CFPB Alleges Credit Reporting Agency Conducted Sham Investigations of Errors
On January 7, 2025, the CFPB filed a lawsuit against a nationwide consumer reporting agency for violations of the Fair Credit Reporting Act. The lawsuit claims the company’s investigation of consumer disputes was inadequate, specifically criticizing their intake, processing, investigation, and customer notification processes. The lawsuit also alleges the company reinserted inaccurate information on credit reports, which the agency alleges harmed consumers’ access to credit, employment, and housing. In addition to FCRA, the Bureau alleges that the company’s faulty intake procedures and unlawful processes regarding consumer reports violated the Consumer Financial Protection Act’s (CFPA) prohibition on unfair acts or practices.
Specifically, the Bureau alleges the company:
Conducted sham investigations. The CFPB claims the company uses faulty intake procedures when handling consumer disputes, including not accurately conveying all relevant information about the disputes to the original furnisher. The company also allegedly routinely accepted furnisher responses to the disputes without an appropriate review such as when furnisher responses seemed improbable, illogical, or when the company has information that the furnisher was unreliable. The Bureau also alleged the company failed to provide consumers with investigation results and provided them ambiguous, incorrect, or internally inconsistent information.
Improperly reinserted inaccurate information on consumer reports. The CFPB alleged the company failed to use adequate matching tools, leading to reinsertion of previously deleted inaccurate information on consumer reports. Consumers who disputed the accuracy of an account and thought their consumer report had been corrected instead saw the same inaccurate information reappear on their consumer report without explanation under the name of a new furnisher.
Putting It Into Practice: This lawsuit reflects a broader trend of the CFPB’s increased regulatory scrutiny of FCRA compliance. (previously discussed here, here, and here). The CFPB has demonstrated a focus on ensuring the accuracy and integrity of consumer credit information. Consumer reporting agencies should proactively review their policies and procedures related to dispute investigation, data handling, and furnisher interaction to ensure they are in compliance with all aspects of the FCRA.
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CFPB Sues Mortgage Lender for Predatory Lending Practices in Manufacture Homes Loans
On January 6, 2025, the CFPB filed a lawsuit against a non-bank manufactured home financing company for violations of the Truth in Lending Act and Regulation Z. The lawsuit alleges that the mortgage lender engaged in predatory lending practices by providing manufactured home loans to borrowers it knew could not afford them.
According to the CFPB, the mortgage lender allegedly ignored “clear and obvious red flags” indicating the borrowers’ inability to afford the loans. This resulted in many families struggling to make payments, afford basic necessities, and facing fees, penalties, and even foreclosure. The Bureau alleges the lender failed to make reasonable, good-faith determinations of borrower’s ability to repay, as required by the Truth in Lending Act (TILA) and Regulation Z.
The CFPB’s lawsuit specifically claims that the lender:
Manipulated lending standards. The mortgage lender disregarded clear and obvious evidence that borrowers lacked sufficient income or assets to meet their mortgage obligations and basic living expenses. On some occasions, borrowers who were already struggling financially were approved for loans, worsening their financial situation.
Fabricated unrealistic estimates of living expenses. The company justified its determination that borrowers could afford loans by using artificially low estimates of living expenses. The estimated living expenses were about half of the average of self-reported living expenses for other, similar loan applicants.
Made loans to borrowers projected to be unable to pay. The lender approved loans despite the company’s own internal estimates indicating the borrower’s inability to pay.
Putting It Into Practice: As Chopra’s term wraps out, the Bureau is on a frantic mission to file as many lawsuits as it can for its ongoing enforcement matters. How that will impact the incoming administration remains to be seen. But it seems likely that a new CFPB Director will take a hard look at much of the active litigation and re-evaluate the Bureau’s position.
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DOJ Announces Third Settlement with a Non-Depository Lender to Resolve Alleged Redlining Claims
On January 7, 2025, the United States Department of Justice (the “DOJ”) announced that a non-depository mortgage lender has agreed to pay $1.75 million in connection with allegations that it engaged in a pattern or practice of lending discrimination by redlining predominantly Black and Hispanic neighborhoods.
