Massachusetts Imposes New Regulations on Private Equity in Health Care: What You Need to Know

A new law in Massachusetts is ramping up the scrutiny on private equity investments in healthcare. Starting April 8, 2023, House Bill 5159 will introduce some of the strictest transaction review and reporting requirements in the nation for private equity investors in the healthcare sector.

This law is part of a broader trend across the U.S., with at least 14 other states already implementing similar measures. Lawmakers in five states are also working on laws to enhance oversight of healthcare transactions.

The new regulations will expand Massachusetts’ healthcare oversight framework. They will introduce additional transaction types that need pre-closing filings and will enforce ongoing reporting duties for healthcare providers, management services organizations, and their private equity investors.

Massachusetts regulators will gain wide-ranging authority to request detailed information from a variety of stakeholders, including healthcare providers, private equity firms, and pharmaceutical companies. The effectiveness of the law will depend on how regulators define key terms and thresholds moving forward.

Currently, providers with over $25 million in annual revenue must file a 60-day pre-closing notice for mergers or acquisitions. The new law will broaden this to include:

• Transactions that significantly increase a provider’s capabilities.
• Deals involving major equity investors that change ownership or control of a provider.
• Acquisitions or asset transfers, including real estate leaseback arrangements.
• Converting a non-profit entity to for-profit status.
• Mergers that make a provider dominant in a specific market or region.

Investor groups will need to provide extensive information about their organizational structure and financial practices in their filings. The law defines significant equity investors broadly, covering any firm with a 10% or greater stake in a provider except for venture capital firms focused solely on startups.

Once a filing is submitted, the 60-day pre-closing review clock will only begin once the Massachusetts Health Policy Commission (HPC) deems the filing complete. After approval, the HPC will monitor the impact of the transactions for five years.

Healthcare providers will also need to register annually with the Center for Health Information and Analysis, providing ownership details and financial statements. Management services organizations linked to these providers must likewise share similar information.

If the Center requests further details, registered providers may need to provide quarterly updates. Failing to comply could mean hefty fines of $25,000 per week.

The law also updates the Massachusetts False Claims Act to hold investor groups accountable for violations, even if they didn’t directly cause them. Investors must report any violations within 60 days of discovering them.

Overall, current and potential owners of healthcare companies in Massachusetts should review these new requirements closely, as they may affect future transactions. Although there’s a 60-day notice period for initial reviews, the HPC can conduct more in-depth cost and market impact reviews that may extend up to nine months. This adds uncertainty in timing and could also result in additional costs related to the review process.

As regulations are finalized, parties involved will need to prepare for the HPC’s authority to request a wider range of information than has historically been required under existing laws.

The new Massachusetts review and reporting processes will work alongside other state and federal transaction requirements. A negative outcome from one regulator might influence decisions by another.

With private equity’s growing interest in healthcare, understanding these laws is crucial for navigating future transactions.