State Healthcare Transaction Review Laws: A New Landscape

The recent growth in state healthcare transaction review laws is requiring parties to healthcare transactions to dust off their due diligence and closing checklists to conform to new requirements. Within the past few years, an increasing number of states^[1] have enacted legislation designed to review the impact of certain healthcare transactions on cost, quality, access, need, competition, and other related issues, affecting entities and transactions that have not previously been the focus of regulatory scrutiny (“Transaction Review Laws”).^[2] Anyone considering a healthcare transaction, particularly those with healthcare services providers, should be aware that Transaction Review Laws exist and are on the rise; they should factor them into their regulatory analysis and appreciate how transaction reviews by state regulators have and will change the nature of certain transactions. This article provides an overview of how to navigate Transaction Review Laws by the types of transactions that are reviewable, parties subject to review, notice and approval requirements, and applicable exceptions.

While there is some variation in the policy priorities driving different state initiatives, most states have an emphasis on addressing competition, market concentration, quality, accessibility of services, and cost containment. A few states also give attention to health equity and equitable access to care. Some states want to create more transparency and inform the public by creating oversight over investor-backed entities and unlicensed entities involved in the provision of healthcare.

Key Elements

Most states define the types of transactions covered by the applicable law as a “material transaction” or a transaction that results in a “material change.” Many states include any transaction that involves a change of control in the definition of “material transaction” or “material change.” Some states have thresholds of what constitutes “material” and also consider whether a transaction is part of a series of related transactions that take place over a specified period of time for purposes of meeting a threshold. As examples:

• New York defines a “material transaction”^[3] as a merger with a healthcare entity; an acquisition of one or more healthcare entities; an affiliation agreement or contract between a healthcare entity and another person; or the formation of a partnership, joint venture, accountable care organization, parent organization, or management services organization to administer contracts with health plans, third-party administrators, pharmacy benefit managers (“PBMs”), or healthcare providers as prescribed by the commissioner by regulation. Notice is required for any “material transaction,” whether in a single transaction or through a series of related transactions that take place within a rolling twelve-month period.
• California defines a “material change”^[4] to include both transactions with financial thresholds and transactions without financial thresholds. Transactions with financial thresholds involve healthcare services that have a fair market value of at least $25 million; will more likely than not (to be determined based on financial information submitted) increase annual California revenue of any healthcare entity party by at least $10 million or 20 percent of annual California revenue; involve the formation of a new healthcare entity projected to have $25 million in annual California revenue; or involve healthcare entities joining, merging, or affiliating where any entity has at least $10 million in annual revenue. Transactions without financial thresholds are those that involve a transfer or change of control of a healthcare entity; a sale, transfer, lease, or other disposition of 25 percent or more of the California assets of any healthcare entity; and a change in the form of ownership of a healthcare entity. For purposes of determining the revenue thresholds and asset and control circumstances, the law applies if the transaction (i) is part of a series of related transactions for the same or related healthcare services occurring over the past ten years involving the same healthcare entities or entities affiliated with the same entities or (ii) involves the acquisition of a healthcare entity by another entity and the acquiring entity has consummated a similar transaction or transactions over the past ten years.

States such as Colorado, Connecticut, New Mexico, Rhode Island, and Vermont have no materiality thresholds.

Even in states where a threshold may seem clear, applying the threshold can be a challenge. For example, Indiana’s law requires a healthcare entity involved in an acquisition or merger with another healthcare entity with total assets of at least $10 million (including combined entities and holdings) to provide notice, but the law does not state whether the $10 million applies to all assets or only Indiana assets. Similarly, Oregon’s law applies if one entity to a transaction has at least $25 million in annual revenue and one entity has at least $10 million in annual revenue (in each, average over the last three years), but the law does not specify if it is in-state revenue or all revenue.

States differ on the type of healthcare entities that are subject to a transaction review. Almost all states include group practices, hospitals, and hospital systems. Certain states include management service organizations and similar entities that provide administrative or management services to physician practices, and some also include organizations that represent healthcare providers in contracting with carriers and third-party administrators for the payment of healthcare services. Some states include health insurance plans, insurers, PBMs, payors, and Medicare advantage plans. As examples:

• Minnesota defines healthcare entities to include hospitals, hospital systems, captive professional entities, medical foundations, healthcare provider group practices, and any entities that are controlled by, or that exercise control over, any of the foregoing healthcare entities.^[5]
• Delaware defines entities covered by the law as including any not-for-profit healthcare entity seeking to engage in a not-for-profit healthcare conversion transaction.^[6]
• Indiana defines healthcare entity to include providers of healthcare services, health and accident insurers, health maintenance organizations (“HMOs”), PBMs, administrators, and private equity partnerships, regardless of where located, entering into a transaction with any of the foregoing.^[7]

Just as states differ in the types of entities subject to Transaction Review Laws, they differ on which transactions and entities are not subject to review. As examples:

• Nevada excludes transactions involving businesses that are under common ownership or have a contracting relationship that was established before October 1, 2021, from review.^[8]
• Massachusetts excludes providers or provider organizations with less than $25 million in net patient service revenue from review.^[9]

All Transaction Review Laws require parties to provide notice with some waiting period prior to closing. Some laws also require pre-closing approval of the transaction. As examples:

• New York requires that notice of a material transaction be provided to the New York State Department of Health (“DOH”) thirty days before the transaction’s closing date. The DOH does not approve or disapprove any transaction; rather, the DOH must immediately forward the notice to the New York Attorney General’s antitrust, healthcare, and charities bureaus. Post-closing notice to the DOH is also required.
• New Mexico requires that notice be provided to the Office of the Superintendent of Insurance at least 120 days prior to a transaction closing.
• Oregon requires pre-closing approval by the Oregon Health Authority (“OHA”). Notice must be submitted to the OHA no later than 180 days prior to closing of the transaction. The OHA then has thirty days to approve, approve with conditions, or decide to conduct a more comprehensive review of the transaction.

Practical Considerations

In addition to understanding the fundamentals of Transaction Review Laws, there are a few practical issues to consider involving the timing of the review, the information to be disclosed, and the structure of a transaction.

Reviews, whether involving an approval or notice, will have an effect on transaction timing. Counsel and parties to transactions should monitor the process and timing from notice to completion, particularly because a transaction review may not align with other regulatory review and approval requirements. While advance notice requirements generally range from thirty days to ninety days prior to closing, regulators often request additional information, which can extend timelines. For example, in Massachusetts, Oregon, and California, the regulator may conduct a more extensive review, extending the pre-transaction review period to 180 days or more. Complete applications and thoughtful communication with regulators can make for a more efficient review process.

Parties to transactions that have to comply with Transaction Review Laws must be aware that they will likely be subject to public disclosure of transaction documents, ownership information, and equity and debt structures. Some statutory schemes may have exceptions to public disclosure based on the confidentiality of business-related information; however, many do not. More often, in the schemes that do have such protections, parties must request protection prior to any type of disclosure.

One of the most notable features of many Transaction Review Laws is how a particular regulatory framework ensures the law applies to scenarios in which not simply ownership, but some type of effective control has been assumed. This often comes up in the context of entering into a management services relationship that fits within a state’s definition of “material change” or “material transaction.” These kinds of frameworks also raise other questions as to whether the definitions might extend, for example, to a management and lease arrangement between a landlord and an operator of a senior housing facility. Parties to contractual arrangements where significant “control” might be exercised must carefully review whether entering into the contractual arrangement itself may trigger review. Many states with Transaction Review Laws are also states with corporate practice prohibitions. Parties to arrangements between professionals and management companies may have to rethink their normal operating processes if the control that is exercised via the business relationship does not violate corporate practice prohibitions but does trigger review.

Below are some general recommendations for parties to transactions that are subject to Transaction Review Laws:

• Early in the deal process, closely consider the statutory review factors such as overall cost, equity, competition, and availability of healthcare services, and document the review and analysis.
• Update due diligence processes to identify issues that will be subject to scrutiny or could result in disapproval.
• Be aware of the potential for increased transaction costs, and update budgets and pro formas accordingly.
• Be prepared for new levels of transparency that result from the review process.
• Understand the requirements for disclosure of proprietary information or the necessity for a request that certain information not be subject to public disclosure.
• Educate business development, operations, and transaction teams about these laws and the lengthier transaction timelines they entail.

Conclusion

In summary, several states have enacted Transaction Review Laws designed to review healthcare entities and transactions that have traditionally not been subject to review. States differ on how they determine which entities and transactions are reviewable. Parties to healthcare transactions need to understand which states have enacted laws, which states are considering them, and how a particular state’s law will affect either a current or future transaction. As Transaction Review Laws expand, patience and thoroughness will be key for parties when navigating processes and requirements that are not always clear and may raise more questions than answers.

Table of Current State Transaction Review Laws

1. Many states have modeled their legislation on the National Academy for State Health Policy’s Model Act for State Oversight of Proposed Health Care Mergers. See A Model Act for State Oversight of Proposed Health Care Mergers, National Academy for State Health Policy (Nov. 12, 2021). ↑

2. A full list of current state Transaction Review Laws is included at the end of this article. ↑

3. N.Y. Pub. Health L. § 4550(4)(a). ↑

4. Cal. Code Regs. tit. 22, § 97435(c). ↑

5. 2023 Minn. Laws page no. 225. ↑

6. Del. Code Ann. tit. 29 § 2532. ↑

7. Senate Enrolled Act No. 9 ch. 8.5 § 2(a). ↑

8. Nev. Rev. Stat. § 598A.370(2)(b). ↑

9. Mass. Gen. Laws ch. 6D § 10(a). ↑