Massachusetts Enhances Regulatory Oversight of Health Care Transactions on For-Profit and Private Equity Investments

Massachusetts has expanded regulatory oversight of health care transactions by imposing False Claims Act liability on health care owners and investors for changes including failure to disclose violations. On January 8, 2025, Governor Maura Healey signed into law H.5159, An Act enhancing the market review process (the Act). Among other matters, the Act aims to strengthen oversight of private equity investors and related entities in the health care industry, including the expansion of the investigatory and enforcement powers of the Massachusetts Attorney General as they relate to health care activities. The Act also intends to fill perceived gaps in regulatory oversight, that many view as contributors to the Steward Health Care bankruptcy and related hospital closures across Massachusetts, by directly addressing regulation of for-profit health care entities and private equity ownership.

The following Act provisions expand the authority of the Massachusetts Health Policy Commission (HPC), Center for Health Information and Analysis (CHIA), and Attorney General’s Office (AGO) to oversee private equity investors and related entities, including through expansions of HPC’s existing oversight authority and extension of the Commonwealth’s state False Claims Statute (MA FCA) to owners and investors of violators. The Act also contains myriad changes impacting the health care industry. It strengthens regulatory oversight over private equity, pharmacy benefit managers, real estate investment trusts (REITs), management service organizations (MSOs), and other industry participants.

Expansions of HPC and AGO authority under the Act:

• Establish new definitions for entities involved in, or related to, private equity operations [1]:
  • “Health care real estate investment trust,” a real estate investment trust, as defined by 26 U.S.C § 856, whose assets consist of real property held in connection with the use or operations of a provider or provider organization.
  • “Private equity company,” any company that collects capital investments from individuals or entities and purchases, as a parent company or through another entity that the company completely or partially owns or controls, a direct or indirect ownership share of a provider, provider organization or management services organization; provided, however, that “private equity company” shall not include venture capital firms exclusively funding startups or other early-stage businesses.
    “Significant equity investor,” (i) any private equity company with a financial interest in a provider, provider organization, or management services organization; or (ii) an investor, group of investors, or other entity with a direct or indirect possession of equity in the capital, stock, or profits totaling more than ten percent of a provider, provider organization, or management services organization; provided, however, that “significant equity investor” shall not include venture capital firms exclusively funding startups or other early-stage businesses.
    “Management services organization,” a corporation that provides management or administrative services to a provider or provider organization for compensation.
• Revise the composition, necessary expertise, and responsibility for appointments to the HPC Board [2]. While the Board will continue to consist of 11 members, the Commissioner of Insurance is now a required member, as are appointed individuals with expertise in representing hospitals and hospital systems and in health care innovation, including pharmaceuticals, biotechnology, or medical devices. However, the HPC will no longer require membership of the Secretary for Administration and Finance, a Primary Care Physician, and an individual with expertise as a health insurance purchaser representing management. Finally, the auditor is no longer responsible for appointments to the HPC Board; all members, other than the Secretary of Health and Human Services and Commissioner of Insurance, will now be appointed solely by the Governor or Attorney General. These changes may reflect a shift in priorities for regulatory oversight of hospital administration, health care innovation, and health care insurance.
• Expand the HPC Notice of Material Change process [3]. As previously required, every provider or provider organization must provide notice of a “material change” not less than 60 days before the date of the proposed change.
  • The previous statutory Notice of Material Change reporting requirements only covered:
    • mergers or acquisitions of hospitals or hospital systems;
    • a corporate merger, acquisition or affiliation of a provider or provider organization and a carrier;
    • an acquisition of insolvent provider organizations; and
    • mergers or acquisitions of provider organizations which will result in a provider organization having a near-majority of market share in a given service or region [4].
  • The Act expands the above-referenced statute mandating the reporting of “material change” requiring notice to the applicable government agencies to also include the following as examples: 
    • significant expansions in a provider or provider organization’s capacity;
    • transactions involving a significant equity investor which result in a change of ownership or control of a provider or provider organization;
    • significant acquisitions, sales, or transfers of assets including, but not limited to, real estate sale lease-back arrangements; and
    • conversion of a provider or provider organization from a non-profit entity to a for-profit entity.
  • The Act also changes the current material change reporting threshold for mergers or acquisitions of a provider organization, which will result in a provider organization having a near-majority market share in a given service or region to provide that the standard is whether the provider organization will have a “dominant market share in a given service or region” (and not a “near-majority”).
  • Adoption of implementing regulations. While the Act does not include financial thresholds for reporting, the Act does direct the HPC to adopt regulations for administering the section, conduct cost and market impact reviews, and allow filing thresholds to be adopted in the regulations, subject to annual adjustments based on inflation [5]. 
• Expands the HPC Cost and Market Impact Review process as follows:
  • HPC may now require significant equity investors, as well as other parties involved, in a given transaction to submit documents and information in connection with a Notice of Material Change or Cost and Market Impact Review [6].
  • HPC may require submitting certain information regarding the significant equity investor’s capital structure, general financial condition, ownership and management structure, and audited financial statements.
  • HPC may require submitting certain post-transaction data and information for up to five years following the material change date. Such data collection significantly expands the power and task, including the ability to assess post-transaction impacts. 
  • Expands the factors HPC may consider as part of the Cost and Market Impact Review by also reviewing [7]:
    • the size and market share of any corporate affiliates or significant equity investors of the provider or provider organization;
    • the inventory of health care resources maintained by the DPH; and
    • any related data or reports from the Office of Health Resource Planning.
• Expands the scope of the HPC’s examination of costs, prices, and cost trends, as follows [8]:
  • The HPC cost trends hearings will include an examination of any relevant impacts of significant equity investors, health care REITs, and MSOs on costs, prices, and cost trends. Stakeholders from these organizations associated with a provider organization will now be required to testify at the HPC’s annual cost trends hearing concerning: “health outcomes, prices charged to insurers and patients, staffing levels, clinical workflow, financial stability and ownership structure of an associated provider or provider organization, dividends paid out to investors, compensation including, but not limited to, base salaries, incentives, bonuses, stock options, deferred compensations, benefits and contingent payments to officers, managers and directors of provider organizations in the commonwealth acquired, owned or managed, in whole or in part, by said significant equity investors, health care real estate investment trusts or management services organizations.”
  • The HPC will utilize new data collected as part of the Registered Provider Organization process. The Act revised this process to require submissions from significant equity investors, health care real estate investment trusts, and management services organizations regarding ownership, governance, and organizational information.

Given the broad, sweeping nature of the changes, additional regulations and guidance should be expected. 

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[1] To be codified at MGL 6D, s. 1.

[2] To be codified at MGL 6D, s. 2.

[3] To be codified at MGL 6D, § 13.

[4] CITE TO EXISTING NMC FORM

[5] To be codified at MGL 6D, s. 13.

[6] To be codified at MGL 6D, s. 13.

[7] To be codified at MGL 6D, s. 13.

[8] To be codified at MGL 6D, ss. 8 and11.