On January 8, 2025, Massachusetts Governor Maura Healey signed House Bill 5159 (H.5159), “An Act Enhancing the Market Review Process” (the “Act”), which, among other things, broadens the scope of the state’s existing healthcare transaction notification and review regime.1 The revised language grants the Massachusetts Health Policy Commission (“HPC”), the Center for Health Information Analysis (“CHIA”), and the Massachusetts Office of the Attorney General (the “AG”) greater authority to scrutinize and review private equity (“PE”) investments in Massachusetts healthcare providers. While the Act is comprehensive and touches many aspects of the healthcare delivery system in Massachusetts, in this article, we focus on key changes and takeaways for PE investors.2
Goodwin has created a document, available here, illustrating the Act’s changes to each applicable section of the Massachusetts General Statutes.
Key Changes Likely to Impact PE Investors
1. The Act Broadens the Scope of HPC’s Authority to Review Healthcare Transactions.
The Act extends the state’s existing notice and review regime to a broader category of healthcare transactions, with a focus on transactions involving PE investment. Under that regime, Massachusetts healthcare providers and provider organizations with over $25 million in annual patient care revenue (“High-Revenue Providers”) entering certain transactions (called “Material Changes”) are required to provide notice (a “Notice of Material Change” or “NMC”) to HPC, CHIA, and the AG 60 days before the effective date of the Material Change transaction. The filing of a NMC initiates a review of the Material Change by HPC. If HPC determines that the Material Change is likely to result in a significant impact on health care cost growth or on the competitive market, HPC may initiate a more intensive Cost of Market Impact Review (“CMIR”). If HPC conducts a CMIR, parties may need to wait up to 215 days between filing a NMC and closing the transaction.3
Historically, Material Changes have been limited to transactions that implicate market consolidation, including (1) a merger, acquisition, or affiliation involving a High-Revenue Provider and either an insurance carrier or a hospital, (2) a merger, acquisition, or affiliation involving two High-Revenue Providers and expected to result in a $10 million or greater increase in annual patient revenue or a near-majority market share for a High-Revenue Provider, and (3) the formation of a new entity involved in contract negotiation and administration on behalf of one or more High-Revenue Providers.4Not every change of ownership or control of a High-Revenue Provider, therefore, has constituted a Material Change requiring a NMC filing.
The Act expands the scope of Material Changes to include any change of ownership or control of a High-Revenue Provider involving a “Significant Equity Investor.”5 A Significant Equity Investor is (1) any private equity company with a financial interest in a provider, provider organization, or management services organization (“MSO”), and (2) any investor, group of investors, or other entity with a direct or indirect equity ownership totaling more than ten percent of a provider, provider organization, or MSO. As a result, the Act will extend the NMC filing requirement and HPC review regime to any change of ownership or control of a High-Revenue Provider, unless there is no PE involvement and no owner with a greater than ten percent ownership interest. PE investors should expect to submit NMCs for qualifying transactions, and structure transactions to accommodate the 60 days (or longer, if a CMIR is conducted) between NMC filing and closing, in connection with a broad new category of transactions once the Act takes effect.
HPC regulations implement the notice and review regime, and the Act’s full impact will depend on whether HPC amends its regulations as a result of the Act. Notably, neither the relevant statute, as amended by the Act, nor HPC regulations define “change of ownership or control.” Depending on HPC’s interpretation, a NMC could be required in connection with the introduction of any PE-backed owner, or only where, for instance, more than half of the equity of a High-Revenue Provider is being transferred. At this early stage, it is unclear when such regulations will be issued, if at all, or what their particular consequences will be. Nevertheless, the Act unequivocally subjects many more healthcare transactions to the state’s notice and review regime.
2. The Act Could Require PE Investors to Disclose Significantly More Information in NMC Filings and Following Material Change Transactions.
The Act authorizes HPC to require enhanced and ongoing disclosures in connection with Significant Equity Investors. Currently, parties to Material Change transactions must submit HPC’s NMC form, which requires limited information regarding the filing party and a brief description of the proposed transaction. By contrast, the Act allows HPC to request substantial information regarding Significant Equity Investors, including details about their capital structure, general financial condition, ownership and management structure, and audited financial statements.6 In addition, the Act authorizes HPC to require reporting regarding the impact of a Material Change for up to five years after the transaction closes.7 The Act reflects the state’s strong desire to not only review deals before they close, but also to continue monitoring the effects of transactions on healthcare costs and competition long after they are complete. As with the broadened Material Change concept, HPC’s implementation of the Act will determine the exact contours of PE investors’ disclosure and reporting obligations. In any event, PE investors should anticipate disclosing more fulsome information in NMC filings and making ongoing submissions to HPC after closing.
