Since our last update, new bills have been introduced that, if passed, would materially impact transactions across the health care industry or otherwise affect the corporate structure of or reporting by health care entities. Below, we provide an overview of additional legislation recently introduced in California, Illinois, Massachusetts and Texas, further signaling a continuing trend among state legislatures this year.
California
Despite last year’s veto of Assembly Bill 3129 (AB 3129) by Governor Gavin Newsom, new bills have been introduced that contain certain provisions nearly identical to AB 3129.
Senate Bill 351
Senate Bill 351 (SB 351) aims to codify limitations on control over medical and dental practices managed by management services organizations (MSOs) or dental services organizations (DSOs) backed by hedge funds or private equity (PE) groups. Generally, the restrictions included in SB 351 are not novel and reflect typical structuring restrictions in states with corporate practice of medicine (CPOM) prohibitions. For example, the bill would prohibit PE-backed MSOs and DSOs from: (1) determining the appropriateness of diagnostic tests or the need for referrals or consultations with other professionals; (2) holding responsibility for overall patient care or treatment options; (3) setting requirements related to the number of hours worked or patients seen in a given period; (4) owning or otherwise determining the content of patient medical records; (5) selecting, hiring, or firing medical or dental professionals based on clinical competency; (6) setting the parameters under which medical or dental professionals contract with third-party payers; (7) setting the parameters under which medical or dental professionals contract with other health professionals for the delivery of care; (8) making decisions regarding coding and billing for patient care services; and (9) approving the selection of medical equipment and medical supplies for the medical or dental practice.
Finally, SB 351 proposes to restrict agreements with PE-backed MSOs or DSOs from containing noncompete and non-disparagement provisions and would render any such agreements or provisions void and unenforceable. Such prohibitions would apply to MSOs and agreements entered into in connection with the sale of real estate or other assets, but the bill expressly states it would not prohibit an otherwise enforceable noncompete agreement in connection with the sale of a business. Moreover, the proposed bill would not prohibit ownership by a physician in the MSO or DSO itself.
If passed, the attorney general would have authority to enforce the law through injunctive relief or other equitable remedies.
Assembly Bill 1415
Assembly Bill 1415 (AB 1415) would expand existing pre-transaction notice requirements administered by the Office of Health Care Affordability (OHCA). Health systems, MSOs, as well as entities that own, operate or control providers would be incorporated into the definition of “health care entities” and therefore be required to submit notice of material change transactions. Additionally, PE groups, hedge funds, and new business entities created for the purpose of contracting with health care entities would be required to submit notice of material change transactions with any health care entity or any entity that controls a health care entity.
Massachusetts
A number of new bills targeting MSOs and their managed medical practices have been proposed in Massachusetts that, if passed, would reinforce CPOM restrictions and impose new registration and transaction notification requirements for medical practices.
HD 1759 / SD 2325 / SD 2274
HD 1759 / SD 2325 / SD 2274 generally focus on preserving the professional judgment and clinical decision-making of licensed professionals. If passed, the effect would be to prohibit MSOs from: (1) owning or otherwise determining the content of patient medical records; (2) selecting, hiring or firing any owner of or clinician associated with the health care practice if the decision is made, in whole or in part, on clinical competency or proficiency; (3) setting the parameters under which a practice shall enter into contractual relationships with clinicians for the delivery of care; (4) making final decisions regarding coding and billing procedures for patient care services; (5) approving the selection of medical equipment and medical supplies for the practice; and (6) setting the parameters under which a practice may enter into a contractual relationship with third-party payers. Health care practices also would be required to file an application with either the Board of Registration in Medicine or Board of Registration in Nursing (as applicable) that discloses any MSOs with which it has an arrangement.
HD 4028
If passed, HD 4028 would, among other requirements, establish a registry of all physician practices with greater than 10 individual physicians. Any person seeking to maintain a physician practice would be required to file a registration application with the Board of Registration in Medicine and would be required to provide extensive information, including information related to any substantial equity investors or any MSO with which it contracts. Renewal applications would be required to be submitted every two years. The bill also would require notice to the Department of Public Health at least 180 days prior to any sale, relocation or closure, which notice would prompt a public hearing.
SD 1644 / HD 3207
Although not specific to health care investments, SD 1644 / HD 3207 would require PE firms, hedge funds and investment banks to follow compliance guidelines on investing that are established by the attorney general, including the submission to the attorney general of a self-evaluation at least once every three years reporting the firm’s investments and investment decisions and whether the firm has made reasonable progress toward providing a greater share of its funding to historically disadvantaged members of protected classes and entities.
SD 1910
If passed, SD 1910 would prohibit PE companies that own or control providers or provider organizations, provider or provider organizations with PE investment and healthcare real estate investment trusts from “engaging in transactions that have a reasonable likelihood of causing the provider or provider organization financial distress.” The bill also prohibits providers and provider organizations with PE ownership or control from: (1) issuing debt-funded dividends; (2) paying management fees to the PE company; or (3) issuing dividends if there is a reasonable likelihood of causing the provider or provider organization to become financially distressed. The bill would require a PE company, upon submission of a notice of material change, to deposit a bond with the Department of Public Health. The bill would also implement new restrictions on the control of health care practices by MSOs, including: (1) prohibiting MSOs from interfering with the professional judgment of a clinician; (2) requiring health care practices to disclose to the Department of Public Health any MSOs under contract with the practice; and (3) prohibiting an MSO or any other entity that is not a health care practice form including contractual restrictions on stock transfers. Finally, the bill would expand the definition of “provider organization,” as used by the Health Policy Commission, to include MSOs and providers that are owned or controlled by for-profit entities, including significant equity investors and any other organization that contracts with carriers, third-party administrators or public payers for payment for health care services.
