Pay Transparency Reminder: 5 States’ Laws Take Effect in 2025
With the turn of the new year, employers must focus on refining their recruiting and retention efforts to ensure compliance with a handful of new pay transparency laws, specifically in Illinois, Minnesota, Vermont, Massachusetts, and New Jersey. The Illinois and Minnesota requirements became effective on January 1, 2025. The Vermont, Massachusetts, and New Jersey laws take effect at different points later in 2025.
These laws generate a host of questions, including with regard to application to staffing agencies, the use of pay bands to meet range requirements, items included in “other compensation,” the risks of going above the stated range, the size of permitted ranges, and potential applicability to remote and hybrid positions. In this article, in order of effective date, we review the primary requirements of the new laws and offer takeaways.
Quick Hits
Illinois, Minnesota, Vermont, Massachusetts, and New Jersey have pay transparency requirements becoming effective in 2025.
Several of the states impose requirements related to internal employees and promotional opportunities.
Many of the requirements are currently unclear and await further guidance.
Illinois
Beginning January 1, 2025, employers with fifteen or more employees are required to include a pay scale and benefits in job postings. In addition, within fourteen days after making an external job posting for a position, employers must announce, post, publish, or otherwise make known all opportunities for promotion to all current employees.
These job posting requirements apply to positions physically performed at least in part in Illinois and to positions reporting to a supervisor, office, or worksite in Illinois. Therefore, employers may need to include pay and benefits information for remote jobs.
“Pay scale and benefits” means “the wage or salary, or the wage or salary range, and a general description of the benefits and other compensation, including, but not limited to, bonuses, stock options, or other incentives the employer reasonably expects in good faith to offer for the position.” Employers can satisfy these requirements through a hyperlink to a publicly viewable webpage that includes the pay scale and the posting of a relevant and up-to-date general description of benefits in an easily accessible, central, public location on the employer’s website—and referring to that hyperlink in the job posting.
Regarding the use of third parties to announce, post, publish, or make known a job posting, an employer is required to provide the third party with the pay scale and benefits information (or hyperlink as described above). If the third party then fails to include the information on a job posting, the employer is not liable.
Illinois has begun rolling out guidance on these requirements. (See Equal Pay Act Pay Transparency FAQ.) In particular, Illinois has taken the position that all employees, whether located in Illinois or in another state, count toward the fifteen-employee threshold for compliance. The Illinois Department of Labor (IDOL) has also published a required “Equal Pay Act Pay Transparency Notice” for “All Illinois Employers with 15 or More Employees.”
Illinois has committed to providing additional guidance that will hopefully address, among other items, the extent to which an employer must describe any additional compensation and benefits in the job posting narrative.
Minnesota
Effective January 1, 2025, employers with thirty or more employees at one or more sites in Minnesota must include pay information and a general description of all benefits and other compensation in job postings. Specifically, an employer must disclose the starting salary range (which may not be open-ended), or, if the employer does not plan to offer a salary range for a position, a fixed pay rate. The range is comprised of the minimum and maximum annual salary or hourly range of compensation, based on the employer’s good-faith estimate, for a job opportunity at the time of the posting.
New Jersey
Beginning June 1, 2025, employers with ten or more employees over twenty calendar weeks and that do business, have employees, or take applications for employment in New Jersey, must make certain internal and external pay disclosures.
Specifically, covered employers must disclose, in each posting for new jobs and transfer opportunities that are advertised externally or internally, the hourly wage or salary, or a range of the hourly wage or salary and a general description of benefits and other compensation programs for which the employee would be eligible.
Covered employers must also make “reasonable efforts” to announce, post, or otherwise make known opportunities for promotion (defined as a change in job title and an increase in compensation) that are advertised internally or externally to all current employees in the affected department(s) before making a promotion decision. But promotions awarded on the basis of years of experience or performance are exempt from this requirement.
We anticipate further guidance from New Jersey in the upcoming months to help clarify these requirements.
Vermont
Beginning July 1, 2025, employers that do business in or operate in Vermont and have five or more employees must include compensation or a range of compensation in any advertisement of a specific Vermont job opening.
The “range of compensation” means the minimum and maximum annual salary or hourly wage that the employer expects, in good faith, to pay for the advertised job at the time the employer creates the advertisement.
Covered “Vermont job openings” include positions open to internal and/or external candidates and positions into which current employees may transfer or promote into that are (a) physically located in Vermont, or (b) performing work for an office or work location that is physically located in Vermont.
Notably, the Vermont law does not require a general description of benefits and other compensation.
Massachusetts
The Massachusetts Pay Transparency Act (the Act) requires employers with more than one hundred employees to submit wage data reports annually, with the first report being due by February 1, 2025. However, the Massachusetts Executive Office of Workforce Development has recently stated that covered employers will need only submit their most recent EEO-1 filings by February 1, and not provide any wage data.
In addition to the filing requirement, beginning October 29, 2025, employers with twenty-five or more employees in Massachusetts must: (1) disclose the pay range for a “particular and specific employment position” in the job posting for that position; (2) provide the pay range for a “particular and specific employment position” to an employee who is offered a promotion or transfer to a new position; and (3) upon request, provide the pay range for a “particular and specific employment position” to an employee holding that position and an applicant for that position. A “pay range” means the annual salary range or hourly wage range that the employer reasonably and in good faith expects to pay for the position at that time.
The Massachusetts law also imposes a host of pay reporting requirements that seem to depend on the U.S. Equal Employment Opportunity Commission (EEOC) implementing pay data reporting obligations. Given the upcoming change in presidential administrations, it is unclear at this point whether the EEOC will actually move forward with any such pay data reporting.
Key Takeaways
Employers may want to consider taking the following steps:
Training managers and HR professionals on these new compliance obligations, including promotion and opportunity requirements, and on how to respond to pay inquiries from job applicants and current employees
Reminding managers and supervisors that employees are allowed to discuss their pay with others
Undertaking a privileged pay equity audit
Developing/refining pay philosophies as needed to ensure consistency throughout the organization
Updating handbook policies to include anti-retaliation language to protect employees who raise concerns about pay transparency compliance
Watching for enforcement actions to understand state priorities and clarifications on requirements. For example, Colorado publishes state enforcement information. It is likely that Illinois, Minnesota, Vermont, Massachusetts, and New Jersey will similarly publish details about enforcement and penalties.
Reviewing state guidance to provide clarity on statutory language. Colorado, Maryland, New York, and Washington are some states with helpful guidance. For example, Maryland’s guidance illustrates the “general description of benefits” requirement by listing “Employer provided insurance such as health or life or other employer-provided insurance, Paid or unpaid time off work such as paid sick or vacation days, or leaves of absence, Retirement or savings funds such as 401(k) plans or employer-funded pension plans, or Other forms of compensation such as the value of employer-provided meals or lodging.” It further illuminates the “other compensation offered” by providing, as examples, “overtime, compensatory time, differentials, premium pay, tips, commissions, bonuses, stock or stock options, and any portion of service charges.”