The DOJ filed its underlying complaint in the Southern District of Florida alleging that the lender violated the Fair Housing Act and Equal Credit Opportunity Act by failing to equitably provide access to mortgage lending services to majority-Black and Hispanic neighborhoods and high-Black and Hispanic neighborhoods in the Miami-Fort Lauderdale-West Palm Beach, Florida, Metropolitan Statistical Area (“Miami MSA”). According to the DOJ, the lender set up offices in predominantly white neighborhoods and made insufficient efforts to market their services or develop their network in Black or Hispanic neighborhoods, which resulted in the company generating mortgage loan applications within such neighborhoods at rates far below peer institutions.
The DOJ’s proposed consent order, if entered by the court, will require the lender to take certain measures to rectify its practices, including:
Community Credit Needs Assessment. Conducting an assessment to identify the credit needs of residents in predominantly Black and Hispanic neighborhoods, using the results to develop future loan programs and marketing campaigns.
Loan Subsidy Program. Providing $1.75 million for a loan subsidy program offering affordable home purchase, refinance, and home improvement loans in predominantly Black and Hispanic neighborhoods in the Miami MSA.
Fair Lending Program Assessment. Conducting a detailed assessment of its fair lending program, focusing on fair lending obligations to predominantly Black and Hispanic neighborhoods in the Miami MSA.
Enhanced Training and Staffing. Enhancing fair lending training and staffing, including maintaining a Director of Community Lending.
Outreach and Advertising Expansion. Maintaining an office location in a majority-Black and Hispanic neighborhood in Miami-Dade County, translating its website into Spanish, and requiring loan officers to engage in marketing to these neighborhoods.
Community Engagement. Providing four outreach events and six financial education seminars per year, partnering with community organizations to increase credit access in predominantly Black and Hispanic neighborhoods in the Miami MSA.
Putting it into Practice: This settlement follows a series of other recent redlining settlements by the CFPB and DOJ (previously discussed here, here, and here). It is also the third involving a non-depository institution. With the upcoming change in administration this month, regulators may remain eager to pursue settlements of pending fair lending investigations.
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MBTA Communities Act: Next Steps
Massachusetts SJC Upholds MBTA Communities Act on Constitutional Grounds, but Rules Ineffective on Procedural Grounds
Background
If you already have the background, please jump to the end of this article for a discussion of next steps.
The MBTA Communities Act (“§ 3A” or the “Act”) was established in response to the ongoing housing crisis in Massachusetts.[1] Among other things, the law requires cities and towns with access to MBTA services to implement zoning laws that allow for at least one district of multifamily housing “as of right” near local MBTA stations.[2] Under § 3A, each MBTA community[3] must maintain multifamily housing districts of “reasonable size,” in addition to other requirements set forth in the statute: such districts must meet a minimum gross density measurement of 15 units per acre; be located not more than 0.5 miles from an MBTA facility (commuter rail, subway, ferry, or bus station, as applicable); and must be suitable for families with children and must not contain age restrictions.[4]
MBTA communities that do not comply with § 3A are ineligible for certain State funding sources—such as the Housing Choice Initiative, the Local Capital Projects Fund, the MassWorks infrastructure program, and the HousingWorks infrastructure program—but notably, a municipality cannot simply choose not to comply with § 3A.[5] The plain language of the statute requires compliance: “municipalities shall have a zoning ordinance or by-law that provides for [multifamily housing as of right].”[6]
The town of Milton had initially taken steps to comply with § 3A: its planning board had discussed implementation, it received grant money to hire a design consultant to create a zoning plan, and submitted its “action plan” to the Executive Office of Housing and Livable Communities (HLC) seeking a determination of “interim compliance” with § 3A.[7] In February of 2024, however, Milton held a referendum, and the voters rejected the proposed zoning plan by a margin of 8%. Thereafter, the Attorney General filed its complaint against the town to enforce compliance with § 3A.
