Alert October 04, 2021

An Emerging State Trend: Increasing Oversight of Physician Group Practice Transactions

On October 1, 2021, Nevada became the latest of a small but growing number of states extending regulatory oversight of healthcare transactions involving physician practices. Over the past decade, several states have passed or introduced legislation to increase state health department and state attorney general oversight of healthcare transactions, citing concerns over consolidation, its impact on competition in the healthcare industry, and the potential for reduced choice and higher costs for consumers.1 Historically, the state-level regulation of healthcare transactions has largely been limited to hospitals and large health systems.2 Nevada’s Senate Bill 3293 (SB 329) and Assembly Bill 474 (AB 47) includes increased oversight of hospital transactions but also extends the state’s reach to transactions involving physician practices.

Unpacking Nevada’s Legislation 

Senate Bill 329

As of October 1, 2021, SB 329 will require hospitals to notify the Nevada Department of Health and Human Services (“DHHS”) no later than 60 days after undergoing any merger, acquisition, or joint venture with any entity, including physician practices.5 In addition, certain physician group practices (defined as “any business entity organized for the purpose of the practice of medicine or osteopathic medicine by more than one physician”)6 and owners of substantially all of a physician group practice will also be required to provide notice of health care transactions to DHHS. 

These notification requirements will apply to “…physician group practices that are parties to the transaction or contract for management or that are owned by those parties who represent at least 20 percent of the physicians who practice any specialty in a primary services area7 …” and to any “…physician group practice [that] represents the largest number of any physician group practice that is a party to or owned by a party to the transaction or contract for management.”8

Notification must be sent to DHHS by those certain physician groups and owners no later than 60 days following the close of health care transactions as follows: (1) merger, consolidations, or affiliations between physician practices; (2) acquisition of a physician practice’s property and assets; (3) acquisitions of all or substantially all of the stock, membership interest, or other equity interest of the physician practice; (4) the employment of all of substantially all of the physicians in a practice, (5) the acquisition of an insolvent practice; and, notably, (6) any execution of a contract for management services of the physician group practice.9

The physician group practice that represents the largest number of physicians who are parties to the transaction will be responsible for providing notice to DHHS.10 Notice to DHHS will require the following: (1) the names of each party to the transaction or contract for management services; (2) a description of the nature of the proposed relationship of the parties to the transaction or contract for management services; (3) the names and any specialties of each physician who is a party or who is affiliated with physician practice that is a party or owned by a party; (4) the name and address of each business entity that will provide health services pursuant to the transaction or contract for management services; (5) a description of the health care services to be provided; and (6) the primary service area to by each business entity.11

SB 329 is silent on penalties for noncompliance with the reporting requirements.

Assembly Bill 47

In addition, AB 47 will require physician practices that enter into “reportable health care or health carrier transactions” to provide notice to the Nevada Attorney General 30 days prior to closing the transaction.”12 Reportable healthcare or health carrier transactions” generally include any transaction that “(1) results in a material change to the business or corporate structure of a group practice or health carrier; and (2) causes, as a result of the transaction, a group practice or health carrier to provide within a geographic market 50 percent or more of any health care service or health carrier service.”13

As of October 1, 2021, AB 47 will require notification of the transactions described above (excluding management services contracts) to the State Attorney General. Parties to the reportable transactions under the bill will be responsible for reporting the following information: (1) a brief description of the nature of the proposed relationship among the parties to the proposed reportable health care or health carrier transaction; (2) the names and specialties of each practitioner working for the physician practice that is the subject of the reportable transaction and who is anticipated to work with the resulting physician practice after the effective date of the transaction; (3) the names of the business entities anticipated to provide health care services after the effective date of the transaction; (4) identification of each anticipated location where health care services are to be provided after the effective date of the transaction; (5) a description of the services to be provided at each identified location; and (6) the primary service area to be served by each identified location.14 Willful violations of AB 47 can result in civil penalties of up to $1,000 for each day the violation occurs.15

If the transaction would require a filing with the Federal Trade Commission (“FTC”) pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the parties may submit a copy of the FTC filing to the State Attorney General to satisfy AB 47’s notification requirement. 