Auditing job postings for compliance, including job postings hosted on third parties’ sites
The North Carolina Board of CPA Examiners: A Licensed Professional User’s Guide
The North Carolina Board of CPA Examiners (“Board”) plays a pivotal role in ensuring the integrity and professionalism of the accounting field within the state.
As the governing body for Certified Public Accountants (“CPAs”), the Board upholds rigorous standards of practice, oversees the licensing process, and enforces compliance with ethical rules and regulations. For both aspiring CPAs and experienced professionals, understanding the Board’s responsibilities, processes, and expectations is essential for navigating the path to licensure and maintaining professional standing. It can be a daunting task navigating the expectations. This article highlights some of the requirements and functions for licensees.
Licensing Process
The licensing process for Certified Public Accountants (CPAs) in North Carolina is a structured pathway that involves meeting educational, examination, and experience requirements. The North Carolina Board of CPA Examiners oversees the critical examination component of this process, managing the application, administration, and scoring of the Uniform CPA Exam. This exam is a crucial step in obtaining CPA licensure in all U.S. jurisdictions, and while the education and experience requirements may differ across states, the Uniform CPA Exam remains the same nationwide.
To sit for the Uniform CPA Exam in North Carolina, candidates must meet several eligibility criteria:
Be a U.S. citizen or resident alien, or a citizen of a foreign jurisdiction with similar examination privileges.
Be at least 18 years old.
Be of good moral character.
Meet the specific education requirements outlined by the Board.
Applicants may not be eligible to take the exam if the Board determines the applicant has violated the laws and rules of Professional Ethics and Conduct. An applicant can challenge this determination. Additionally, exam applicants are required to undergo a background check as part of the application process. If an applicant is concerned about a criminal conviction in their past and whether they will be eligible for licensure, they may ask the Board for a predetermination of eligibility as early as prior to entry into an educational program. Experienced counsel should be considered to assist in navigating these processes.
In addition to successfully passing the Uniform CPA Exam, an applicant must provide evidence of appropriate work experience and proof of successful completion of the North Carolina Association of CPAs course, NC Accountancy Law: Ethics, Principles, & Professional Responsibilities, an accountancy law course. The work experience and course must be completed prior to applying for licensure with the Board.
Maintaining the License
Once licensed, it’s important to carefully maintain all aspects of the Board’s requirements to retain the license. All CPAs licensed in North Carolina must:
renew their license annually before July 1 and pay a $60 renewal fee
complete Continuing Professional Education (CPE) in accordance with 21 NCAC 08G .0401, including at least 50 minutes of regulatory or behavioral professional ethics and conduct by December 31 each year and report those at the time of renewal
retain CPE completion certificates and provide them to the Board upon notification of an audit
notify the Board in writing of any change in mailing address, physical address, practice/business address, phone number, employment, email address, or website address within 30 days of a change
Failure to comply with any of the above could result in the licensee being disciplined.
Navigating Practice Complaints
A complaint against a CPA to the Board is taken seriously. An investigation can be quite daunting and overwhelming to the professional faced with one, and experienced counsel should be considered by the CPA if an investigation is opened.
The Board’s Professional Standards Committee (“Committee”) is a three Board member committee tasked with enforcing the Board’s law and rules of Professional Ethics and Conduct. Violations of the law or rules may result in discipline to the CPA in the form of revocation (partial or in full) of the license, censure, and/or imposition of a civil penalty.
The Board has jurisdiction to investigate and take action pursuant to their authority in N.C. Gen. Stat. §93-12(9) which states:
The Board shall have the power to adopt rules of professional ethics and conduct to be observed by certified public accountants in this State and persons exercising the practice privilege authorized by this Chapter. The Board shall have the power to revoke, either permanently or for a specified period, any certificate issued under the provisions of this Chapter to a certified public accountant or any practice privilege authorized by the provisions of this Chapter or to censure the holder of any such certificate or person exercising the practice privilege authorized by this Chapter. The Board also shall have the power to assess a civil penalty not to exceed one thousand dollars ($1,000) for any one or combination of the following causes:
Conviction of a felony under the laws of the United States or of any state of the United States.
Conviction of any crime, an essential element of which is dishonesty, deceit or fraud.
Fraud or deceit in obtaining a certificate as a certified public accountant.
Dishonesty, fraud or gross negligence in the public practice of accountancy.
Violation of any rule of professional ethics and professional conduct adopted by the Board.
Any disciplinary action taken shall be in accordance with the provisions of Chapter 150B of the General Statutes. The clear proceeds of any civil penalty assessed under this section shall be remitted to the Civil Penalty and Forfeiture Fund in accordance with G.S. 115C-457.2.
When the Board receives a complaint, staff and legal counsel review the allegations and evidence submitted. Once a determination has been made that an investigation should be commenced, an inquiry letter is sent to the CPA, allowing for a response to the allegations.
If you receive an inquiry letter, always respond. All CPAs are required to participate in inquiries from the Board. In a written response, be mindful of your tone and resist being argumentative or using unprofessional language. Provide the documentation requested, if any, in order to inform the Board and assist in their full and informed decision making. Experienced counsel at the inquiry stage can be quite helpful in determining the appropriate path of response. The Board is not obligated to provide counsel; however, every CPA has the right to be represented.
After their review of your response, the staff and legal counsel may send your reply to the Complainant for further information and response. The inquiry may end at this point if the determination is made that no violation has occurred.
If staff and legal counsel believe a violation has occurred, the Committee will be asked to review the complaint, any supporting documentation, and response(s). Their duty is to recommend to the full Board a resolution to the complaint after weighing whether there is competent evidence to proceed. They may recommend closing the matter, requesting additional information, or recommending that the matter continue forward down the disciplinary path. You or your counsel will be informed of their decision.
The Committee also has the ability to offer the CPA a resolution to settle the matter. The CPA (or their counsel) will receive the offer in the form of a consent order. This is an informal process, and a CPA should evaluate all the facts and violations alleged, as well as the sanction offered. Again, experienced counsel can assist with determining whether the offer of resolution proposed is reasonable or whether further due process is warranted. A public hearing, while expensive and time consuming for the CPA, may nonetheless be necessary.