The Supreme Judicial Court’s January 8, 2025 Decision
In Attorney General v. Town of Milton, et al., the town’s position was threefold: that § 3A “provides for an unconstitutional delegation of legislative authority, that the Attorney General lacks the power to enforce the [A]ct, and that HLC’s guidelines were not promulgated in accordance with the [Administrative Procedure Act (APA)].”[8]
First, Milton argued that § 3A is legally ineffective because the HLC failed to implement the Act in accordance with the APA.[9] The Court agreed, citing the central function of the APA—G. L. c. 30A—which is to “establish a set of minimum standards of fair procedure below which no agency should be allowed to fall and to create uniformity in agency proceedings.”[10] In response, the Attorney General contended that HLC is exempt from the APA procedure because 30A “directs the agency to promulgate ‘guidelines’ rather than ‘regulations.’” Even if the APA applied, the Attorney General argued, the HLC nonetheless substantially complied with the statute and any omissions were therefore harmless.[11] The Court rejected both arguments: “Given the breadth, detail, substance, and mandatory requirements of the HLC guidelines . . . we reject the agency’s position that the ‘guidelines’ . . . are meant to be exempt from the APA[.]”[12] Here, the guidelines direct HLC to create compliance parameters for MBTA communities, such as detailing what is needed to achieve a “reasonably sized” zoning district. Moreover, the guidelines set forth the manner by which the HLC determines density requirements and whether all of a community’s multifamily housing must be situated within one-half mile of the designated § 3A MBTA facility. Finally, the guidelines define and establish the application process for “as of right” zoning of multifamily housing near MBTA facilities.[13] Taken together, the Act’s “guidelines” fall within the scope of 30A and must, therefore, be promulgated pursuant to the APA’s requirements. 30A, §5 requires agencies engaged in the rulemaking process to, among other requirements, file notice of proposed regulation—which includes a notice of public hearing—with the Secretary of the Commonwealth, along with a small business impact statement, both of which HLC admitted it did not do.[14] The APA leaves no room for “substantial compliance,” but rather strict compliance is required for agencies promulgating rules under 30A.[15] Notably, it also appeared that HLC failed to file a fiscal impact statement with the Secretary of the Commonwealth, which is also required by 30A. The Court, concluding, stated “because HLC failed to comply with the APA, HLC’s guidelines are legally ineffective and must be repromulgated in accordance with G. L. c. 30A, § 3, before they may be enforced.”[16]
Second, Milton argued the Legislature’s delegation of authority to the HLC violated the separation of powers doctrine because § 3A gives HLC the power to require “transformative zoning changes” in MBTA communities.[17] The Court rejected the town’s position based on three factors: first, the Legislature routinely assigns to others the implementation of a policy adopted by statute; second, the Act provided “intelligible” parameters to allow the HLC to make determinations as to whether an MBTA community was in compliance with the Act; and finally, under § 3A, the HLC was guided by principles of reasonableness as well as content limitations, and the Act required the HLC’s consultation with other State agencies in the promulgation of its guidelines, which “sufficiently demarcate[s] the boundaries of regulatory discretion.[18]
Finally, Milton argued the Attorney General could not enforce § 3A because there was no explicit grant of authority in the act, but the court rejected such reasoning, citing the Attorney General’s broad power to enforce the laws of the Commonwealth in addition to the Attorney General’s duty to “represent the public interest and enforce public rights.”[19] Moreover, the fact that § 3A already included consequences for noncompliance—e.g. lack of certain funding opportunities—does not foreclose the Attorney General’s power to enforce equitable relief particularly where, as here, “converting [the] legislative mandate into a matter of fiscal choice” would frustrate the Legislature’s purpose in adopting the statute.[20]
Next Steps
Multiple sources have reported on Governor Healey’s intention to have the HLC file new emergency regulations by the end of the week. While the emergency regulations would be effective immediately upon filing, it is unclear what alternate compliance deadline(s) might be established on municipalities or whether new emergency guidelines would face a court challenge for violating the APA, particularly if the filing by HLC is a perfunctory compliance with the APA procedural requirements only. The establishment of new compliance deadlines is politically sensitive: very near term deadlines could be deemed punitive, whereas distant deadlines could be viewed as accommodating the communities which have not been prompt to comply. Although 30A, § 2(5) states that emergency regulations shall not remain in effect for longer than three months, an agency may prolong such three-month period if during that time it gives notice and holds a public hearing, and files notice of compliance with the Office of the Secretary of State.