HD 3147
HD 3147 would subject applications for issuance of new freestanding ambulatory surgery center licenses or clinic licenses, or a new satellite facility under an existing license, to Massachusetts’ material transaction notice requirements. The bill would also add new factors the Health Policy Commission may examine when conducting a cost and market impact review and give the Health Policy Commission the authority to decline a provider or provider organization’s request for a material change; currently, the Commission may only refer the matter to the Attorney General. The bill would also expand the Health Policy Commission’s scope of review to include review of material change transactions after they are completed. If, after a material change transaction, the Commission finds the material change transaction has failed to produce the benefits stated in the provider or provider organization’s request, the Commission would be able to subject the provider or provider organization to a new cost and market impact review, require the provider or provider organization to complete a corrective action plan, or prohibit the provider or provider organization from making any additional material changes to its operating or governance structure for one year following a reevaluation and approval by the commission.
Texas
The Texas legislature is considering two bills, both of which would establish new health care transaction notification requirements in the state. Each bill offers a different approach, however, with the primary differences being their applicability, timing, reporting structure, and penalties for violations.
House Bill 2747
House Bill 2747 (HB 2747) would require health care providers, facilities, provider organizations, pharmacy benefit managers, and health benefit plan carriers to submit notice to the attorney general of material change transactions at least 90 days prior to the effective date of such transactions. Material change transactions would include mergers, acquisitions, and other transfers of control, which could include lease arrangements, other contractual arrangements, affiliations, or the formation of partnerships, joint ventures, accountable care organizations, parent organizations, and MSOs for the purpose of administering contracts with health carriers, third-party administrators, pharmacy benefit managers or health care providers. Failure to file notice as required could result in civil penalties of up to $10,000 per violation.
HB 2747 also authorizes the attorney general to conduct studies on health care market conditions throughout the state and the market impacts of completed material change transactions. The attorney general would be permitted to request documents or other information from relevant entities involved in the market to conduct such studies, and administrative penalties of up to $1,000 could apply for any noncompliance.
Senate Bill 1595
Rather than requiring pre-closing notice of material change transactions, Senate Bill 1595 (SB 1595) would require a report to the secretary of state “on the execution” of a material change transaction and on a continuing annual basis for covered health care entities. The bill defines material change transactions as those that involve a health care entity in Texas with total assets and revenue, including both in- and out-of-state assets and revenue, of at least $10 million (or, in the case of a new health care entity, anticipated annual revenue of at least $10 million). Although HB 2747 and SB 1595 describe material transactions similarly (and in both cases, broadly) HB 2747 does not include a similar monetary threshold.
Health care entities subject to SB 1595 would be required to report comprehensive company identifying, organizational, and financial-related information, as well as information regarding each person who, with respect to the health care entity: (1) has an ownership or investment interest; (2) has a controlling interest; (3) is a management services organization; or (4) is a significant equity investor, including: (a) a PE fund or other investor with direct or indirect ownership of a health care entity or provider; (b) an investor with direct or indirect possession of equity totaling more than 10% of a provider’s organization; or (c) a private fund or investor that operates a health care entity under a lease, management, or operating agreement.
Under SB 1595, the Secretary of State would be granted the authority to audit and inspect the records of a health care entity that fails to submit complete information required in its report, or for which the Secretary of State has reason to question the accuracy or completeness of the information submitted. Further, the Secretary of State would be instructed to conduct random annual audits of health care entities to verify compliance with, accuracy of, and completeness of the reported information.
Penalties under this SB 1595 are steeper than those proposed under the HB 2747, with fines up to $50,000 for each violation.
Illinois
SB1998 was introduced in the Illinois General Assembly on February 6, 2025, proposing to amend the Illinois Antitrust Act and require the Illinois Attorney General to approve healthcare transactions funded by hedge funds or private equity groups.
In Illinois, health care facilities and provider organizations party to “covered transactions” are already required to notify the Attorney General of such transactions, including mergers, acquisitions, or certain contracting affiliations between entities not previously affiliated or under common ownership.
SB1998 proposes to require that only those transactions involving financing by a hedge fund or private equity group obtain the Attorney General’s written consent for the transaction to take effect. As proposed, SB1998 does not specify any timeframe within which the Attorney General’s consent must be given, nor does it explain what happens if the Attorney General does not consent to the transaction.
Interactive Health Care Transactions Map
These proposed laws are part of a larger, ongoing trend toward increasing state oversight and regulation of health care transactions and investments in the health care industry. Bass, Berry & Sims is actively tracking these legislative trends via our interactive health care transactions map, available here. If you have any questions about the proposed laws discussed herein, or any other state health care transaction notice requirements, please contact the authors.