On January 8, 2025, Massachusetts Governor Maura Healey signed House Bill 5159 (“H.5159”) into law, marking a notable expansion of the regulation of private equity investments within the Massachusetts healthcare sector. The legislation, set to take effect on April 8, 2025, introduces new measures to enhance transparency and accountability in healthcare transactions, focusing specifically on private equity firms, real estate investment trusts (“REITs”), and management services organizations (“MSOs”). This development also reflects a broader trend across the nation of increasing scrutiny of healthcare transactions and investments by private equity firms and other investors, as highlighted in our previous blog series on California’s Assembly Bill 3129.[i]
Key Provisions of H.5159
The enactment into law of H.5159 increases oversight of healthcare transactions in Massachusetts in several ways:
1. Expanded Definition of Material Changes Requiring Notice to the Massachusetts Health Policy Commission and Potential for Further Delays to Closing
Pre-existing Massachusetts law mandates that healthcare providers and provider organizations, including physician practices, healthcare facilities, independent practice associations, accountable care organizations, and any other entities that contract with carriers for the payment of healthcare services, with more than $25 million in Net Patient Service Revenue[ii] in the preceding fiscal year must submit a Material Change Notice (“MCN”) to the Massachusetts Health Policy Commission (“HPC”), Center for Health Information and Analysis (“CHIA”), and Office of the Attorney General at least 60 days prior to a proposed “material change” involving such entity.
Before H.5159 was enacted, the definition of “material change” already encompassed several types of transactions involving healthcare providers and provider organizations with more that $25 million in Net Patient Service Revenue, requiring them to submit an MCN to the Massachusetts HPC, CHIA, and Office of the Attorney General. These include:
- A merger, acquisition, or affiliation between a healthcare Provider and an insurance carrier;
- A merger, acquisition, or affiliation involving a hospital or hospital system;
- Any acquisition, merger, or affiliation that results in an increase of $10 million or more in annual net patient service revenue, or grants the Provider or Provider Organization near-majority market share in a specific service or geographic area;
- Clinical affiliations between two or more Providers or Provider Organizations with annual net patient service revenue of $25 million or more, excluding affiliations solely for clinical trials or medical education purposes; and
- The formation of new entities such as joint ventures, MSOs, or accountable care organizations that contract with insurers or other administrators on behalf of healthcare Providers.
H.5159 notably broadens the definition of “material change” to include also:
- Transactions involving a Significant Equity Investor that 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-leaseback arrangements;
- “Significant expansions” in a Provider or Provider Organization’s capacity;
- Conversion of nonprofit Providers or Provider Organizations to for-profit entities; and
- Mergers or acquisitions of Provider Organizations that will result in the Provider Organization having a dominant market share in a service or region.
The term “Significant Equity Investor” is broadly defined to include: (i) any private equity firm holding a financial interest in a Provider, Provider Organization, or MSO; and (ii) any investor, group of investors, or entity with ownership of 10% or more in such organizations. The definition specifically excludes venture capital firms solely funding startups and other early-stage businesses.
While the law expands the definition of “material change” to encompass the categories listed above, it does not explicitly define what constitutes a “significant acquisition,” “significant expansion,” or “change of ownership or control.” As of now, these terms are left to be clarified by the HPC through further regulation and guidance. Stakeholders should monitor future regulatory updates from the HPC to understand the specific thresholds for these types of transactions.
If the HPC determines within 30 days of receiving a complete MCN that a “material change” may significantly affect Massachusetts’ ability to meet healthcare cost growth benchmarks or impact market competition, the HPC can initiate a Cost and Market Impact Review (“CMIR”). This process requires detailed submissions from transaction parties and significantly extends the transaction timeline to close a deal.
The amended law also enhances the HPC’s information-gathering capabilities, authorizing the HPC to request detailed data on Significant Equity Investors, including financial data and capital structure information. Additionally, the HPC can now monitor and collect information on post-transaction impacts for up to five years following a material change. While nonpublic information submitted to the HPC remains confidential, the filed MCN and the completed CMIR report will be publicly available on the HPC’s website.
Although the HPC cannot directly prohibit a transaction or impose conditions, it can refer its CMIR findings to the Massachusetts Attorney General, Massachusetts Department of Public Health (“DPH”), or other state agencies for further action.
2. Investors May be Called as Witnesses at Annual Public Hearings
H.5159 authorizes the HPC to assess the impact of Significant Equity Investors, healthcare REITs, and MSOs on healthcare costs, prices, and cost trends. HPC is empowered to call a representative sample of these investors to testify at its annual public hearings under oath. The Attorney General may intervene in these hearings, ensuring rigorous oversight and accountability.
3. Annual Financial Reporting Requirements
Certain Provider Organizations are already required to register with the HPC (“Registered Provider Organizations”) and submit annual reports to the CHIA. To be subject to the registration requirement, a provider organization must meet at least one of the following criteria: (a) annual net patient service revenue from private carriers or third-party administrators of at least $25 million in the prior fiscal year; (b) a patient panel of more than 15,000 over the past 36 months; or (c) classification as a risk-bearing provider organization, regardless of revenue or panel size. This includes, but is not limited to, physician organizations, independent practice associations, accountable care organizations, and provider networks.
H.5159 expands reporting obligations for Registered Provider Organizations to include detailed information about the Registered Provider Organization’s Significant Equity Investors, healthcare REITs, and MSOs. It also clarifies that Registered Provider Organization financial statements must cover parent entities’ out-of-state operations and corporate affiliates. Additionally, the amended law authorizes the state to require quarterly submissions from Registered Provider Organizations with private equity involvement. These submissions may include audited financial statements, structure charts, margins, investments, and relationships with investor groups. Organizations must also report on costs, annual receipts, realized capital gains and losses, accumulated surplus, and reserves. The HPC will monitor prior transactions and investments for up to five years and notify organizations of future reporting deadlines as needed.