[1] See Multi-Family Zoning Requirement for MBTA Communities, Mass.gov (Nov. 22, 2024), https://www.mass.gov/info-details/multi-family-zoning-requirement-for-mbta-communities.
[2] See Compliance Guidelines for Multi-family Zoning Districts Under Section 3A of the Zoning Act, Commonwealth of Mass. Exec. Off. Hous. & Livable Cmtys. (revised Aug. 17, 2023), https://www.mass.gov/doc/compliance-guidelines-for-multi-family-zoning-districts-under-section-3a-of-the-zoning-act/download [hereinafter Compliance Guidelines].
[3] See id. at 4 (An “MBTA community” is “one of the ‘14 cities and towns’ that initially hosted MBTA service; one of the ‘51 cities and towns’ that also host MBTA service but joined later; other ‘served communities’ that abut a city or town that hosts MBTA service; or a municipality that has been added to the MBTA under G.L. c. 161A, sec. 6 or in accordance with any special law relative to the area constituting the authority.”).
[4] See id. at 1.
[5] See Attorney General v. Town of Milton, et al., SJC No. 13580, slip op. at 6, n.6 (Mass. Jan. 8, 2025).
[6] See Compliance Guidelines, supra note 2, at 1.
[7] See Milton, slip op. at 7.
[8] See id. at 9.
[9] See id. at 18.
[10] See id. (internal citations and quotations omitted).
[11] See Attorney General v. Town of Milton, et al., SJC No. 13580, slip op. at 19 (Mass. Jan. 8, 2025).
[12] See id. at 19-20.
[13] See id. at 19-20.
[14] See id. at 21.
[15] See Milton, slip op. at 21-22 (internal citations and quotations omitted).
[16] See id. at 22.
[17] See Attorney General v. Town of Milton, et al., SJC No. 13580, slip op. at 9 (Mass. Jan. 8, 2025).
[18] See id. at 10-13.
[19] See id. at 9, 14-16.
[20] See id. at 14-15.
Massachusetts Governor Maura Healey Signs into Law a Sweeping Health Care Market Oversight Bill
On January 8, 2025, Massachusetts Governor Maura Healey signed into law House Bill No. 5159, “An Act enhancing the health care market review process” (“H. 5159”), which was passed by the Massachusetts legislature in the last few days of 2024.
The bill will implement greater scrutiny of certain health care entities and affiliated companies—including private equity sponsors, significant equity investors, health care real estate investment trusts (“REITs”), and management services organizations (“MSOs”)—as well as pharmaceutical companies and pharmacy benefit management companies (“PBMs”) in the Commonwealth.
The passage of H. 5159 follows debate between the House and Senate earlier in 2024 over similar bills, which failed to pass during the summer legislative session. Notably, similar bills included debt limitations on certain private investor-backed entities and bans of certain private equity investments, as well as significant restrictions on the MSO business model. However, these restrictions (among various others) were stripped from H. 5159.
Although H. 5159 has widespread implications for health care entities in the Commonwealth, a significant portion of the bill is clearly aimed at increasing regulatory oversight of for-profit-backed health care organizations through increased regulatory oversight of certain health care transactions and expanded reporting obligations. The bill also seeks to contain health care costs, including by increasing oversight of pharmaceutical company and PBM arrangements.
Below in this alert we highlight some of the more significant provisions of H. 5159.
Health Policy Commission – Notices of Material Change
H. 5159 extends the authority of the Health Policy Commission (“HPC”) in the context of notices of material change under M.G.L. c. 6D § 13 (“Notices of Material Change”) to indirect owners and affiliates of health care providers, such as private equity companies, significant equity investors, MSOs, and health care REITs.
The bill also broadens the transactions that are subject to the HPC’s Notice of Material Change requirements to include (i) significant expansions in capacity of a provider or provider organization; (ii) transactions involving a significant equity investor resulting in a change of ownership or control of a provider or provider organization; (iii) real estate sale lease-back arrangements and other significant acquisitions, sales, or transfers of assets; and (iv) conversions of a provider or provider organization from a non-profit to a for-profit.