Recovering From Los Angeles-Area Wildfires: Initial Steps After Loss or Damage to Your Home, Business or Other Property
Highlights
The January 2025 wildfires in Los Angeles have caused widespread destruction to homes, businesses, and other property, leaving affected individuals and businesses dependent on insurance for recovery
Insurance companies may attempt to deny or limit coverage in response to the surge of claims, making it important for policyholders to understand their rights and coverage options
Affected businesses and individuals should consider taking immediate steps, such as notifying insurers, documenting damages, reviewing insurance policies, and tracking additional living expenses to ensure comprehensive claims
The January 2025 Palisades, Altadena/Pasadena, and other wildfires in the Los Angeles area have fundamentally altered the lives of our clients, colleagues, friends, and family members, causing destruction and damage to homes, businesses, vehicles, educational and religious institutions, community centers, and other property. Affected people and businesses will be relying on their insurance companies to pay their loss and help them rebuild their lives. Insurance companies may respond to the wave of claims by looking for ways to deny and/or limit coverage.
In the aftermath of the fires, many policyholders may be unfamiliar with the first steps to consider taking from a best practices perspective after suffering a loss like this. A non-exhaustive list of initial steps to consider is as follows:
Put your insurance company on notice immediately of any claim or potential claim related to fire damage, such as from the Palisades fire. Depending on what has been damaged (i.e., structures or vehicles), multiple policies and insurers may be implicated. It is common to give notice of your loss through your insurance broker and/or agent.
Take time to locate and review complete copies of your insurance policies now. They may be available through your agent or broker or on the insurer’s website.
Review all applicable coverage and consider discussing with your broker or with insurance coverage counsel to understand the policy benefits to which you are entitled.
To the extent possible and once safe to do so, document all loss and damage from the fire, including both photos and videos. Preserve documentary evidence necessary to support your insurance claim.
Take an inventory of your personal property, furniture, appliances, etc., including gathering pictures and electronic or paper receipts documenting purchases.
Track and keep receipts of your extra living expenses while you are displaced, including receipts of meals, transportation, and hotels and other paid accommodations, etc.
Consider demanding that your insurance company advance all available policy benefits immediately, including but not limited to benefits for alternative housing or business interruption. Generally, alternative housing should be comparable to your living arrangements prior to the loss and damage. Many policies also cover debris cleanup and various other coverage relevant to fire damage.
Expect the insurance company to try to minimize its financial obligations in response to your claim. Take time to thoroughly evaluate and consider all communications from your insurance carrier carefully and do not agree to their adjustment of the claim without fully understanding their methodology and logic.
Even if your home or business has not been destroyed, smoke in and of itself can cause recoverable damage under the meaning of property policies. Insurers often take the position that smoke damage alone is not covered. A best practice is not to accept this at face value.
Property policies often contain a shorter deadline to sue than other types of policies and contracts, which deadline can be as short as one or two years from the date of the loss. Consider carefully evaluating the deadline to sue in case any disputes with insurers arise.
MiCAR in der Praxis: BaFin veröffentlicht Merkblatt für Krypto-Dienstleistungen
Die Bundesanstalt für Finanzdienstleistungsaufsicht („BaFin„) hat zum Jahresbeginn ein Merkblatt zu den Kryptowerte-Dienstleistungen gemäß der neuen EU-Verordnung über Märkte für Kryptowerte („MiCAR„) veröffentlicht. Diese Verordnung gilt seit dem 30. Dezember 2024 unmittelbar für Krypto-Dienstleister in der EU.
Das Merkblatt bietet Klarstellungen zu den erlaubnispflichtigen Krypto-Dienstleistungen und den Anforderungen an Anbieter. Die wesentlichen Punkte im Überblick:
Definitionen von Krypto-Dienstleistungen: Die BaFin präzisiert die erlaubnispflichtigen Kryptowerte-Dienstleistungen und verknüpft diese mit den bereits bekannten Wertpapierdienstleistungen der MiFID II.
Zulassung von Krypto-Dienstleistern: Das Merkblatt enthält detaillierte Informationen, ab wann eine Zulassungspflicht besteht und welche Unternehmen zulassungsfähig sind.
Notifizierung: Unternehmen mit bestehenden Lizenzen (z. B. Kredit- oder Wertpapierinstitute) können bestimmte Kryptowerte-Dienstleistungen ohne gesonderte Erlaubnis erbringen, müssen dies jedoch der BaFin gemäß den Vorgaben der MiCAR anzeigen (sog. „Notifizierung„). Die genauen Anforderungen an die Notifizierung werden im Merkblatt erläutert.
Das Merkblatt bietet Krypto-Unternehmen eine praktische Orientierungshilfe, um die neuen regulatorischen Anforderungen der MiCAR sicher und effizient zu erfüllen.
EU Taxonomy Developments: EU Platform on Sustainable Finance Call for Feedback on Draft Report on New Activities and Updated Technical Screening Criteria
On 8 January 2025, the EU Platform on Sustainable Finance (PSF) published a draft report and launched a call for feedback on proposed updates to the EU taxonomy. This includes revisions to the Climate Delegated Act and new technical screening criteria. Stakeholders are invited to submit feedback by 5 February 2025.
Key areas sought for feedback include:
Technical Screening Criteria (TSC): Updates to the criteria and Do No Significant Harm (DNSH) requirements to improve usability.
Revised Energy-Related Thresholds: Adjustments to support ensuring consistency and relevance.
Harmonization Efforts: Aligning activity titles and descriptions between Mitigation and Adaptation Annexes.
New Activities and Criteria: Proposals for activities in mining and smelting.
The PSF has noted that the most useful and valuable feedback that can be incorporated should be evidence-based and substantiated, concrete, and explain usability issues or provide recommendations for criteria or usability improvement.
Whilst this is not an official European Commission consultation, part of the PSF’s mandate is to provide recommendations to the European Commission on simplifying the EU Taxonomy and the wider sustainable finance framework. The review of this legislation fulfils the legal requirement to revisit criteria for transitional activities every three years, while continuing to develop technical screening criteria for new activities. The PSF’s Technical Working Group is said to have incorporated usability feedback from targeted stakeholder consultations, but this public consultation is aimed to obtain additional feedback and to further enhance the EU Taxonomy’s usability.
AI Versus MFA
Ask any chief information security officer (CISO), cyber underwriter or risk manager, or cybersecurity attorney about what controls are critical for protecting an organization’s information systems, you’ll likely find multifactor authentication (MFA) at or near the top of every list. Government agencies responsible for helping to protect the U.S. and its information systems and assets (e.g., CISA, FBI, Secret Service) send the same message. But that message may be evolving a bit as criminal threat actors have started to exploit weaknesses in MFA.
