In the latest episode of Health Law Diagnosed, host Bridgette Keller discusses the new Massachusetts Health Care Market Review Law and what this means for health care providers, investors, and other key stakeholders. She is joined by Member Deborah Daccord, Of Counsel, Cassie Paolillo, and Of Counsel Kate Stewart, who share their insights on the law’s far-reaching implications, including:
An overview of the Massachusetts Health Care Review Law and its implicationsKey takeaways for health care entitiesUpcoming HPC guidance and how it will affect health care transactionsExpanded oversight and new authorities for Massachusetts health care agenciesFinancial assessments for health care entitiesRegulatory considerations and potential delays for health care transactions
Have questions or want to connect with the team? Reach out to us at (email protected).
Health Law Diagnosed – Understanding the New Massachusetts Health Care Market Review Law
Bridgette Keller (BK): Hi there, welcome back to Health Law Diagnosed , a Mintz podcast dedicated to health law, health policy, and social issues in the health care industry. I’m Bridgette Keller, your podcast host. Today, I’m joined by my colleagues Deborah Daccord, Cassie Paolillo, and Kate Stewart, our experts on the long-awaited Massachusetts Bill and Act enhancing the health care market review process. Deb, Cassie, Kate, thanks so much for joining me today.
Deborah Daccord (DB): You’re welcome. Happy to be here.
Kate Stewart (KS): Thanks for having us, Bridgette.
Cassie Paolillo (CP): Looking forward to talking about this exciting new law.
BK: Yes, me too, Cassie. Why don’t we start with a quick introduction, just share a little bit with our listeners about yourselves and your practice and how this law influences that. Deb, do you want to kick us off?
DD: Thank you, Bridgette. I’m Deb Daccord. I’m based in the firm’s Miami and Boston offices with almost 30 years of experience doing nothing but health industry transactions. So, for me and my practice, this new law will have a significant impact on my clients who are doing business in Massachusetts and elsewhere.
BK: Deb, we’re so happy to have you here today. Thank you. Cassie, want to give us a quick introduction?
CP: I’m Cassie Paolillo. I’m Of Counsel at Mintz. I also work on health care transactions and advise clients on a range of regulatory issues with a particular focus on Massachusetts-specific issues. I’ve had a lot of experience dealing with our existing health care transaction review laws in Massachusetts and will continue to do so once this new law goes into effect.
BK : I think it’s going to be an interesting ride with this new law. And Kate, would you mind rounding us out? Give us a quick introduction, please.
KS: Thanks, Bridgette. I’m Kate Stewart. I’m Of Counsel in the Boston office as well. And like Cassie and Deb, I advise a number of clients on transactional matters, both Massachusetts-specific and nationwide. And this is a law that we’ve really been living with in Massachusetts for quite a while. It’s been really interesting to see the overall evolution and maturation of the process that has been going on in Massachusetts.
BK: For sure, and I’m really excited to talk about that today. My understanding is that this law was passed after almost five months in conference committee and disagreeing votes from the House and the Senate. And now it’s here, after being long-awaited, that whole long process. And it’s poised to substantially broaden the application of one of the oldest state health care market review laws in the country.
The goals of this act were really to increase financial transparency and the Commonwealth’s ability to examine both the anticipated and the long-term impact of proposed health care transactions. I think it’s going to be a really great discussion today. I’m wondering, Deb, would you mind starting us off with an overview of the new law and what it really will do?
Overview and Impact of the New Law
DD: Yeah, absolutely. And like you, I’m very excited to see where this law goes because you’re right. The Act, which changes an existing law, goes into effect April 8 and expands the authority of the Massachusetts Attorney General’s Office, the Center for Health Information and Analysis, which we affectionately refer to as CHIA, and the Health Policy Commission or HPC.
In each case, their authority to require financial, structural, and operational information from a wide variety of health care providers and those seeking to provide them with investment, management, and other services. What this means practically is that the scope of these agencies’ authority now applies well beyond the traditional health care providers that we’ve been working for as long as the predecessor law has been in place to now include significant equity investors, providers of administrative and management services, you can refer to those as MSOs, real estate investment trusts or REITs, pharmaceutical manufacturing companies, pharmacy benefit managers or PBMs, and commercial, governmental, and self-insured payers.
So, the Act also imposes certain requirements on some other departments that previously weren’t part of it and that’s the Department of Public Health or DPH, relating to office-based surgical, urgent care centers, and acute care hospitals that lease from health care REITs. A significant piece of this new law is that it now puts in place prohibitions for acute care hospitals, for example, to even lease their main campus from REITs. That’s a big change.
Finally, the Act updates the Massachusetts False Claims Act to create liability for investors in these entities, piercing that corporate veil to these entities that violate the False Claims Act.