In the context of the HPC’s review of a Notice of Material Change, the HPC will be authorized to require the submission of documents and information from significant equity investors, such as information regarding the significant equity investor’s capital structure, financial condition, ownership and management structure, and audited financials.
H. 5159 also implements other related changes, such as reducing the market share threshold for mergers or acquisitions to be subject to the Notice of Material Change process (from “near majority” to “dominant” market share), enhancing the HPC’s authority to monitor post-transaction impacts, and expanding the review criteria for a cost and market impact review.
Health Policy Commission – Registration of Provider Organizations
Under H. 5159, the data and information collected under the HPC’s Massachusetts Registration of Provider Organizations Program (“MA-RPO Program”) will now also cover ownership, governance, and operational structure information of significant equity investors, health care REITs, and MSOs. H. 5159 also amends the MA-RPO Program reporting threshold to include revenue generated from payers other than commercial payers, such as governmental payers.
Health Policy Commission – Annual Cost Trends Hearing
As a complement to the increased authority discussed above, the list of stakeholders required to testify at the HPC’s Annual Cost Trends Hearing is expanded to include, among others, significant equity investors, health care REITs, and MSOs as well as PBMs and pharmaceutical companies.
Testimony from significant equity investors, health care REITs, and MSOs must cover topics such as health outcomes, prices, staffing levels, clinical workflow, financial stability and ownership structure of associated providers or provider organizations, dividends paid out to investors, and compensation (e.g., base salaries, incentives, bonuses, stock options, deferred compensation, benefits, and contingent payments to officers, managers, and directors of provider organizations owned or managed by the significant equity investors, health care REITs, or MSOs.
Testimony from PBMs and pharmaceutical companies must cover topics such as factors underlying drug costs and price increases as well as the impact of aggregate manufacturer rebates, discounts, and other price concessions on net pricing (provided that the testimony will not undermine the financial, competitive, or proprietary nature of the data).
H. 5159 further expands the topics covered by HPC’s Annual Cost Trends Hearings to expressly include costs, prices, and cost trends of providers, provider organizations, private and public payers, pharmaceutical companies, and PBMs as well as any impact of significant equity investors, health care REITS, or MSO on those costs, prices, and cost trends.
Health Policy Commission and CHIA – Operations Assessments
H. 5159 expands the categories of entities required to pay assessments to help fund the HPC and Center for Health Information and Analysis (“CHIA”) to include “non-hospital provider organizations,” pharmaceutical companies, and PBMs. A “non-hospital provider organization” is defined as any provider organization registered under the MA-RPO Program that is a non-hospital-based physician practice with annual gross patient service revenue of at least $500 million, a clinical laboratory, an imaging facility, or a network of affiliated urgent care centers. The methodology for calculating the amount assessed against each entity is based on entity type and the total amount appropriated by the Massachusetts legislature for the operation of HPC and CHIA.
CHIA – Reporting Requirements
Under H. 5159, CHIA will collect additional information from acute and non-acute care hospitals regarding their parent organizations and significant equity investors, health care REITs, and MSOs. Such information includes the audited financial statements of parent organizations’ out-of-state operations, significant equity investors, health care REITs, and MSOs, as well as financial data on margins, investments, and any relationships with significant equity investors, health care REITs, and MSOs.
H. 5159 also expands the scope of CHIA’s data collection under the MA-RPO Program. Notably, information subject to annual reporting will include, in relevant part, (i) comprehensive financial statements that include data on parent entities (including their out-of-state operations), corporate affiliates (including significant equity investors, health care REITs, and MSOs, as applicable), annual costs, annual receipts, realized capital gains and losses, accumulated surplus, and accumulated reserves; and (ii) information regarding other assets and liabilities that may affect the financial condition of the provider organization or the provider organization’s facilities (e.g., real estate sale-leaseback arrangements with health care REITs).
