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.