Massachusetts Passes Act Implementing Broad Oversight into For-Profit Investment in Health Care

Introduction

On January 8, 2025, Massachusetts Governor Maura Healey signed House Bill 5159, An Act Enhancing the Market Review Process (the “Act”) into law, effective April 8, 2025.¹ The Act is a compromise redraft of the separate health care reform bills that were passed earlier this year by each of the Massachusetts Senate and the Massachusetts House, but that the legislature failed to reconcile before the end of the formal session on July 31, 2024.² Similar to the other state health care transaction laws sweeping the country (for more information on these laws, see Navigating Emerging State Regulation of Health Care Map), the Act expands the Massachusetts Health Policy Commission’s (“HPC”) existing oversight of for-profit investments in health care.

Like the preceding Senate draft of this bill, which we summarized in July (the “Senate Bill”),³ the Act increases reporting requirements and scrutiny into investments in health care by “significant equity investors,” defined further below. While the Act’s purview is narrower than the Senate and House bills passed last July, increased oversight into private investments will undoubtedly have implications for private equity (“PE”) investors and others. Our key takeaways from the Act, and a summary of relevant changes from both the current health care market oversight laws and those proposed in prior bills, follow below.

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Key Takeaways

• Expanded Transaction Oversight. As described further below, the Act expands upon the HPC’s existing oversight of proposed transactions by broadening the types of transactions and entities for which a notice of material change (“MCN”) to the HPC is required prior to closing a transaction. In particular, the Act includes management services organizations (“MSOs”) and “changes of ownership” involving significant equity investors.
• New Changes Target Private Equity. As discussed on our Podcast released late last year, the Act and other state health care transaction laws are part of the broader trend toward increased scrutiny into PE investment in health care by state and federal agencies, including the Federal Trade Commission, Department of Justice, and Department of Health & Human Services.⁴ Here, the Act authorizes the HPC to request additional information from “significant equity investors” as part of the MCN, including information regarding the significant equity investor’s capital structure, general financial condition, ownership and management structure and audited financial statements. Additionally, the Act expands the Commonwealth’s Attorney General’s (“AG”) authority to review and investigate proposed transactions. Further, the Act imposes liability on investors and owners of persons that violate the Commonwealth’s false claims act (“FCA”) when the investor or owner knows of the violation and fails to report it. Taken together, these amendments suggest that more aggressive scrutiny of and enforcement against investors may be expected.
• Limits on Real Estate Agreements. Like its predecessor Senate Bill, the Act requires that parties to a proposed transaction file an MCN with the HPC prior to effectuating a sale (including a sale-leaseback arrangement) to a real estate investment trust (“REIT”).⁵ Additionally, the Act prevents the Massachusetts Department of Public Health (“DPH”) from granting or renewing original licenses to acute care hospitals that lease their main campuses from an REIT. Further, registered providers or provider organizations are required to furnish certain information, including information on real estate sale-leaseback arrangements with health care REITs, to the Center for Health Information and Analysis (“CHIA”).

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Summary of Material Changes and Differences from Prior Bills

The Act amends the Commonwealth’s Notice of Material Change requirements and increases reporting requirements by health care entities.

What’s New?

• Currently, Massachusetts law requires health care service providers and provider organizations⁶ with more than $25 million in annual patient revenue in Massachusetts, or that qualify as risk-bearing provider organizations,⁷ to notify the HPC, CHIA, and the AG 60 days before entering into certain transactions that result in a “material change to its operations or governance structure.”⁸ These transactions include mergers and acquisitions, clinical affiliations, or the formation of partnership, joint venture, accountable care organization, parent corporation, MSO, or other entities created to administer contracts with carriers or third-party administrators.⁹
• The Act expands the MCN process to require 60 days’ advance notice for additional types of transactions that constitute “material changes” including transactions involving a “significant equity investor”¹⁰ that result in a change of ownership or control of a provider or provider organization; significant acquisitions or sales of assets for an ownership share or for the purpose of a lease-back arrangement; and the conversion of covered entities from nonprofit to for-profit status.
• For any material change involving a significant equity investor, the Act empowers the HPC to request certain information to be required as part of the MCN, including information regarding the significant equity investor’s capital structure, general financial condition, ownership and management structure, and audited financial statements. Further, the HPC may also require that any provider or provider organization submit information necessary for the HPC to assess the impacts of the transaction for a period of five years post-close.
• Similar to the current process, within 30 days’ receipt of a completed MCN, the HPC must conduct a preliminary review to determine whether the material change is likely to result in a significant impact on the commonwealth’s ability to meet a designated health care cost growth benchmark, or on the competitive market, in which case the HPC may conduct a more intensive cost and market impact review (“CMIR”).
• Finally, the Act expands the AG’s authority to review and investigate proposed transactions for which an MCN was filed. The AG may collect information from private investment entities and investigate institutional providers and their parent organizations pursuant to state consumer protection laws.¹¹

Key Changes from Prior Bills

• Notably, the Act does not empower the HPC to take certain actions and does not increase the HPC’s direct enforcement power in the same way the Senate Bill did.