According to a recent report in Forbes, for example, threat actors are harnessing AI to break though multifactor authentication strategies designed to prevent new account fraud. “Know Your Customer” procedures are critical in certain industries for validating the identity of customers, such as financial services, telecommunications, etc. Employers increasingly face similar issues with recruiting employees, when they find, after making the hiring decision, that the person doing the work may not be the person interviewed for the position.
Threat actors have leveraged a new AI deepfake tool that can be acquired on the dark web to bypass the biometric systems that been used to stop new account fraud. According to the Forbes article, the process goes something like this:
“1. Bad actors use one of the many generative AI websites to create and download a fake image of a person.
2. Next, they use the tool to synthesize a fake passport or a government-issued ID by inserting the fake photograph…
3. Malicious actors then generate a deepfake video (using the same photo) where the synthetic identity pans their head from left to right. This movement is specifically designed to match the requirements of facial recognition systems. If you pay close attention, you can certainly spot some defects. However, these are likely ignored by facial recognition because videos are prone to have distortions due to internet latency issues, buffering or just poor video conditions.
4. Threat actors then initiate a new account fraud attack where they connect a cryptocurrency exchange and proceed to upload the forged document. The account verification system then asks to perform facial recognition where the tool enables attackers to connect the video to the camera’s input.
5. Following these steps, the verification process is completed, and the attackers are notified that their account has been verified.”
Sophisticated AI tools are not the only MFA vulnerability. In December 2024, the Cybersecurity & Infrastructure Security Agency (CISA) issued best practices for mobile communications. Among its recommendations, CISA advised mobile phone users, in particular highly-targeted individuals,
Do not use SMS as a second factor for authentication. SMS messages are not encrypted—a threat actor with access to a telecommunication provider’s network who intercepts these messages can read them. SMS MFA is not phishing-resistant and is therefore not strong authentication for accounts of highly targeted individuals.
In a 2023 FBI Internet Crime Report, the FBI reported more than 1,000 “SIM swapping” investigations. A SIM swap is just another technique by threat actors involving the “use of unsophisticated social engineering techniques against mobile service providers to transfer a victim’s phone service to a mobile device in the criminal’s possession.
In December, Infosecurity Magazine reported on another vulnerability in MFA. In fact, there are many reports about various vulnerabilities with MFA.
Are we recommending against the use of MFA. Certainly not. Our point is simply to offer a reminder that there are no silver bullets to achieving security of information systems and that AI is not only used by the good guys. An information security program, preferably one that is written (a WISP), requires continuous vigilance, and not just from the IT department, as new technologies are leveraged to bypass older technologies.
“9999” SCAM OR LEAD FUNNEL RUN AMUCK?: Zillow Hit With New TCPA Class Action Over Text Messages and It Could Be a Serious Problem or A Serious Scam
With the new FCC TCPA one-to-one consent rules about to take effect in just 18 days everyone at (and in) Lead Generation World was (and is) focused on finalizing their go-to-market strategies with their new solutions.
One company I am constantly asked about is Zillow.
The real estate monster seems to be adopting a multi-pronged approach in response to the new rules and many of its strategies are raising eyebrows as they don’t seem to be completely consistent with one-to-one requirements (not throwing shade, just an observation.)
But if the allegations in a new class action are true Zillow may have a very serious problem with its lead gen funnel that is even more basic than anything having to do with one-to-one. (or it could just be the latest version of one of the oldest TCPA scams in the books.)
In CHET MICHAEL WILSON v. ZILLOW, INC. (W.D. Wash. Case No. 2:25-cv-00048) a Plaintiff sues Zillow over the receipt of multiple text messages related to various Zillow services–including apparently both mortgage and real estate offerings– related to multiple properties.
Per the complaint the plaintiff did not request the messages and the messages continued after Plaintiff texted “stop.”
Most problematically the text messages seem to have all been sent to a single number but are related to different properties and are directed to different recipient names. This suggests the messages are related to different form fills by different consumers, or that Zillow has a big problem with its lead gen engine.
Then again, the last four digits of the Plaintiff’s alleged phone number are allegedly “9999” so this could be another one of those “designed number” lawsuit scams where a Plaintiff buys a speciality number–like (310) 999-9999– just to collect TCPA dollars from companies errantly calling fake numbers. (I helped fight off a series of these sorts of cases any years ago and the experience made me realize how terrible frivolous lawsuits are.)
Still for a company as large as Zillow preventing multiple leads from looping to the same number for different people and property should be viewed as a priority– again Zillow is a massive lead gen engine relied on by so many– so I would be shocked if this is as simple as Zillow not picking up on a simple 9999 scam (but maybe it is.)
I should note I have no idea if the claims are even true and the Plaintiff could be lying. But the complaint does contain multiple screenshots like this one:
In addition to the text messages Zillow also apparently used prerecorded calls to contact the Plaintiff–eesh– so the TCPA’s regulated technology provisions are also at play here.
The Complaint seeks to represent three classes:
Robocall Class: All persons in the United States (1) to whom Zillow, Inc. placed,or caused to be placed, a call, (2) directed to a number assigned to a cellulartelephone service, but not assigned to a person with an account with Zillow, Inc.,(3) in connection with which Zillow, Inc. used an artificial or prerecorded voice,(4) from four years prior to the filing of this complaint through the date of classcertification.
IDNC Class: All persons in the United States who, within the four yearsprior to the filing of this lawsuit through the date of class certification,received two or more telemarketing calls within any 12-month period,from or on behalf of Zillow, Inc., regarding Zillow, Inc.’s goods orservices, to said person’s residential telephone number, including at leastone call after communicating to Zillow, Inc. that they did not wish toreceive such calls.
DNC CLASS: All persons in the United States who, within the four yearsprior to the filing of this action through the date of class certification, (1)were sent more than one telemarketing call within any 12-month period;(2) where the person’s telephone number had been listed on the NationalDo Not Call Registry for at least thirty days but not assigned to a personwith an account with Zillow, Inc.,; (3) regarding Zillow, Inc.’s property,goods, and/or services; (4) to said person’s residential telephone number.
Very interesting stuff and we will keep an eye on it for you.
Full complaint here: Zillow Complaint
The Tax Court Recently Decides Two Research Credit Cases – One Favorable on Funding (Smith) and One Unfavorable on the Four-Part Test (Phoenix Design Group)
Taxpayers had mixed success in two recent research credit cases in the United States Tax Court.
In Smith v. Commissioner,[1] the taxpayer was an architectural firm. The Tax Court denied the Commissioner’s motion for summary judgment, allowing the case to proceed to trial on the issue of whether the taxpayer’s clients funded its research activities.
In Phoenix Design Group, Inc. v. Commissioner,[2] disputed questions of fact proceeded to trial. Based on its findings, the court concluded that the taxpayer, a firm employing professional engineers, had not engaged in qualified research, and was not entitled to research credits.
