May 4, 2023

Maine Proposes Regulatory Approval Scheme for “Material Change Transactions” Involving “Health Care Entities”

On March 28, 2023, the Maine Legislature proposed legislation that would prohibit certain “health care entities,” including medical and other professional practices, licensed health care facilities, and providers of management services to such entities, from entering into a “material change transaction” without obtaining approval from the Maine attorney general (AG). The Maine proposal follows a trend of the adoption of laws requiring notice or approval of certain health care transactions, including requirements in California, Connecticut, Massachusetts, Nevada, New York, Oregon, and Washington.

The Maine bill, H.P. 894, would prohibit a health care entity from entering into a material change transaction without approval from the AG. Health care entities include (1) any person or entity qualified or licensed under state law to provide health care services (including medical, surgical, mental health, and substance use disorder services); (2) licensed health care facilities; and (3) entities or organizations in the business of health care delivery or management and that represent health care providers in contracting with insurance carriers. Material transactions are defined to include (1) acquisitions of, changes of control over, or mergers including health care entities; (2) the formation of organizations or entities for the purpose of administering contracts with carriers, third-party administrators, pharmacy benefit managers, or providers; and (3) transactions resulting in changes of control of a hospital board of directors. However, affiliations of health care entities formed for the purpose of collaborating on clinical trials, graduate or medical education programs, or hiring or employing physicians would not be considered material change transactions and thus would be excepted from the approval process.

The proposed law gives the Maine AG the authority to approve, approve subject to specific conditions, or deny approval of material change transactions. The bill provides the following nonexclusive list of factors the AG may consider: (a) whether the proposed transaction violates Maine antitrust laws; (b) whether the benefits to the public are likely to outweigh the negative market impacts; (c) whether the proposed transaction is in the public interest; and (d) the impact the proposed transaction is likely to have on (1) the cost of health care services for patients; (2) the availability or accessibility of health care services in the geographic region served by a health care entity formed as a result of the material change transaction; (3) cost trends of the health care services provided by the parties involved in the material change transaction, as evaluated against statewide costs for comparable health care services; (4) access to health care services in underserved areas; (5) the markets for health care services and insurance; (6) health care outcomes and equity in Maine; and (7) access to essential health care services for Maine residents. The conditions imposed in any approval may be monitored by the AG and enforced through the courts. The AG may recover enforcement costs in any enforcement proceeding.

Under the proposed law, health care entities would be required to provide notice of intent to enter into a material change transaction at least 60 days prior to making any commitment to enter into the transaction and to provide the AG with certain information to be specified in regulations. Within 10 days of receiving the notice, the AG would be required to post on the AG website information about the transaction, including: (1) a summary of the proposed transaction; (2) an explanation of the groups or individuals likely to be affected by the transaction; (3) the services the entity currently offers and any planned reductions as a result of the transaction; (4) a copy of the notice submitted by the health care entity; and (5) the time and place of any public hearing.

Health care entities would receive written notice of the results of a preliminary review within 30 days of submitting the notice. A preliminary review can result in approval of the material change transaction, conditions under which the material change transaction may proceed without a comprehensive review, or a determination that a comprehensive review is required. Comprehensive review would be required if the transaction will result in a transfer of assets valued at more than $2 million, and the AG may determine that comprehensive review is required based on factors including market concentration, market power, and the transaction’s impact on cost, quality, or access to health care services in any region of Maine.

Comprehensive review would involve at least one public hearing to solicit public comment within 30 days after providing notice of the results of the preliminary review. The AG may request additional information from the parties to the material change transaction. The comprehensive review would include review by experts of a number of specified economic and systemic considerations similar to the factors the AG will consider in his or her review (as listed above). Positive factors would include if the entity serves at-risk, underserved, or government payer patient populations, and whether the material change transaction will result in the formation of an entity providing low-margin or negative-margin services. The expert report must be submitted to the AG within 185 days unless the AG determines that more time is needed to prepare the report.

H.P. 894 would impose a lengthy and costly approval process on many health care transactions in Maine. The parties involved in material change transactions would be liable for the AG’s reasonable costs in both making a determination and ongoing monitoring, which could include the use of experts. At one, two, and five years following the material change transaction, the health care entity or owner must submit reports to the AG showing compliance with any conditions imposed in the approval process and summarizing cost trends related to the services provided by the parties to the material change transaction.

Maine’s H.P. 894 follows New York Gov. Kathy Hochul’s budget proposal that would require state approval of health care transactions involving medical practices. While it is not clear that either the New York or Maine legislation will become law, these proposals are part of a trend of increased oversight of health care transactions. For example, a 2018 Connecticut law requires notice of certain transactions involving the consolidation of physicians’ practices or combinations with hospitals and health systems. Similarly, Massachusetts requires notice of transactions involving providers with more than $25 million received from government and private payors (except excluded ERISA plans). Both the Massachusetts and Connecticut laws specifically allow the respective state attorneys general to use the information collected from the notice to conduct investigations pursuant to and enforce state antitrust laws. In addition, California, Nevada, Oregon, and Washington have also in recent years created notification requirements for certain health care transactions. But, unlike Maine under the proposed law, none of these states currently require approval before consummating the transaction.

In case you missed our alert covering this trend, please view it here.