  • The Senate Bill empowered the HPC to recommend modifications to certain proposed transactions and review additional factors in a CMIR, the failure of which would give rise to a cause of action under state consumer protection laws. If the criteria assessed in the CMIR were met, the Senate Bill created a presumption of unfair methods of competition or unfair deceptive trade practices and empowered the AG to bring an injunction to block the associated transaction.
  • Under the Senate Bill, the HPC had the power to assess a penalty against a provider organization that failed to provide requested information within two weeks following receipt of notice of up to $10,000 per week for each week of delay, up to a maximum annual penalty of $500,000.

The Act imposes reporting and financial requirements for private investors and other corporate affiliates, and targets REITs.

What’s New?

• Under the Act, CHIA may collect more extensive information from provider organizations (for example, financial information about a parent entity’s out-of-state operations, and financial information about corporate affiliates)¹² as necessary to better protect the public interest in monitoring the financial conditions, organizational structure, business practices, clinical services and market share of each registered provider organization, and issue unlimited penalties for failure to comply.¹³
• The Act prevents the Massachusetts DPH from granting or renewing an original license to an acute care hospital that leases its main campus from a REIT. Additionally, acute care hospitals must disclose all leases of hospital-licensed space to DPH in connection with original hospital licenses and license renewals.
• The Act extends liability for violations of the Commonwealth’s FCA to investors and owners of persons that violate the FCA if those investors or owners know of the violation and fail to report it to a Commonwealth regulator within 60 days.
• Although the Act removes the three-year health care cost growth benchmark¹⁴ calculation cycle, it adds testimony requirements for the HPC’s annual growth benchmark public hearings to include pharmaceutical benefit managers, pharmaceutical manufacturing companies, and significant equity investors, REITs or MSOs.

Key Changes from Prior Bills

• The Act removes the requirement from the Senate Bill that PE firms deposit a bond with the DPH upon submission of an MCN. The Act also removes specific restrictions that were first introduced in the Senate Bill regarding (i) capital distributions, stock buybacks, and other similar transactions; (ii) leveraged financing; and (iii) transacting with entities that discontinue operations within a set period of time after investing.

Despite previous bills’ attempts to expand and codify restrictions on the corporate practice of medicine (“CPOM”), the Act omits provisions restricting corporate practice interference and services provided by MSOs.

• The Senate Bill mandated health care practices to register and certify compliance with the board of medicine or nursing requirements and enhanced the existing CPOM clinical interference provision by prohibiting MSOs from negotiating with third-party payers and entering agreements that limit a practice's financial control. Further, the Senate Bill proposed restricting MSOs from providing certain services under management agreements, ensuring health care practices retain ultimate decision-making authority over personnel, billing, property use, patient care, diagnostic tests, medical records, referrals, and other clinical functions. The Senate Bill also prohibited MSOs from maintaining ownership interests in health care practices unless fully owned by health care providers or licensed hospitals.
• The Act does not include these restrictions on private entity-backed providers, provider organizations, or MSOs.

The Act imposes additional disclosure requirements on hospitals and establishes new licensing requirements for other outpatient health care entities.

• The Act allows for one-time provisional licenses, for hospitals seeking licensure and licensing requirements for a new class of entities including urgent care centers and office-based surgery.
• Additionally, the Act imposes a new 90-day pre-closing notice requirement to DPH of any essential health service closure. In response, the DPH may request the HPC to conduct an impact analysis, and require the hospital to provide a continuing access plan.
• Similarly, the Act requires that facilities report operational impairment events within one calendar day, and prevents lessors from repossessing medical equipment or supplies necessary for the provision of patient care without a 60-day notice.

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Ropes & Gray is continuing to monitor updates to health care transaction laws. If you have any questions, please consult the authors or your usual Ropes & Gray advisor.