Smith: The Architectural Case: In Smith, the IRS continued to apply the “funding exception” to disallow federal income tax credits for a taxpayer’s qualified research activities. The “funding exception excludes from credit-eligible qualified research “any research to the extent funded by … contract…by another person….”[3]
Research is funded if the client’s payment to the taxpayer is not contingent on the success of the taxpayer’s research activities.[4] Research is also funded if the taxpayer does not retain substantial rights in the research.[5]
The taxpayer was a member in a limited liability partnership that sold its “innovative architectural design services” worldwide to its clients.[6] The taxpayer asserted that it conducted credit-eligible research to formulate architectural designs as required by contract with its clients. The IRS denied the credits on the theory that the clients funded the taxpayer’s research activities.
Relying on selective provisions in contracts between the taxpayer and its clients, the IRS moved for summary judgment on the theory that the taxpayer was contractually required to perform its architectural services in accordance with professional standards, which alone did not put the taxpayer at risk if its research to effectuate the designs failed. The court ruled, however, that the contracts tended to provide that the clients were obligated to pay the taxpayer only if the taxpayer satisfied design milestones, which raised an issue about whether payment to the taxpayer was contingent on success of the research.
The court also ruled that local law provisions appeared to vest copyright protection for the designs in the taxpayer, which tended to rebut the IRS argument that the taxpayer did not retain substantial rights in the research, and thus preserved for trial the issue of retention of substantial rights in its research.[7]
Phoenix Design: The Engineering Case: In Phoenix Design, the IRS successfully argued that the taxpayer, a firm employing professional engineers, failed to prove that it engaged in qualified research to design mechanical (air handling), electrical, plumbing, and fire protection systems (“MEPF Systems”) for laboratory and hospital building projects.
Research is qualified if it passes a “four-part test.”[8] At issue in Phoenix Design are only Test One – the Section 174 Test – and Test Four – the Process of Experimentation Test. The Section 174 Test requires a taxpayer to (i) identify uncertainty in the development or improvement of a product, process, technique, or formula and (ii) show that this uncertainty exists because the information objectively available does not establish the capability or method to develop or improve the product, process, technique, or formula or its appropriate design. The Process of Experimentation Test requires a taxpayer to use a process that is capable of evaluating one or more alternatives, for example, modeling, simulation, or a systematic trial and error methodology.
In Phoenix Design, the taxpayer argued that its professional engineers met the Section 174 Test by eliminating uncertainty in the design of the MEPF Systems. The taxpayer explained that, at the outset of the projects, it was uncertain about the specifications and designs that would achieve the air handling and other attributes of the systems, and that it intended to eliminate the uncertainty by performing sophisticated and iterative engineering calculations.
The court rejected the argument. The Section 174 Test requires investigatory activity, that is, the attempted acquisition of information. The court cited e-mails and meetings as examples of processes of acquiring information, but only if there is uncertainty about developing or improving the product. However, “basic calculations on available data is [sic] not an investigative activity because the taxpayer already has all the information necessary to address that unknown.” Moreover, the taxpayer “failed to identify the specific information that was not available to PDG [the taxpayer’s] engineers at the start of the project.”
For the Process of Experimentation Test, the taxpayer argued that it performed iterative calculations to determine the appropriate designs of the MEPF Systems, but the court rejected the argument because “performing calculations and communicating the results to the architect is not an evaluative process that mirrors the scientific method.”[9]
Comment: An architectural or engineering service is not intrinsically precluded from qualifying for research credits. The service may constitute a “business component,” which includes a process, technique, or formula. [10] The business component need not be a tangible product to quality for tax credits.
Care should be taken to ensure that the agreement between a service provider and its client does not inadvertently use terminology that, from the IRS perspective, mistakenly appears to disqualify the research – as could have occurred in Smith. Also, activities intended to eliminate technological uncertainty through a rigorous engineering process should be carefully documented when they occur or soon thereafter to avoid the documentation deficiency that occurred in Phoenix Design. And note that a showing of the brilliance of a scientist or engineer will not qualify the research for tax credits. The taxpayer must still work through the statutory provisions and clearly show the IRS and court how the activities satisfy these provisions.
[1] No. 13382-17 (U.S. Tax Ct. Dec. 18, 2024).
[2] T.C. Memo. 2024-113 (Dec. 23, 2024).
[3] I.R.C. §41(d)(4)(H).
[4] The rationale is that the taxpayer is not the researcher because the taxpayer is not at economic risk for the success of the research.
[5] The rationale is dubious. See “Tax Court Denies Research Credits for Research Activities,” https://natlawreview.com/article/tax-court-denies-research-credits-research-activities (Feb. 9, 2021).
[6] The architectural services at issue were for six projects located in Dubai, UAE, and Saudi Arabia.
[7] Retention of “other intellectual property rights” was an additional basis to deny the IRS’s motion for the Kingdom Tower, one of the architectural projects.
[8] (i) The expenditures may be deductible under I.R.C. §174. The deduction is available if the taxpayer’s activities are of an investigative nature that are intended to discover information that would eliminate uncertainty in development or improvement of a product, process, technique, or formula. The Tax Cuts and Jobs Act, Pub. L. 115-97, now requires that the expenditures be specified research and experimental expenditures, which are amortizable rather than currently deductible.
(ii) The expenditure is intended to discover information that is technological.
(iii) The information to be discovered is intended to develop or improve a product, process, technique, or formula.
(iv) Substantially all the research activities constitute elements of a process of experimentation for the purpose of developing or improving new or improved function, performance, reliability, or quality of the product, process, technique, or formula.
[9] The taxpayer’s failing was primarily one of documentation of its engineers’ activities. The fault may lie, however, not with the taxpayer’s trial preparation but with a flaw in the Congressional design of the credit. Congress intended the credit be available to businesses that “apply” scientific principles to develop or improve products. Congress did not require taxpayers to discover basic scientific principles to claim the credit. However, Congress left the door open to the IRS to require a taxpayer to document its applied research as it the research were “basic research.” Businesses that apply research often do not think of documenting their applied research as if it were basic research.
[10] I.R.C. §41(d)(2)(B)
Weekly IRS Roundup December 23 – December 27, 2024
Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 23, 2024 – December 27, 2024.
December 23, 2024: The IRS released Internal Revenue Bulletin 2024-52, which includes the following:
Treasury Decision 10015: These final regulations update the previous regulations under Section 48 of the Internal Revenue Code (Code), which provides for an investment tax credit for energy property (energy credit), and respond to changes made by the Inflation Reduction Act of 2022 (IRA).