3. The Act Broadens Ongoing Reporting Requirements of PE Investors.
Separate from the pre- and post-Material Change disclosure and reporting requirements described above, the Act grants HPC, CHIA, and the AG additional authority to review and scrutinize PE investments in the Massachusetts healthcare delivery system on an ongoing basis.
-HPC and CHIA Data Collection. Certain healthcare provider entities, referred to as registered provider organizations (“RPOs”), are currently required to register with and submit annual reports to HPC and CHIA. The Act expands the information these RPOs must report by requiring RPOs to report information on their Significant Equity Investors, healthcare real estate investment trusts (“REITs”), and MSOs.8 The Act also clarifies that RPO financial statements must include information on parent entities’ out-of-state operations and corporate affiliates.9 Finally, the Act authorizes CHIA to require quarterly, rather than annual, reporting by RPOs with PE investment, and enhances penalties for failure to make timely reports, from $10,000 per week to $25,000.10 Although RPOs are already required to identify corporate affiliations, including any direct or indirect PE ownership, PE investors should expect the frequency and depth of such disclosures to increase.11
-HPC Public Hearings. The Act expressly permits HPC to review the impact of Significant Equity Investors, healthcare REITs, and MSOs on costs, prices, and cost trends, and authorizes HPC to call a sample of these investors to testify at annual HPC hearings.12
-AG Information Requests. The AG has historically had authority to monitor trends in the healthcare market, including traditional antitrust and competition oversight, and review of non-profit healthcare transactions. The Act expands the AG’s authority by allowing it to obtain information from Significant Equity Investors, REITs, and MSOs. These entities may be required to produce documents, answer interrogatories, and testify under oath regarding healthcare costs and trends.13
4. The Act Extends Owner and Investor Liability under the Massachusetts False Claims Act.
The Act amends the Massachusetts False Claims Act (the “MA FCA”) by creating potential MA FCA liability for entities with an “ownership or investment interest” in any entity that violates the MA FCA, knows of that violation, and fails to disclose such violation to the Commonwealth within 60 days of identifying the violation.14The definition of an “ownership or investment interest” goes beyond the definition of a “Significant Equity Investor,” as used in the remainder of the Act, and encompasses any interest held, including those held by upstream limited partnerships.15
It is difficult to understate the significance of extending MA FCA liability to owners or investors in any entity that violates the MA FCA based on such owners’ or investors’ failure to disclose a known violation. Courts interpreting the MA FCA and the federal False Claims Act have historically rejected theories that would impose liability on parties like investors in or owners of an entity submitting false claims based on the owners’ or investors’ mere knowledge of, and failure to stop, a violation. Those courts have concluded that such conduct does not amount to “causing” submission of a false claim. As such, the Act significantly expands the MA FCA’s reach. Further, the Act’s amendments to the MA FCA apply to investors in and owners of any entities that submit claims to the state of Massachusetts, not just those who own or invest in healthcare providers. As such, PE investors in industries beyond healthcare with portfolio companies that conduct state-reimbursed business may also find themselves in the MA FCA’s crosshairs.
Key Takeaways For PE Investors
1. PE Investors Should Anticipate More Frequent NMC Filings, but Not Necessarily More Frequent CMIRs.
As described above, many more transactions will require NMC filings as a result of the Act, imposing a 60-day waiting period between filing and closing. The HPC review triggered by an NMC filing is the first step towards the time-consuming CMIR process, which can add up to 155 days to the standard 60-day waiting period. For context, HPC has undertaken ten CMIRs16 since it began reviewing healthcare transactions in 2013. Although the same focus on PE investments in healthcare that led to passage of the Act could prompt more frequent CMIRs, the Act does not mandate more CMIRs by HPC or broaden the criteria for initiating the process. As such, PE investors should be prepared to make NMC filings more frequently once the Act takes effect, and can expect to wait 60 days to close, but it is not clear that 215-day waiting periods will become more common.
2. The Act Does Not Authorize Agencies to Block or Impose Conditions on Material Change Transactions.
Despite authorizing HPC review of a greater number of healthcare transactions, the Act confers no additional power to HPC or the AG to block or limit healthcare transactions. After conducting its CMIR and issuing a final report, HPC may refer a Material Change transaction to the AG, but may not itself block or limit the transaction. While the AG may then challenge the transaction, including for unfair methods of competition or anti-competitive behavior, the Act does not introduce new legal bases for initiating such challenges. These limitations on agency intervention stand in contrast to more restrictive regimes in other states and earlier versions of this legislation, which would have authorized HPC to make modifications or require surety bonds as a condition to closing.