H. 5159 further provides that CHIA may require in writing, at any time, such additional information as CHIA deems reasonable and necessary to determine a registered provider organization’s organizational structure, business practices, clinical services, market share, or financial condition, including information related to its total adjusted debt and total adjusted earnings.
CHIA will also have the authority to require registered provider organizations with private equity investment to report required information on a quarterly basis and require disclosure of relevant information from any significant equity investor associated with a registered provider organization. CHIA may also assess increased penalties for non-compliance with these reporting requirements.
Acute and non-acute care hospitals and registered provider organizations should note that, pursuant to M.G.L. c. 12C § 17, the Massachusetts Attorney General (“AG”) may review and analyze any information submitted to CHIA under M.G.L. c. 12C §§ 8, 9, and 10. Thus, the AG may review and analyze all information regarding significant equity investors, health care REITs, and MSOs submitted to CHIA under H. 5159’s expanded reporting requirements.
Department of Public Health (“DPH”) – Determinations of Need
With exceptions, existing Massachusetts law forbids entities from making substantial capital expenditures for the construction of a health care facility or substantially changing the service of the facility unless DPH has approved a determination of need application (“DON”). H. 5159 expands and clarifies DPH considerations in reviewing a DON. These include (i) the state health resource plan; (ii) the Commonwealth’s cost containment goals; (iii) the impacts on the applicant’s patients, including considerations of health equity, the workforce of surrounding health care providers and on other residents of the commonwealth; and (iv) any comments and relevant data from CHIA and the HPC, and any other state agency. H. 5159 codifies a current DPH regulation allowing the period of time DPH has to review a DON to toll if an independent cost-analysis is required and clarifies the effective date of a determination of need issued to holders subject to cost and market impact reviews and/or performance improvement plans. Finally, the legislation adds that a party of record may review a DON for which it is appropriately registered and provide written comment or specific recommendations for consideration by DPH.
Department of Public Health – Licensure of Acute-Care Hospitals
H. 5159 adds provisions to the licensure process of acute-care hospitals, mandating that no original license shall be granted or renewed to establish or maintain such facilities if the main campus of the acute-care hospital is leased from a health care REIT (with an exemption for those acute-care hospitals leasing a main campus from a health care REIT as of April 1, 2024). An exempt acute-care hospital shall remain exempt “after a transfer to any transferee and subsequent transferees,” and those transferees shall be issued a license upon meeting all other requirements. “Main campus” is defined in H. 5159 as “the licensed premises within which the majority of inpatient beds are located.” Additional new licensure requirements for acute-care hospitals mandate the disclosure of documents to DPH relating to leases, licenses, or other agreements for the use, occupancy, or utilization of the premises occupied by the acute-care hospital. Acute-care hospitals also must remain in compliance with applicable reporting requirements.
Department of Public Health – Licensure of Office-Based Surgical Centers
H. 5159 mandates that DPH, in consultation with the Massachusetts Board of Registration in Medicine, establish rules, regulations, and practice standards for the licensing of office-based surgical centers by October 1, 2025. Such licensure will be effective for an initial period of two years and subject to renewal. Pursuant to H. 5159, DPH may impose a fine of up to $10,000 on (1) a person or entity advertising, announcing, establishing, or maintaining an office-based surgical center without a license and (2) a licensed office-based surgical center that violates DPH’s forthcoming rules and regulations. Each day during which a violation continues will constitute a separate offense, and DPH may conduct surveys and investigations to enforce compliance. Notwithstanding the foregoing, H. 5159 permits DPH to grant a one-time provisional license to applicant office-based surgical centers if such applicants hold a (1) current accreditation from the Accreditation Association for Ambulatory Health Care, American Association for Accreditation of Ambulatory Surgery Facilities, or the Joint Commission; or (2) current certification for participation in Medicare or Medicaid, and DPH determines that such applicants meet all other licensure requirements.