The final regulations update the types of energy property eligible for the energy credit, including additional types of energy property added by the IRA; clarify the application of new credit transfer rules to recapture because of failure to satisfy the prevailing wage requirements, including notification requirements for eligible taxpayers; and include qualified interconnection costs in the basis of certain lower-output energy properties.
The final regulations also provide rules generally applicable to energy property, such as rules regarding functionally interdependent components, property that is an integral part of an energy property, application of the “80/20 rule” to retrofitted energy property, dual use property, ownership of components of an energy property, energy property that may be eligible for multiple federal income tax credits, and the election to treat qualified facilities eligible for the renewable electricity production credit under Code Section 45 as property eligible for the energy credit.
Notice 2024-82, which sets forth the 2024 Required Amendments List. The list applies to both individually designed plans under Code Section 401(a) and individually designed plans that satisfy the requirements of Code Section 403(b).
Notice 2024-86, which announces the extension of certain timeframes under the Employee Retirement Income Security Act of 1974 and the Code for group health plans; disability and other welfare plans; pension plans; and participants, beneficiaries, qualified beneficiaries, and claimants of these plans affected by Hurricane Helene, Tropical Storm Helene, or Hurricane Milton.
Revenue Procedure 2024-42, which updates the list of jurisdictions with which the United States has in effect a relevant information exchange agreement or an automatic exchange relationship under Treasury Regulation §§ 1.6049-4(b)(5) and 1.6049-8(a).
Announcement 2024-42, which provides a copy of the competent authority arrangement entered into by the competent authorities of the US and the Kingdom of Norway under paragraph 2 of Article 27 (Mutual Agreement Procedure) of the Convention between the US and Norway for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Property, signed on December 3, 1971.
The IRS issued a notice of proposed rulemaking, setting forth proposed regulations related to the definition of “qualified nonpersonal use vehicles.” Qualified nonpersonal use vehicles are excepted from the substantiation requirements that apply to certain listed property. The proposed regulations add unmarked vehicles used by firefighters or members of a rescue squad or ambulance crew as a new type of qualified nonpersonal use vehicle. The regulations affect governmental units that provide firefighter or rescue squad or ambulance crew member employees with unmarked qualified nonpersonal use vehicles and the employees who use those vehicles. Comments on the proposed regulations are due by March 3, 2025.
The IRS acquiesced to Green Rock LLC v. Internal Revenue Serv., 104 F.4th 220 (11th Cir. 2024). In that case, the US Court of Appeals for the Eleventh Circuit held that notices identifying certain conservation easement arrangements as reportable transactions are invalid under the Administrative Procedure Act because they failed to follow notice-and-comment rulemaking procedures.
December 23, 2024: The US Department of the Treasury and the IRS released final regulations regarding supervisory approval of penalties assessed pursuant to Code Section 6751(b). Section 6751(b) provides that no penalty “shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination….” The final regulations clarify the application of Section 6751(b) as to the timing of supervisory approval, the identities of the individual who first proposes the penalty and their supervisor, the requirement that the approval be “personally approved (in writing)” by the supervisor, and other aspects of the statute.
December 27, 2024: The IRS announced via Notice 2025-3 transitional relief with respect to the reporting of information and backup withholding on digital assets for digital asset brokers providing trading front-end services.
Transparency Is the Best Medicine: Device Parts Don’t Justify Orange Book Listing
The US Court of Appeals for the Federal Circuit affirmed a district court’s delisting of patents from the Orange Book because the patent claims did not “claim the drug that was approved” or the active ingredient of the drug that was approved. Teva Branded Pharmaceutical Products R&D, Inc., et al. v. Amneal Pharmaceuticals of New York, LLC, et al., Case No. 24-1936 (Fed. Cir. Dec. 20, 2024) (Prost, Taranto, Hughes, JJ.)
Teva owns the product that Amneal sought to delist, ProAir® HFA Inhalation Aerosol. The ProAir® HFA combines albuterol sulfate (the active ingredient) with a propellant and an inhaler device to administer the drug. Although the US Food and Drug Administration (FDA) approved Teva’s ProAir® HFA as a drug, the ProAir® HFA contains both drug and device components (the device components being the physical machinery of the inhaler). Teva lists nine nonexpired patents in the Orange Book for its ProAir® HFA.
Amneal filed an abbreviated new drug application (ANDA) seeking approval to market a generic version of the ProAir® HFA that uses the same active ingredient. Amneal asserted that it did not infringe Teva’s nine patents listed for the ProAir® HFA. Teva sued for infringement of six of those patents. Amneal filed counterclaims for antitrust and for a declaratory judgment of noninfringement and invalidity and sought an order requiring Teva to delist the five patents that it asserted against Amneal. Amneal moved for judgment on the pleadings on the ground that Teva improperly listed the asserted patents. The district court granted Amneal’s motion, concluding that Teva’s patents “do not claim the drug for which the applicant submitted the application.” The district court ordered Teva to delist its patents from the Orange Book. Teva appealed.
On appeal, Teva argued that a patent can be listed in the Orange Book if the claimed invention is found in any part of its new drug application (NDA) product. Teva argued that a patent “claims the drug” if the claim reads on the approved drug (i.e., if the NDA product infringes that claim). Teva also argued that according to the Federal Food, Drug, and Cosmetic Act’s broad definition of the word “drug,” any component of an article that can treat disease meets the statutory definition of a “drug.” With this interpretation, Teva’s patents “claim the drug” as the claim dose counter and canister components of the ProAir® HFA.
The Federal Circuit rejected Teva’s interpretation as overbroad because it would allow the “listing of far more patents than Congress has indicated.” The Court rejected Teva’s argument that a patent claiming any component of a drug is listable, explaining that Teva cannot list its patents just because they claim the dose counter and canister parts of the ProAir® HFA.
The Federal Circuit also rejected Teva’s argument that even if Teva’s statutory arguments were rejected, the Federal Circuit must remand the case to the district court to construe the claims. In doing so, the Court rejected Teva’s interpretation of the word “claims” in the listing and counterclaim/delisting provisions, explaining that the listing provision identifies “infringing” and “claiming” as two distinct requirements, and that to be listed, a patent must both claim the drug and be infringed by the NDA product.
The Federal Circuit explained that “infringing the claimed invention has several distinct features that differentiate it from claiming the invention.” In contrast to infringement, which is assessed by facts “out in the world,” claims require “examining the intrinsic meaning of the written patent document.” A product can infringe a patent “without meeting all of the claim elements” and often has additional features.
Teva further argued that a claim qualifies as claiming a drug “even if it only claims device parts.” The Federal Circuit rejected this contention, stating that “it is apparent that a product regulatable and approvable as a drug contains an active ingredient” and noting that “devices have a distinct approval pathway.” The presence of distinct drug and device pathways means that even if a product can simultaneously satisfy the linguistic elements of both, it can only be regulated as a drug or a device, and devices are “characterized more by their purely mechanical nature” (as was the case with Teva’s patents). The Court determined that the “active ingredient” ultimately classifies a drug or biological product, and not the “dosage form.”