3. Upstream Ownership Disclosures Require Balancing Priorities.
As described herein, the Act implements disclosure and reporting requirements in connection with NMC filings and on an ongoing basis, implicating information regarding PE investors’ capital structure and financial condition. While PE investors should generally expect to make more information available to regulators when the Act becomes effective, they should consult with experienced regulatory counsel to ensure that they meet legal obligations without unnecessarily disclosing sensitive information. As an example, PE-backed MSOs may not always be subject to enhanced reporting requirements under the Act, so PE investors should determine their responsibilities before disclosing.
4. Creative Theories of FCA Liability, and Legal Challenges, Are Expected.
The Act’s changes to the MA FCA are significant and exemplify a broader trend of government enforcement agencies setting forth creative theories of liability in connection with prosecuting PE healthcare investors. Many questions remain open, however, including what evidence state prosecutors will rely on to prove that, for instance, a passive upstream investor had knowledge of a false claim submitted by its portfolio company. Furthermore, owners and investors will almost certainly mount legal challenges to curtail the Act’s expansion of the MA FCA, meaning the Act’s true impact in this area will take years to play out.
5. PE Investors Should Monitor Implementing Regulations and Consider Submitting Comments.
The Act does not specify a timeframe for HPC to promulgate regulations implementing the Act, including with respect to the NMC process, but PE investors should consult with regulatory counsel to monitor new developments. When any proposed regulations are published by HPC, interested parties should strongly consider submitting comments within the prescribed timeframe, which is typically at least 21 days after publication.
Conclusion
It is clear that the Act has significant implications for investors in Massachusetts healthcare providers. As noted herein, there are many areas where implementing rules or agency guidance will define those implications. The Act unquestionably expands state authorities’ power to review PE healthcare transactions, even though lengthy CMIR reviews and efforts to block transactions may be infrequent. PE investors contemplating transactions and those with existing investments in RPOs should consider the impact of the Act on transaction timelines and reporting obligations associated with current and future healthcare investments.
[1] Goodwin State Healthcare Transaction Laws, Massachusetts, https://www.goodwinlaw.com/en/resource/state-healthcare-transaction-notification-laws/Massachusetts.
[2] In addition to the elements that are the focus of this article, the Act also expands the list of factors the Massachusetts Department of Health considers in its review of an application for a determination of need certificate, extends HPC’s operating assessment to new entity types, places certain restrictions on contracts and leasing arrangements between healthcare facilities and real estate investment trusts, imposes additional disclosure requirements on hospitals, and establishes new licensing requirements for other outpatient health care entities, including free-standing surgery centers.
[3] Massachusetts Health Policy Commission, Information About Material Change Notices (MCNs) and Cost and Market Impact Reviews (CMIRs), https://masshpc.gov/sites/default/files/2024-04/Transaction-Review-Process.pdf.
[4] See 958 CMR 7.02-03.
[5] H.5159 § 24 amending Mass. Gen. Laws ch. 6D § 13. The Act also identified three new categories of Material Changes: (i) significant expansions in a provider’s or provider organization’s capacity; (ii) conversions of a provider or provider organization from a non-profit entity to a for-profit entity; and (iii) significant acquisitions, sales or transfers of assets including, but not limited to, real estate sale lease-back arrangements.
[6] H.5159 § 24 amending Mass. Gen. Laws ch. 6D § 13(c)(2)-(3).
[7] Id
[8] H.5159 § 22 amending Mass. Gen. Laws ch. 6D § 11.
[9] H.5159 § 42 amending Mass Gen. Laws Ch. 12C § 9.
[10] H.5159 §§ 42-43 amending Mass Gen. Laws Ch. 12C §§ 9, 11.
[11] MA RPO 2023 Data Submission Manual, Sec. B (Corporate Affiliation File), https://masshpc.gov/sites/default/files/2023-07/2023rpo_data-submission-manual.pdf.
[12] H.5159 § 17 amending Mass. Gen. Laws ch. 6D § 8.
[13] H.5159 § 49 amending Mass. Gen. Laws ch. 12C § 17. While such information must generally be kept confidential by the AG 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 healthcare cost containment goals of the commonwealth” and will be in the public interest.
[14] H.5159 § 29 amending Mass. Gen. Laws ch. 12 § 5B.
[15] H.5159 § 27 amending Mass. Gen. Laws ch. 12 § 5A.
[16] Massachusetts Health Policy Commission, Material Change Notices Transaction List, https://masshpc.gov/moat/mcn-cmir/mcn-transactions.
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