Importantly, neither SB 329, nor AB 47 appear to give DHHS or the Nevada Attorney General the authority to approve proposed health care transactions. 

Similar Legislation in Other States

Nevada’s statute is unique in that its threshold for notice is derived from the physician practice’s share of a particular geographic market of health care services. Four additional states, Connecticut, Massachusetts, Oregon, and Washington require notice of physician practice transactions when a “material change” occurs.16 For example, Connecticut, Washington, and Massachusetts use the broadest definitions of “material change” thresholds to trigger notification requirements as follows:

  • Connecticut defines a “material changes” as “(1) The merger, consolidation or other affiliation of a group practice with (A) another group practice that results in a group practice comprised of eight or more physicians, or (B) a hospital, hospital system, captive professional entity, medical foundation or other entity organized or controlled by such hospital or hospital system; (2) the acquisition of all or substantially all of (A) the properties and assets of a group practice, or (B) the capital stock, membership interests or other equity interests of a group practice by (i) another group practice that results in a group practice comprised of eight or more physicians, or (ii) a hospital, hospital system, captive professional entity, medical foundation or other entity organized or controlled by such hospital or hospital system; (3) the employment of all or substantially all of the physicians of a group practice by (A) another group practice that results in a group practice comprised of eight or more physicians, or (B) a hospital, hospital system, captive professional entity, medical foundation or other entity organized by, controlled by or otherwise affiliated with such hospital or hospital system; and (4) the acquisition of one or more insolvent group practices by (A) another group practice that results in a group practice comprised of eight or more physicians, or (B) a hospital, hospital system, captive professional entity, medical foundation or other entity organized by, controlled by or otherwise affiliated with such hospital or hospital system.”17
  • Washington defines a “material change” as “a merger, acquisition, or contracting affiliation between two or more entities of the following types: (a) Hospitals; (b) Hospital systems; or (c) Provider organizations.”18
  • Massachusetts defines a “material change” as “(1) A Merger or affiliation with, or Acquisition of or by, a Carrier; (2) A Merger with or Acquisition of or by a Hospital or hospital system; (3) Any other Acquisition, Merger, or affiliation (such as a Corporate Affiliation, Contracting Affiliation, or employment of Health Care Professionals) of, by, or with another Provider, Providers (such as multiple Health Care Professionals from the same Provider or Provider Organization), or Provider Organization that would result in an increase in annual Net Patient Service Revenue of the Provider or Provider Organization of ten million dollars or more, or in the Provider or Provider Organization having a near-majority of market share in a given service or region; (4) Any Clinical Affiliation between two or more Providers or Provider Organizations that each had annual Net Patient Service Revenue of $25 million or more in the preceding fiscal year; provided that this shall not include a Clinical Affiliation solely for the purpose of collaborating on clinical trials or graduate medical education programs; and (5) Any formation of a partnership, joint venture, accountable care organization, parent corporation, management services organization, or other organization created for administering contracts with Carriers or third-party administrators or current or future contracting on behalf of one or more Providers or Provider Organizations.”19

These broad notification thresholds apply to even the smallest transactions that likely would not have significant antitrust implications. Further, notifications related to transactions involving non-physician group practice entities, like a management services organization (“MSO”), may be required under Nevada, Massachusetts, and Oregon laws. For example, in Nevada, the execution of a management services agreement will trigger notification requirements.20 In Massachusetts, the following activities would require notification: (1) any contracting affiliation with an MSO that would result in an annual revenue increase of $10 million or more and (2) the formation of a management services organization.21 And in Oregon, transactions meeting certain dollar amount thresholds involving MSOs may need to be reported as well, as MSOs appear to fall under Oregon’s definition of a “health care entity,” obligating MSOs to the State’s material change transaction reporting requirements.22

Most notably, these three states all require pre-closing notification of the proposed health care transaction.23 Connecticut additionally requires 30 days post-closing notice to the state Commissioner of Public Health. Like the Nevada statute, the Connecticut, Washington, and Massachusetts statutes do not give the state attorney general or any agency the authority to approve proposed health care transactions.24 Among these states only Washington provides for penalties for violation of the notification requirements.25