Teva further argued that since the FDA designated ProAir® HFA as a combination product, the device components were statutorily a drug. In rejecting this contention, the Federal Circuit again noted the statutory focus on a drug’s active ingredient: an “approved drug” is “an active ingredient,” and to be listed it must meet several requirements, “including that it was identified in an NDA and that the FDA considered whether the active ingredient is safe and effective.” The Court concluded that “including a drug in a combination product does not transform each and every component of that combination product into a drug,” and that “a combination product does not become a drug just because it is regulated as a drug.”
Finally, Teva argued that its patents did claim an active ingredient since each patent has one claim that requires “an active drug.” The Federal Circuit explained that the FDA does not approve drugs based on “reference to some vague active ingredient in the abstract” and that the mere presence of those words was far too broad and would permit “any active ingredient in any form.”
Practice Note: In the slip opinion, at pp 4-12, the Federal Circuit delivers extraordinarily detailed treatise on FDA practice, NDA process, the Hatch-Waxman Act (ANDA practice), Paragraph IV certification, the delisting statute (21 U.S.C. § 355(j)(5)(C)(ii)(I)) and the Orange Book Transparency Act of 2020 (21 U.S.C. § 355(b)(1)(A)(viii)).
FDA Proposes New Rule on Testing Talc-Containing Cosmetic Products
Key Takeaways
What Happened: The Food and Drug Administration proposed a rule to require manufacturers of talc-containing cosmetic products to test their products for asbestos using specific testing methods.
Who’s Impacted: Manufacturers of talc-containing cosmetic products.
What Should You Do: Consider submitting comments on this proposed rule by March 27, 2025.
Mandatory testing of talc-containing cosmetic products is coming. At the end of December, the Food and Drug Administration (FDA) proposed a cosmetics rule and test method for asbestos in talc that was required under Section 3505 of the Modernization of Cosmetics Regulation Act of 2022 (MoCRA). 89 Fed. Reg. 105492 (Dec. 27, 2024). MoCRA added substantial new cosmetics provisions to the Federal Food, Drug, and Cosmetic Act (FFDCA), including a requirement for the FDA to establish and require the use of standardized testing methods for detecting and identifying asbestos in talc-containing cosmetic products. For more details on MoCRA, see here.
Talc is mined as naturally occurring hydrous magnesium silicate and is used in many cosmetic products to absorb moisture, prevent caking, render makeup opaque, or improve product texture. However, the rock types that host talc deposits often also contain asbestos, which is a known carcinogen when inhaled. As noted in the Environmental Protection Agency’s latest risk evaluation for asbestos (November 2024), “If vermiculite or talc are mined from ore that also contains asbestos fibers, it is possible that the resulting vermiculite or talc minerals are contaminated with asbestos fibers.” (EPA’s risk evaluation did not consider asbestos in talc for use in cosmetics.) FDA has repeatedly monitored for asbestos in talc-containing cosmetic products, and though it found none in the products sampled in 2010 and 2023, the agency detected asbestos in 9 of 52 products it tested in 2019.
As laboratories lacked standardized testing methods that can be followed without modification to test for asbestos in talc-containing cosmetic products, MoCRA required that FDA develop such methods. This proposed rule aims to standardize testing in the industry so that the public can rely on talc-containing cosmetic products without concerns of asbestos contamination. This standardization would apply to all manufacturers of talc-containing cosmetic products, including cosmetic products that are subject to the requirements of Chapter V of the FFDCA, such as cosmetic products that are also drugs.
Proposed Testing Requirements
The proposed rule would require manufacturers to test a representative sample of each batch or lot of a talc-containing cosmetic product for asbestos using both Polarized Light Microscopy (PLM) (with dispersion staining) and Transmission Electron Microscopy (TEM)/Energy Dispersive Spectroscopy (EDS)/Selected Area Electron Diffraction (SAED). FDA proposes defining “representative sample” as “a sample that consists of a number of units drawn based on rational criteria, such as random sampling, and intended to ensure that the sample accurately portrays the material being sampled.” This definition is intended to provide flexibility and to align with the definition of “representative sample” in other FDA-covered product areas.
Under the proposed rule, a sample would be deemed to contain asbestos if asbestos is detected at or above the applicable detection limit using either method. FDA has specifically requested comment on this issue.
Additionally, the proposed rule would require manufacturers to either test each batch or lot of the talc cosmetic ingredient or rely on a certificate of analysis for each batch or lot from a qualified talc supplier. If a manufacturer chooses to rely on a talc certificate of analysis, the manufacturer must annually qualify the supplier by verifying the reported asbestos test results based on their own testing or that of a third-party laboratory to establish the certificate’s reliability.
Recordkeeping
The proposed rule would require manufacturers to keep certain records to demonstrate compliance. Manufacturers would need to keep records of testing for asbestos that show test data, including raw data, and to describe in detail how samples were tested. If a manufacturer relies on a certificate of analysis from its talc supplier, records must include any certificate of analysis received from the supplier for testing of the talc used to make the finished product, and documentation of how the manufacturer qualified the supplier by as described above.
The proposed rule would also require that these records be made available to the FDA within one business day of a request from the agency. The records would need to either be in English or have an English translation available and would need to be retained for three years after the date that the record was created. FDA is specifically soliciting comment on the timeframe for retention. The agency wants to ensure the timeframe is sufficient given the timing from testing to when the product containing the tested talc makes it to consumers and the average length of time consumers keep or use the product.
Enforcement
FDA proposes to enforce the new rule’s requirements under the FFDCA’s prohibition on the sale or distribution of adulterated cosmetics products, 21 U.S.C. § 331(a). As there is no established safe level below which asbestos could not cause adverse health effects, FDA will consider asbestos at any level in talc-containing cosmetic products to be injurious to users. Therefore, the proposed rule would codify in regulations that if asbestos is present in a talc-containing cosmetic product, or if a manufacturer fails to test its talc-containing cosmetic or its talc ingredient for asbestos or to maintain records or such testing, that cosmetic is adulterated under the FFDCA and illegal to sell or distribute.
FDA proposes that this rule become effective 30 days after the date of publication of the final rule in the Federal Register. For those interested in commenting on the proposed rule, parties must should submit comments to the docket by March 27, 2025.
As noted, MoCRA requires FDA to publish a final rule on testing talc-containing cosmetic products. With a new administration soon to take office, it is unclear whether the Trump FDA will proceed to final rulemaking once the comment period ends or take other action.