Attorney General’s Office – False Claims Statute
H. 5159 amends the Massachusetts False Claims Statute to extend potential liability to those with an “ownership or investment interest” in an entity that violates the statute, if such owner or investor knows of the violation and fails to disclose it to the Commonwealth within 60 days of identifying the violation. As a result, the AG has broadened authority to pursue actions against private equity companies and other owners or investors for not addressing a violation of the False Claims Act of which they are aware, regardless of whether the private equity company or other owner or investor caused the violation. Notably, the definition of “ownership or investment interest” captures significant equity investors, as defined elsewhere in the bill, as well as private equity companies with any investment or ownership interest in an entity that violates the statute.
Primary Care Payment and Delivery Task Force
H. 5159 also establishes a 23-member primary care payment and delivery task force (“Task Force”) charged with (i) studying primary care access, delivery, and payment; (ii) developing and issuing recommendations to stabilize and strengthen the primary care system and increase recruitment and retention of primary care workers; and (iii) increasing investment in, and patient access to, primary care in the Commonwealth.
Among other recommendations, the Task Force must create a primary care spending target for private and public payers that takes into account the cost to deliver evidence-based, equitable, and culturally competent primary care services and propose payment models to increase private and public reimbursement for primary care services.
The bill requires the Task Force to issue its first recommendations by September 15, 2025, and requires recommendations to be issued in a sequential manner thereafter, through May 15, 2026.
Takeaways
The true impact of H. 5159 will depend in large part on the regulatory bodies tasked with enforcement and implementation of its provisions. Importantly, we expect that HPC, which has been petitioning the legislature for greater oversight authority over the past several years to review private equity health care investments in Massachusetts, will play a central role in determining the level of scrutiny for-profit investors in hospital systems and provider organizations will face moving forward.
Ann W. Parks contributed to this article
TMA Chicago Midwest Podcast Hosted by Paul Musser | Chapter President David Levy Talks How to ‘Make It Rain,’ Distressed Deal Financing and the State of Commercial Real Estate [Podcast]
For the first 2025 episode of the TMA Chicago Midwest Podcast, Insolvency and Restructuring Partner and host Paul Musser sat down with David Levy, the newly appointed President of the Turnaround Management Association’s (TMA) Chicago/Midwest Chapter. David, who also leads Chicago/Midwest operations for Summit Investment Management and Keen-Summit Capital Partners, shared insights from his journey in restructuring, his aspirations for the TMA chapter in 2025, and his background in distressed debt and real estate markets.
While describing the path that led him to become TMA’s president, David said that he has been driven by his recognition of the incredible network and opportunities that the organization provides, highlighting the importance of a community that supports its members’ professional growth. Following a simple encouragement from his boss at the time to get involved, David developed meaningful connections and assumed roles within the organization, including his participation in TMA’s membership committee. He went on to emphasize the collegial atmosphere and dynamic nature of TMA, where individuals from a multitude of professional backgrounds come together to solve complex problems and support each other’s growth.
As its 2025 president, David shared that he aims to celebrate the strengths of TMA’s Chicago/Midwest Chapter while introducing new initiatives. His primary goals are to enhance membership engagement and create a pipeline for future members through university relations. He also plans to leverage professional development programs, such as the popular “13-Week Cash Flow” webinar, to spread the word about TMA’s work with a focus on exploring opportunities in the large-cap sector. David’s theme for the year, “Make It Rain,” reflects his goal of inspiring members to leverage TMA for business growth and to help the broader restructuring industry recognize the impact of their work.
David also delved into the current state of the real estate market and, as the podcast’s first guest in the distressed debt area, the role of distressed note buyers such as Summit Investment Management in the restructuring field. He noted that while market conditions have improved, there is still a significant amount of distressed commercial real estate that needs to be addressed. Distressed note buyers play a crucial role in managing and resolving these troubled assets, offering solutions that range from purchasing distressed debt and providing bridge loans to facilitating structured workouts.
Throughout the episode, David underscored the importance of networking and business development, marketing oneself and participating in professional organizations such as TMA. He concluded by advising those who are just starting out in the industry to invest time in building relationships and be proactive in their marketing efforts. By consistently engaging with their network and being helpful to others, they can then position themselves as valuable resources and create opportunities for career growth. David’s insights and experiences serve as a testament to the power of community and the impact of strategic networking, particularly in the insolvency and restructuring industry.