In contrast, Oregon’s “material change” standard is narrowed by the revenue attributable to each party of the transaction.26 Under Oregon’s HB 2326, a “material change” includes only transactions where at least one party had an average revenue of $25 million or more (in the preceding three fiscal years) and another party to the transaction had an average revenue of at least $10 million (in the preceding three fiscal years) or where any party that is a new business entity is projected to have at least $10 million in revenue during its first full year of operation.27 HB 2326 also excludes a number of other transactions from the definition of material change (limiting the scope of the notification requirements), including affiliations that do not impact the corporate leadership, governance, or control of an entity and that are necessary, as prescribed by the Oregon Health Authority, to adopt advanced value-based payment methodologies to meet the health care cost growth targets under a separate provision of Oregon law.28 In stark contrast to Nevada, the Oregon law gives the Oregon Health Authority the power to approve or deny a proposed health care transaction that involves a material change and requires a significant pre-closing notification of 180 days to the Oregon Health Authority of any proposed health care transactions resulting in a material change.29

Conclusion

Although the Nevada law just went into effect, and Oregon’s law went into effect very recently, both of these newer laws and those passed in Connecticut, Washington, and Massachusetts have significant implications for physician groups and investors in physician groups. In these states, especially in Oregon, any parties to a potential health care transaction that meet the applicable state’s threshold must consider the additional time and planning required in order to meet filing requirements.30 It will be important to monitor similar legislation being introduced in additional states to ensure compliance with state laws. For example, both California and Florida attempted to pass similar legislation in 2021 and 2020, respectively.31

1 Alexandra D. Montague et al., State Action to Oversee Consolidation of Health Care Providers, Milbank Memorial Fund (Aug. 5, 2021), https://www.milbank.org/publications/state-action-to-oversee-consolidation-of-health-care-providers/.
2 Id.
3 SB 329, 2021 Leg., 81st Sess. (Nev. 2021).
4 AB 47, 2021 Leg., 81st Sess. (Nev. 2021).
5 Id.; Supra note 3 § 1(1).
6 Supra note 3 § 1(6)(a).
7 “Primary service area” means “an area comprising the smallest number of zip codes from which the hospital or physician group practice draws at least 75 percent of patients.” Nev. Rev. Stat. § 439A NEW (6)(b).
8 Supra note 3 at § 1(2).
9 Supra note 3 at § 1(3).
10 Supra note 3 at § 1(2)(b).
11 Supra note 3 at § 1(4).
12 Supra note 4 at § 6.5(1).
13 AB 47, Legislative Counsel’s Digest, Sections 2-10.
14 Supra note 4 at § 6.5(1)(a)-(f).
15 Supra note 4 at § 10(1).
16 Montague et al., State Action to Oversee Consolidation of Health Care Providers; See also Conn. Gen. Stat. § 19a-486i (2014); Mass. Gen. Laws ch. 6D, § 13 (2012); Wash. Rev. Code § 19.390.030 (2020); HB 2326, 81st Leg. Assemb., Reg. Sess. (Or. 2021).
17 Conn. Gen. Stat. § 19a-486i.
18 Wash. Rev. Code § 19.390.030.
19 958 CMR 7.00.
20 Supra note 3 § (1)(1).
21 958 CMR 7.00.
22 HB 2362, Leg., 81 Sess § 1(4)(a), (6)(a) (Or. 2021).
23 Id. Connecticut requires 30 days’ pre-closing notice, while Washington and Massachusetts respectively require 60 days’ pre-closing notice. Id.
24 Conn. Gen. Stat. § 19a-486i (2014); Mass. Gen. Laws ch. 6D, § 13 (2012); Wash. Rev. Code § 19.390.030 (2020).
25 Wash. Rev. Code § 19.390.080.
26 Supra note 22 at § (6)(a).
27 Id. § 1(6)(a)(A).
28 Id. § 1(6)(b)(C)(2).
29 Id. § 2(4).
30 Montague et al., State Action to Oversee Consolidation of Health Care Providers.
31 See H.B. 711, 2020 Leg. (Fla. 2020); A.B. 1132, Assemb., Reg. Sess. (Cal. 2021).; Montague et al., State Action to Oversee Consolidation of Health Care Providers.