4. Penalties for Noncompliance with Reporting Requirements
H.5159 imposes stricter penalties for failing to submit required financial reports. Entities missing reporting deadlines may face fines of up to $25,000 per week after a two-week grace period, with no annual penalty cap. This is a substantial increase from prior penalties, which were capped at $50,000 annually.
5. Expanded Authority for the Attorney General
The Massachusetts Attorney General is authorized to review and analyze any information submitted to CHIA by a provider, provider organization, Significant Equity Investor, health care REIT, MSO or payer. The Attorney General may compel such entities to produce documents, answer interrogatories, or provide testimony under oath concerning healthcare costs, cost trends, and the relationship between provider costs and payer premiums.
The Attorney General may disclose such information during HPC annual public hearings, rate hearings before the Division of Insurance, and legal proceedings because the law deems such information to be in the public interest.
6. Expanded Massachusetts False Claims Act Liability
H.5159 amends the Massachusetts False Claims Act (the “MA FCA”), which is broader in scope than the Federal False Claims Act, to expand liability to entities holding an “ownership or investment interest” in a person or entity violating the MA FCA. Specifically, private equity owners and other investors who are aware of a violation and fail to report and remedy it within 60 days of discovery may be held liable. The law codifies this expanded accountability, explicitly including investor groups among those who can be held responsible for untimely reporting violations. Additionally, the amendments clarify the Attorney General’s authority to issue civil investigative demands to healthcare entities and investor groups.
Notable Exclusions from Earlier Proposals
H.5159 reflects several compromises that were made during the legislative process, resulting in a more moderate version compared to earlier proposals. The process began in May 2024 with the introduction of House Bill 4653, followed by Senate Bill 2871 in July 2024.[iii] Senate Bill 2871 included stricter requirements than those in House Bill 4653, but lawmakers struggled to reconcile the differences before the legislative session deadline on July 31, 2024. This stalemate led to renewed efforts in December 2024, which ultimately resulted in the passage of H.5159.
While H.5159 carries forward many of the provisions from the earlier bills, it also removes certain measures that stakeholders had identified as too burdensome, as outlined below. These exclusions include:
- Restrictions on Practice Ownership and Clinical Decision Making: provisions explicitly codifying restrictions on healthcare practice ownership and prohibiting MSOs or other healthcare entities from exerting control over clinical decisions were omitted.
- Boundaries Between MSOs and Physician Practices: H.5159 also excludes specific boundaries that were previously proposed to regulate the relationship between physician practices and MSOs, including restrictions on MSOs exerting ultimate control over the finances of healthcare practices and limitations on stockholders’ ability to transfer, alienate, or exercise discretion over their ownership interests in the practices.
- Maximum Debt-to-EBITDA: A provision that would have allowed the Massachusetts HPC to set a maximum debt-to-EBITDA ratio for provider organizations with private equity investors was removed from the final bill that was signed into law.
- Bond Requirements for Private Equity Firms: H.5159 does not include the previously proposed requirement that private equity firms deposit a bond with the DPH when submitting an MCN, including when acquiring a provider organization.
Conclusion
The passage of H.5159 represents a pivotal moment in Massachusetts’ efforts to regulate investment in health care. It also reflects, however, a compromise that did not impose even more stringent requirements that were set to impact providers, provider organizations, and investors.
Investors, including private equity firms, and healthcare providers and provider organizations, will need to adapt to the enhanced oversight mechanisms and implement more thorough due diligence practices to ensure transparency and avoid penalties for non-compliance. Pre-transaction, this includes ensuring thorough documentation and proactive engagement with regulatory authorities. Post-transaction, entities must implement systems to track and report required financial and operational data accurately and on time.
As H.5159 takes effect, we will continue to monitor and report on any further regulatory updates, particularly those concerning the HPC’s development of regulations to implement this law.
Should you have any questions, contact the authors for more information.
FOOTNOTES
[i] Update: Governor Newsom Vetoes California’s AB 3129 Targeting Healthcare Private Equity Deals | Healthcare Law Blog (sheppardhealthlaw.com), published October 2, 2024, Update: AB 3129 Passes in California Senate and Nears Finish Line | Healthcare Law Blog (sheppardhealthlaw.com), published September 6, 2024, California’s AB 3129: A New Hurdle for Private Equity Health Care Transactions on the Horizon? | Healthcare Law Blog (sheppardhealthlaw.com), published April 18, 2024, and Update: California State Assembly Passes AB 3129 Requiring State Approval of Private Equity Healthcare Deals | Healthcare Law Blog (sheppardhealthlaw.com), published May 30, 2024.
[ii] Net Patient Service Revenue refers to revenue received for patient care from third-party payers, net of contractual adjustments, with distinctions depending on the type of Provider or Provider Organization. For hospitals, it must comply with Massachusetts General Laws Chapter 12C, Section 8, requiring standardized reporting of gross and net revenues, including inpatient and outpatient charges, private sector charges, payer mix adjustments, and revenue from additional services. For other providers and provider organizations, it includes all revenue from third-party payers, prior-year settlements, and premium revenue (per-member-per-month payments for comprehensive healthcare services). 950 CMIR 7.00.
[iii] See our prior blog for background on Senate Bill 2871: Massachusetts Senate Passes Bill to Increase Oversight of Private Equity Healthcare Transactions | Healthcare Law Blog