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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HUD’s Proposed ORCA Program – A New Option for Earlier Mortgagee Reimbursement
On December 19, 2024, the Fair Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD) published a draft Mortgagee Letter proposing a new Optional Reimbursement Claim Alternative (ORCA) program. ORCA is intended to allow mortgagees to seek reimbursement for property tax and insurance payments the mortgagee advances on behalf of forward mortgage borrowers before the final claim payment.
Overview of ORCA
As outlined in the draft Mortgagee Letter, ORCA enables mortgagees to file early claims for reimbursement of advances made toward property taxes, hazard insurance, and flood insurance on defaulted forward mortgages. Currently, these costs are reimbursed only after the final resolution of a claim to HUD, meaning mortgagees are required to incur significant upfront costs for an uncertain period of time. The draft Mortgagee Letter recognizes that in the current higher interest rate environment these upfront costs are potentially exacerbating mortgagee liquidity issues.
If enacted, ORCA will allow mortgagees to make multiple claims during a single default episode. The term “single default episode” is not defined, but given FHA’s definition of “default,” a “single default episode” would likely encompass the period in which a borrower is at least 30 days delinquent under the mortgage until the borrower cures the delinquency. For a single default episode, mortgagees can claim up to 48 months of payments for eligible expenses, provided they meet the following eligibility requirements:
All property taxes and insurance obligations are paid before the due date;
The escrow funds intended for these expenses “were exhausted and were inadequate to meet these obligations;”
The delinquency/default code accurately reflects that the relevant mortgage has been in default for at least six months; and
The maximum allowable ORCA claims have not already been filed for a particular default.
In addition to the eligibility requirements above, mortgagees should be aware that initial ORCA claims can be submitted six months from the initial date of default, with subsequent claims allowed “no less than six months from the date the previous ORCA was filed.” Additionally, mortgagees will be required to maintain copies of all ORCA claims, as well as detailed servicing and transaction histories supporting the amounts claimed. Mortgagees should be sure to review the draft Mortgagee Letter to get a better understanding of the detailed proposed changes to the FHA Single Family Housing Policy Handbook related to the implementation of the ORCA program.
Takeaways
ORCA appears to offer mortgagees a positive new avenue for FHA claims that will likely ease liquidity pressures during the mortgage servicing process. By facilitating earlier reimbursement, HUD seems to recognize the need to mitigate the financial burdens mortgagees face and better position them to effectively service FHA mortgages. In light of the potential impact ORCA could have, we encourage mortgagees and other industry participants to review the draft Mortgagee Letter announcement and to provide feedback by the response deadline of March 3, 2025.
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Preparing for a Restaurant Financing or Sale Transaction: Considerations for 2025
Go-To Guide:
Restaurant Industry Observations for 2025
The Importance of ‘Transaction Fitness’
Corporate/Company Documentation
Intellectual Property/Trademarks
Leases/Real Estate
Employees and Labor-Related Matters
Tax
Licenses & Permits
Material Contracts
Information Privacy and Security Laws
Franchising Matters
Restaurant leaders and investors enter 2025 with cautious transaction optimism. As expected, 2024 proved a challenging year for many restaurant groups. Inflation, new legislation in parts of the country (i.e., the FAST Act in California and elimination of the tip credit in some markets), cost-conscious consumers, and escalating labor and food costs kept operators scrambling on multiple fronts.
Although challenges may persist in 2025, the prevailing sentiment among some operators and investors is that the business climate will improve and transaction activity may increase.
This may serve as welcome news for restaurant businesses seeking to engage in a sale or financing process.
As we focus on our New Year’s resolutions, for those restaurant businesses contemplating a transaction in 2025, a commitment to getting your company in “transaction shape” is a worthy goal.
Continue reading the full GT Advisory.
Additional Authors: Alison R. Weinberg-Fahey, Ryan C. Bykerk, Jason B. Jendrewski, Alicia Sienne Voltmer, Ellen M. Bandel, Joseph J. Curran, Jeffrey K. Ekeberg, David A. Zetoony, Kyle C. Lennox, David W. Oppenheim, and Breton H. Permesly
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