As you alluded to at the beginning, 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 those providers to notify state agencies of proposed transactions. But Massachusetts was the first to create, as we indicated over 12 years ago, an independent state agency, the HPC, to administer the process and conduct a cost and market impact review, or CMIR, when necessary. Other states have now started following along in Massachusetts’ shoes, such as California.
California even calls it a CMIR review, taking Massachusetts nomenclature into its own. But now, based on more than a decade of experience reviewing these health care transactions and monitoring their aftermath, specifically, the Steward Healthcare bankruptcy in particular, the Massachusetts legislature and governor have expanded the scope and authority of these agencies, the HPC, CHIA, the AG’s office, to be among the most comprehensive in the nation.
BK: Wow, Deb, that’s incredible. And it’s clear that the impact of the changes that the Act is putting forward is going to be broad and far-reaching, especially given the number of states who may follow suit as they have been across the country. I’d love to dig into some of the major takeaways for existing and future players in the Massachusetts health care market. So, Cassie, let me pose this one over to you. What would you highlight as a key takeaway from the law?
Key Takeaways of the Massachusetts Health Care Market Review Law
CP: Thanks, Bridgette. I think from my perspective, one of the biggest changes that’s going to have a pretty far-reaching effect on health care transactions across the board is the expansion of the Health Policy Commission’s material change process, which is historically focused on transactions between providers, provider organizations, and payers. But as Deb mentioned, it’s now being expanded to apply to other players in this space including significant equity investors and providers or provider organizations, REITs, management services organizations, and other administrative providers.
The reason that this change is important is because it not only will impact the timeline and other considerations around planning for these transactions, because there is an advance notice requirement, but it also is going to significantly expand the amount of information that certain investors are going to have to disclose to the state. Now, most of the information disclosed will be exempt from public records laws so it won’t be published on the HPC’s website, but it still represents an expansion in the amount of information that’s going to have to be disclosed in connection with these transactions and potentially following the transactions.
In addition to the existing transaction types that have been subject to review under the existing law, 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 results in a change of ownership or control of a provider or provider organizations, and real estate sale leasebacks and similar arrangements, and any conversion of a provider or provider organization from a nonprofit entity to a for-profit entity.
In particular, I think the addition of changes in ownership or control that involve a significant equity investor is going to represent a substantial expansion of HPC’s authority because of how broadly significant an equity investor has been defined under the new law. Specifically, it’s defined as any private equity company with a financial interest in a provider, provider organization, or management services organization, or an investor group of investors or other entity with direct or indirect equity ownership totaling more than 10 % of a provider, provider organization or MSO.
BK: Wow, Cassie, that’s really broad.
CP: It is, and I want to note that the first prong of the definition does not include a threshold for the size of the financial interest. So, it would apply to any private equity company that has a financial interest in one of these entities.
Upcoming HPC Guidance
BK: Do you think the HPC will issue any guidance or provide any details about what a financial interest means or is everybody just taking this to mean, okay, it’s anything at this point?
CP: Our understanding is that the HPC does plan to issue guidance ahead of the April 8 effective date with more comprehensive regulations to follow. We’re hopeful that there will be more guidance and that these very broad definitions will be narrowed somewhat, which I think is going to be really important because of the breadth here and really the uncertainty that’s going to follow in terms of what information is going to need to be provided in connection with these notices.
BK: It’s fascinating. So, tell me a little bit about management services organizations and private equity companies. They’re both broadly defined, right? And this idea of filing the notice of material change. It goes live on April 8, no matter what, even absent additional guidance. Is that right?
CP: That is correct, yes. At this point, based on the reading of the statute, providers of purely administrative services, like billing and collection vendors, could trip that definition of a management services organization, as well as equity owners that are multiple layers up from the transaction could be potentially included in the filing.
I will note that the definitions do include carve-outs for venture capital firms that are exclusively funding startups or other early-stage businesses. So that will be helpful for some investors in this space.
BK: Wow, thank you so much, Cassie. That’s a detailed explanation and it’s really helpful for our listeners to get an idea of what these changes mean and what could happen as they’re thinking about potential transactions in the Massachusetts health care market.
CP: I do want to note though that while the Act does expand the number of transactions that will be subject to the notice requirement, it does not actually change the materiality threshold for which transactions will trigger the more in-depth cost and market impact review. So, while certainly more transactions will have to file the notice, we don’t anticipate a significant increase in the number of CMIRs that will be ordered by the HPC.
BK: Very interesting. I think you all were telling me too that there are some new provisions regarding additional authorities for the HPC and other agencies in Massachusetts to monitor the health care market. So, Kate, you and I were talking a little bit about this. What are the key takeaways from this portion of the act?
