a disclaimer of affiliation that control does not in fact exist in the manner provided by Section 59A-37-19 of the Code.

Notice of Proposed Transaction

The Act requires at least one person[iv] that is a party to a proposed transaction to submit a written notice to the Office in a form that the Office will prescribe. 

The notice must include:

• the parties, the terms of the proposed transaction, and copies of all transaction agreements;
• a statement describing the proposed transaction’s goals and whether and how the proposed transaction affects health care services in New Mexico;
• the geographic service area of any hospital affected by the proposed transaction;
• a description of the groups or individuals likely to be affected by the transaction; and 
• a summary of the health care services currently provided by the parties and any health care services that will be added, reduced, or eliminated, including an explanation of why any services will be reduced or eliminated.

Although the law does not proscribe the effects on health care services in New Mexico that should be described in the notice, as described below, the law includes a list of factors that the Office may consider in its review (e.g., access, quality, costs, availability, etc.), which can be used as a guide.

All documents, materials or other information that are provided or disclosed to the Office in the course of a review under the Act are confidential.

Review of Proposed Transaction, Experts, and Costs

In conducting its review of a proposed transaction, the Office may consider the following:

• the potential reduction or elimination in access to essential services[v];
• the availability, accessibility, and quality of health care services to any community affected;
• the health care market share of a party and whether the transaction may foreclose competitors of a party from a segment of the market or otherwise increase barriers to entry in a health care market;
• changes in practice restrictions for licensed health care providers who work at the hospital;
• patient costs, including premiums and out-of-pocket costs;
• health care provider networks; and
• the potential for the proposed transaction to affect health outcomes for New Mexico residents. 

The Office is permitted to retain actuaries, accountants, attorneys, or other professionals with expertise in the type of the proposed transaction to assist in conducting its review. The parties to the proposed transaction will be required to pay the reasonable costs and expenses incurred by the Office in the performance of its duties, including for costs associated with contracts with experts.

The Office will also consult with the Health Care Authority Department (the Authority) about the potential effect of the proposed transaction and incorporate the Authority’s recommendations into the Office’s final determination. Within 120 days of the Office receiving a complete notice of a proposed transaction, the Office is required to complete its review and consultation with the Authority and either approve, conditionally approve, or disapprove the proposed transaction. The time period will be tolled during any period during which the Office has requested and is waiting to receive additional information from the parties necessary to complete its review. 

The Act provides that the Office shall approve the proposed transaction if it determines that -

• the parties demonstrated that the transaction will benefit the public by:
  • reducing growth in patient costs, such as premiums and out-of-pocket costs; or
  • maintaining or increasing access to services, especially in underserved areas;
• the proposed transaction will improve health outcomes for New Mexico residents; and
• there is no substantial likelihood of:
  • a significant reduction in the availability, accessibility, affordability, or quality of care for patients; or
  • anti-competitive effects from the proposed transaction that outweigh the benefits of the transaction.

The Superintendent will notify the submitting party in writing of the Office’s determination and the reasons.

Post-Transaction Oversight

Following the acquisition of control over a hospital through an approved or conditionally approved transaction, the acquiring person is required to submit reports to the Office and the Authority in the form and manner prescribed by the Office annually for three years after approval or conditional approval. The reports are required to:

• describe compliance with any conditions placed on the transaction;
• describe the growth, decline, and other changes in services provided by the person; and
• provide analyses of cost trends and cost growth trends of the hospital.

Recommendations

Parties considering a transaction involving a change of control of a New Mexico hospital should review and determine at the outset whether their transaction will be subject to the Act and, if so, begin preparing for the notice and approval process early on. Pursuant to the Act, parties may request a pre-notice conference to determine if they are required to file a notice or to discuss the potential extent of the review. Parties should take advantage of a pre-notice conference. It can serve as a way of giving regulators notice about a notice submission and developing position relationships that help support the review.

[i] The term “acquisition” includes an agreement the consummation of which results in a person acquiring, directly or indirectly, the control of a hospital in New Mexico, including through an acquisition of voting securities, membership interests, equity interests or assets. S.B. 15, §2.A.

[ii] An “affiliation” refers to a business arrangement in which one person, directly or indirectly, is controlled by, is under common control with, or controls another person. S.B. 15, §2.B.

[iii] A “management services organization” denotes a person that provides all or substantially all of the administrative or management services under contract with a hospital, such as administering contracts with health plans, third-party administrators and pharmacy benefit managers. S.B. 15, §2.I.

[iv] “Person” includes an individual, association, organization, partnership, firm, syndicate, trust, corporation or other legal entity. S.B. 15, §2.L.

[v] The term “essential services” means “health care services covered by the New Mexico Medicaid program, health care services that are required to be included in health plans pursuant to state or federal law and health care services that are required to be included in qualified health plans offered through the New Mexico health insurance exchange.” S.B. 15, §2.E.