What Private Equity Investors and Real Estate Investment Trusts Need to Know About the Newly Enacted Massachusetts Health Oversight Law
On December 30, 2024, the Massachusetts state legislature passed House Bill 4653 (the Act), which significantly enhances regulatory oversight in the Massachusetts health care market. As signed into law by Governor Maura Healy on January 8, the Act will have profound effects for private equity (PE) investors and real estate investment trusts (REITs) engaging with the Massachusetts health care market. Passage of the Act comes on the heels of prominent PE-backed hospital failures in Massachusetts.
The Act Expands Existing Law and Government Infrastructure to Address Issues in Health Care Quality and Affordability
The Act overhauls the functions of, and increases coordination among, certain state agencies, including the Health Policy Commission (HPC), Department of Public Health (DPH), and the Center for Health Information and Analysis (CHIA). In addition, the Act expands the investigatory and enforcement powers of the Massachusetts Attorney General (MA AG) as it relates to health care activities, with particular attention to private equity investors, REITs, and management services organizations (MSOs). The Act does the following:
Increases HPC Oversight for PE Investors, REITs, and MSOs
The HPC is a Massachusetts government agency charged with monitoring health care cost trends and reviewing certain “material changes” to health care providers (e.g., proposed changes in ownership, sponsorship, or operations by health care providers). The Act broadens the scope of the HPC cost trend hearings to encompass a review of pharmaceutical manufacturers, pharmacy benefit managers (PBMs), PE investors, REITs, and MSOs. Additionally, Registered Provider Organizations (RPO) now must disclose ownership information about PE investors, REITs, and MSOs to HPC.
The bill amends the HPC Material Change Notification (MCN) process and now stipulates that the following activities are material changes for providers and provider organizations, in addition to certain mergers, affiliations, and acquisitions:
Significant expansions in capacity.
Transactions involving a significant equity investor which result in a change of ownership or control.
Significant transfers of assets, including, but not limited to, real estate sale leaseback arrangements.
Conversion from a non-profit to a for-profit organization.
In addition to expanding the scope of the MCN process, the Act allows the HPC to make and refer to the MA AG a report on certain proposed material change transactions, which creates a rebuttable presumption that the provider or provider organization has engaged in unfair or deceptive trade practices. Upon receipt of such a report, the MA AG is permitted to seek legal redress, including injunctive relief, and the proposed material change cannot be completed while that legal action remains pending.
Expands CHIA Oversight of PE Investors, REITs, and MSOs
CHIA is an existing Massachusetts government agency that is generally charged with improving transparency and equity in the health care delivery system. Significant among CHIA’s responsibilities is the collection, evaluation, and reporting of financial information from certain health care organizations. The Act expands CHIA’s oversight in the following ways:
As with the HPC, expands RPO reporting requirements to include PE investors, REITs, MSOs, and certain other entities.
Increases financial penalties for failure to make timely reports to CHIA.
Expands hospital financial information reporting and monitoring requirements as to relationships with significant equity investors, REITs, and MSOs.
Requires CHIA to notify HPC and DPH of failures to comply with reporting requirement which, in turn, will be considered by HPC and DPH in their review and oversight activities.
Increases DPH Oversight and Authority to Include Hospitals with PE Investor or REIT Relationships
The Act expands DPH health facility licensure and Determination of Need (DON) oversight and authority in a variety of ways:
Charges DPH with establishing licensure and practice standards for office-based surgical centers and urgent care centers.
Directs that the Board of Registration in Medicine be under the oversight of DPH in certain ways.
Amends the DON review process for projects, which will be guided by considerations that include the state health plan, the state’s cost-containment goals, impacts on patients and the community, and comments and relevant data from CHIA, HPC, and other state agencies. DPH may impose reasonable conditions on the DON as necessary to achieve specified objectives, including measures to address health care disparities to better align with community needs. The DPH may also consider special circumstances related to workforce, research, capacity, and cost. These special needs and circumstances may pertain to a lack of supply for a region, population, or service line as identified in the state health plan or focused assessments.
Prohibits DPH from granting or renewing a license for an acute care hospital if its main campus is leased from a REIT. However, any acute care hospital leasing its main campus from a REIT as of April 1, 2024, is exempt from this prohibition.
Prohibits DPH from granting or renewing a hospital license unless all documents related to any lease, master lease, sublease, license, or any other agreement for the use, occupancy, or utilization of the premises are disclosed to DPH.
Prohibits DPH from granting or renewing any hospital license unless the applicant is in compliance with all CHIA reporting requirements.
Permits DPH to seek an HPC analysis on the impact of a proposed hospital closure or discontinuation of services.
Expanded MA AG Authority Over PE Investors, REITs, and MSOs
In addition to the MA AG authority noted above in seeking to enjoin transactions that create concern for the HPC, the Act expands the MA AG’s investigatory powers pertaining to false claims to encompass document production, answering interrogatories, and providing testimony under oath by provider organizations, significant equity investors, health care REITs, and MSOs. Similarly, and significantly, the MA AG’s authority to seek civil monetary penalties for health care false claims act violations is expanded to include those parties that have an ownership or investment interest in a violating party.
Key Takeaways
The Massachusetts legislature aims to improve the quality and affordability of health care in the Commonwealth by increasing transparency of private investment in the health care market. The Act overhauls and increases coordination among state agencies like the HPC, DPH, and CHIA, and expands the investigatory and enforcement powers of the MA AG. For-profit investors and REITs must be aware of the following provisions of the Act to avoid civil penalties and state-sanctioned injunctions, and in planning for transactions and investments in Massachusetts:
Increased HPC Oversight: The HPC’s annual cost trend includes reviews of pharmaceutical manufacturers, PBMs, PE investors, REITs, and MSOs. New MCNs (significant expansions, equity investor transactions, asset transfers, and organizational conversions) must be reported to HPC in a timely manner.
Increased CHIA Oversight: CHIA’s scope of oversight for RPOs includes PE firms, REITs, and MSOs. The Act increases financial penalties for providers’ noncompliance and enhances hospital financial reporting. CHIA must inform HPC and DPH of providers’ reporting failures, which will influence HPC and DPH oversight activities.
Increased DPH Authority: DPH’s oversight now includes development and implementation of licensure standards for surgical and urgent care centers. DPH may not issue or renew licenses for acute care hospitals leasing their main campus from an REIT, subject to the April 1 exemption, or to a party not in compliance with CHIA reporting requirements. DPH also has increased authority to require information regarding leasing and other operational contracts prior to issuing a hospital license.
Increased MA AG Authority: The MA AG’s powers are expanded to include investigatory and enforcement actions against false claims involving PE investors, REITs, and MSOs.
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