Transaction Trends: States Increase Oversight of Healthcare Dealmaking

As the size, volume, and variety of healthcare transactions has grown in recent years, state legislatures have faced pressure to address concerns over transparency, cost, quality, accessibility and equity in the healthcare sector. Many states have responded by expanding and intensifying their oversight of healthcare transactions. Stakeholders need to be aware of these developments as they may impact the structure, timing and strategic approach to healthcare dealmaking.

Recent State Initiatives

Building on a trend that has grown over the past several years, more exhaustive healthcare transaction review laws recently went into effect in California, Illinois, and Minnesota, and the legislatures in New Mexico and Washington are considering similar bills. These new regulatory frameworks generally are characterized by the following:

• Broader Scope. The new laws expand the universe of transaction types, healthcare entities, and deal-size thresholds that are subject to scrutiny to include (i) vertical consolidation, (ii) cross-market acquisitions, (iii) joint ventures, (iv) contractual affiliations, (v) physician practice roll-ups, (vi) private equity, and (vii) various transactions among for-profit entities.

• Lengthier Notice and Review Timing. The new laws impose pre-closing notification requirements ranging from 30-120 days, which may be followed by additional review periods of up to 60 days. Pending bills in New Mexico and Washington also would require prior agency approval for certain transactions. 

• Greater Administrative Burden; Public Disclosure. The new state laws require voluminous filings, including the disclosure of indirect owners, organizational and governing documents, financials, impact statements, expert and consultant analyses, and information on prior transactions. Some of these materials may become part of the public record. 

The table below provides a state-by-state breakdown of the more recently enacted and pending state initiatives.

State	Authority	Regulatory Framework
CA (Eff. Jan. 1, 2024)1	CA Office of Health Care Affordability (OHCA) Cal. Health & Safety Code § 127500 et. seq. 22 C.C.R. § 97431, et seq.	Applicable Transactions. Mergers, acquisitions, sale, transfer, lease, exchange, option, encumbrance, conveyance, or disposition, or change of control or governance involving a “material” amount of assets or operations. Exempts certain transactions reviewed by other agencies including licensed health care service plans, health insurers, and nonprofit transactions. Applicable Entities. Broad range of providers and payors, as well as fully integrated delivery systems. Limited to healthcare entities (i) with at least $25 million in revenue generated in California or that own/control at least $25 million in California assets; or (ii) with at least $10 million annual revenue or at least $10 million California assets while the other transaction party is a healthcare entity satisfying (i) above; or (iii) located in a designated primary care HPSA in California. Initial Pre-Closing Notice. 90 days. OHCA is authorized to expedite the review timelines. Additionally, OHCA may undertake additional “cost and market review,” requiring an added 60-day waiting period. Parties are required to reimburse OHCA for expenses relating to cost and market review. Pre-Closing Approval. N/A.
IL (Eff. Jan. 1, 2024)	IL Attorney General 20 Ill. Comp. Stat. Ann. 3960/1 et seq.	Applicable Transactions. Mergers, acquisitions, affiliations or contracts with entities not previously under common ownership or affiliation; includes transactions involving out-of-state entities that generate $10 million or more in annual revenue from Illinois residents. Exemptions include Hart-Scott-Rodino reportable transactions as well as those subject to change of ownership review by the Illinois Health Facilities and Services Review Board. Applicable Entities. Healthcare facilities and provider organizations, including ASCs, hospitals, kidney disease treatment centers, and healthcare delivery or management entities representing 20 or more providers contracting with health carriers or TPAs, including physician entities, IPAs, provider networks, and ACOs. Initial Pre-Closing Notice. 30 days. Illinois Attorney General may request additional information within 30 days of notice; 30-day waiting period after substantial compliance with request. Pre-Closing Approval. N/A.
MN (Eff. Jan. 1, 2024)	MN Dep’t of Health; MN Attorney General Minn. Stat. § 145D.02 et seq.	Applicable Transactions. Smaller transactions involving $10 to $80 million average revenue, including mergers, transfers of control, sale, lease or transfer of at least 40% of assets or equity, or conveying security interest of 40% or more; formation of new healthcare entity; arrangement resulting in sharing 40% or more revenue; change in nonprofit membership of 40% or more. Applicable Entities. Healthcare entities, including hospitals, hospital systems, captive professional entities, medical foundations, healthcare provider group practices; includes entities owning/controlling (or owned/controlled by) any of the above. Initial Pre-Closing Notice. 30 days or within 10 days after transaction first anticipated. Pre-Closing Approval. N/A.
NM (TBD)2	NM Office of Superintendent of Insurance; NM Health Care Authority Dep’t SB 15	Applicable Transactions. Mergers, acquisitions, affiliations, contracts, formations, sale, purchase, lease, or transfer of control. Specific exemptions include collaboration on clinical trials, GME programs, training programs, and certain transactions involving FQHCs and long-term care facilities. Applicable Entities. Licensed healthcare facilities and certain other healthcare entities including MSOs and ACOs. Limited to transactions where at least one party has average annual revenue of at least $20 million, or where a new entity is projected to have $10 million average revenue over first three years of operation. Initial Pre-Closing Notice. N/A. Pre-Closing Approval. Requires prior approval for all covered transactions.
WA (TBD)3	Washington Attorney General SB 5241	Applicable Transactions. Mergers, acquisitions, affiliations, contracts. Applicable Entities. Hospitals, hospital systems, provider organizations. Initial Pre-Closing Notice. 120 days. Pre-Closing Approval. Requires AG approval for “material change” transactions, and would give AG express authority to condition, modify, or disapprove transactions determined detrimental to accessible, affordable healthcare.
1 Applicable to transactions closing on or after April 1, 2024. 2 Pending in NM legislature (passed by House February 13, 2024). 3 Pending in WA legislature (passed by Senate February 9, 2024).

Takeaways

As states expand their oversight of healthcare transactions, stakeholders should remain vigilant and be prepared to adapt their dealmaking playbooks. This includes:

• monitoring state agency activity for developments in rulemakings and regulations pertaining to healthcare transactions, and reviewing guidance released after new laws go live;

• building in longer transaction timelines that not only take into account pre-closing notification periods, but also the potential for extended in-depth agency review or challenges;

• tailoring transaction agreements to allocate the costs and risks associated with agency review, including closing conditions, termination rights and other contingencies; and

• organizing required filing information and documentation early, and assessing options for minimizing the disclosure of confidential information.