Expanded Oversight: New Authority for Massachusetts Health Care Agencies
KS: This really mirrors what Cassie was talking about, about the expanded number and types of entities that are going to need to make notice of material change filings. So similarly, this Act gives the Attorney General’s Office, the HPC, and CHIA some additional authority that they didn’t previously have to help monitor broad-based health care cost trends.
The first of those is annually here in Massachusetts, we wait as health care lawyers, health care policy wonks for the HPC’s annual cost trends hearing and then their cost trends report. Going forward, there’s going to be a significant shift in the breadth and scope of those cost trends hearings and reports. For the first time, it’s going to include costs, prices, and cost trends for pharmaceutical manufacturing companies and PBMs, which is obviously a very new aspect for this HPC to be looking at. I tuned into a recent HPC webinar where one of the things that they were talking about was just how complicated it is to understand the drug supply chain, the way that wholesalers, manufacturers, PBMs, and end users access pharmaceuticals and all of the ways that costs flow through that chain. I think this is going to be a really interesting space to watch in this coming year and in subsequent years to see how HPC dives into the sort of cost pressures that are coming from the pharmaceutical sector specifically. HPC is also going to be required to call as witnesses for those cost trends hearings representatives from the PBM industry, representatives from the pharmaceutical manufacturing industry, and individuals representing significant equity investors, health care REITs, or MSOs. So, it’ll be really fascinating to watch sort of how HPC structures the next round of these reports and these hearings.
Additionally, the Attorney General’s Office has a broader scope based on these newly regulated actors in terms of what that office can do to obtain information about costs. The Act expands the Attorney General’s Office’s authority to allow it to obtain information from significant equity investors, REITs, and MSOs related to notices of material change or reports that are made to CHIA. Certainly, there is an expanded authority here for the Attorney General’s Office without needing to have launched a formal investigation. They can seek more information from these entities.
The other piece that I know we’ve had clients have some concerns about is that CHIA in Massachusetts is responsible for receiving a lot of annual reports from provider organizations on essentially their financial information and information about their operations. And the Act is going to expand what CHIA can ask for in some pretty significant ways.
The Act gives CHIA the authority to require certain provider organizations to file not only their own financial statements but also audited financial statements of their parent organizations, their significant equity investors, health care REITs, and MSOs that can also extend to out-of-state operations of those parent organizations. So not just financials related to sort of within the Commonwealth operations, but nationwide.
Notably, the Act also increases the penalties for entities that fail to timely comply with their CHIA reporting obligations. So everybody should be aware that those penalties are going to go up. I think one thing we’ve had some clients ask about proactively, is there anything they need to be doing right now? Like is there a report coming up that they need to be making?
And here we’re in a little bit of a wait-and-see to see what CHIA promulgates for new regulations because we don’t yet have information on exactly what they’re going to require. My guess using a crystal ball is they’re going to start with the larger providers. They’re going to start with the hospitals and the health systems. And then it may be a while before we see significantly increased reporting from other provider types.
BK: Kate, it’s really clear why this was in conference or in committee for so long and understanding there were differing votes and all that. I could see the industry stakeholders coming from a variety of different perspectives with all of these new reporting requirements and the scope of oversight. This is entirely different.
KS: Yeah, it’s definitely a big change. One other change that the law makes that I think a lot of industry players maybe aren’t yet aware of is the potential that they could be subject to financial assessments to help fund the operations of the HPC and CHIA.
New Financial Assessments
BK: That part was fascinating to me, and I had dug into that on understanding the PBM law and I had to read it a few times to make sure I was understanding it correctly. But really, they were going to be assessing the different types of entities, a portion of the total operating budget, right Kate?
KS: That’s correct. Historically, only a portion of the operations of HPC and CHIA have been funded out of the general fund of the Commonwealth. And a portion of HPC and CHIA’s operating budgets have always come from certain players, certain regulated entities in the health care industry. But what this Act changes is the breakdown of how that funding works and also the market players who are going to be subject to those financial assessments.
So historically, there were financial assessments to help fund HPC and CHIA levied against hospitals and ambulatory surgical centers. There had historically been assessments against payers as well, although that was taken out through separate legislation. But now that there’s this additional market oversight for other actors in the industry, that financial assessment is actually much broader. Entities like clinical laboratories, imaging facilities, and other registered provider organizations who register with CHIA all need to be carefully looking at this legislation to see if they are going to be subject to a financial assessment so that they don’t have a surprise when those come out. We did a blog post on this actually. I’m not going to get too deep into the methodology on the podcast here, but we do have a summary and a table of that financial assessment that’s going to be borne by each of those provider types and how that assessment is calculated.
Bridgette, one thing your clients might be really interested in is that there are actually assessments here against pharmaceutical manufacturing companies and PBMs. They’re smaller in terms of the overall bucket than the assessment against the providers. But it’s certainly a brave new world for these entities that had not previously been subject to this type of oversight in the Commonwealth and this type of financial assessment.
BK: Yes, Kate, absolutely. That’s why I spent so much time digging into the law to be sure I was reading it correctly because we don’t typically see these types of financial assessments in those regulatory schemes in the states.
KS: It’s certainly interesting and it’ll be interesting to watch if those industries try to bring any sort of challenge to this financial assessment. It’s worth taking a look at the methodology for how it’s going to be calculated.
BK: Kate, I understand that the Act also changed or updated the Massachusetts False Claims Act. What’s going on there?
KS: Yeah, Bridgette, thanks for bringing up this point because it’s really interesting. Everything we’ve talked about to date about the Act sort of hangs together, right? There are going to be changes to those notice of material change submissions. There’s going to be additional authority for market oversight and these financial assessments. But also included in this bill was a really interesting change to the Massachusetts False Claims Act that I think a lot of the country is watching right now. Massachusetts, like a lot of states, has its own sort of mini False Claims Act that’s very similar to the federal False Claims Act. The change that was made by this latest legislation is that entities with an ownership or investment interest in an entity that violates the Massachusetts FCA can potentially have direct liability for an FCA violation.
And so, that entity with an ownership or investment interest would need to know of the violation that took place and fail to disclose that violation to the Commonwealth within 60 days of the identification of the violation. What’s interesting here is that the definition of ownership or investment interest is very broad. It does not have any sort of threshold on it as to how large an investor you need to be.
But certainly, those of us who work in the transactional space and work with the investor community are watching this carefully. I think we’re also watching to see if other states in the nation follow suit to update their own State False Claims Act.
BK: Yeah, absolutely. And it’s really interesting to think of how it parallels the overpayment rule, right? And with the same 60-day timing requirement.
KS: Yeah, absolutely, Bridgette. It’s an interesting tie to the overpayment rule on the federal side.
Regulatory Considerations and Potential Delays
BK : I know that oftentimes when there are health care transactions, there are a lot of other associated processes, like a determination of need and other regulatory approvals that need to be required. Are there other considerations that will go alongside this new health care market review process?
DD: Yes, actually there are. Of course, this is just one process among many that health care providers need to go through when they’re either establishing new health care services or changing ownership, and that includes licensing and certificate or determination of need processes. The latter tends to regulate the establishment of health care services whereby this is really focused on cost and market impact review, but all of these will be running alongside.
In addition, the Act’s changes to the DPH’s oversight and regulatory authority, and I can’t emphasize this enough, includes requiring the DPH to establish regulations and licensing standards for services that previously were never licensed before such as office-based surgery and urgent care centers, and importantly prohibits the DPH from issuing a license to an acute care hospital if its main campus will be leased from a REIT. That’s a seachange. We understand why. This is largely in response to the Steward Health bankruptcy, but it’s a big deal and demonstrates that the primary focus of the Act, increasing scrutiny of the Massachusetts health care market, is far-reaching.
BK: Absolutely. How long do you think all of this will take? Now with this greater and more significant scrutiny, will transactions be delayed from closing?
DD: They will. Again, this process can run alongside some of these other processes, including, for example, the federal HSR review (Hart-Scott-Rodino) or antitrust review, which has just established its own new regulations that are going to lengthen the term of those reviews. But, yes, providers and their investors can plan on four to nine months of a timeline for this process and we really can’t encourage them enough to meet with the staff of the HCP early in the process in order to avoid additional delays and be prepared to respond to all of their information requests. It’s going to be important to start very early in the process, term sheet early in the process.
BK: Yeah, that sounds like great advice, Deb. Well, this conversation has been fascinating. Thank you all so much for your time and for your insights for our listeners. I think that it was valuable and interesting to dig into this law. Deb, you were alluding to this earlier that these changes are really the latest in a wave of state legislation requiring review of health care transactions. So, what do you think? Should we do another podcast episode to talk about what’s happening nationwide?
DD: I do. I think it would be a great idea because Massachusetts is just one of many states that have recently expanded or are proposing to expand their health care transaction review laws. And there are a number of states that since January have similar laws that are pending, including California, Connecticut, Illinois, Indiana, Iowa, New Mexico, New York, Texas, and Washington. It would be a great idea for us to be able to take a deeper dive into, say, California and some of these other laws in part two of this podcast.
BK: Yes, I think that sounds great. So, listeners, please stay tuned. Maybe we can get that one out to you all in a couple of weeks.
Deb, Cassie, and Kate, thank you so much for sharing your expertise on this new law. Listeners, thank you for joining us for this episode of Health Law Diagnosed . If you have any questions on the updated Massachusetts law, please feel free to reach out to any of us directly or email us at (email protected) .
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