For certain healthcare transactions that will close on or after Jan. 1, 2020, parties to the transaction must now provide advance written notice to the Washington state attorney general (AG) before closing the transaction. Lawmakers explained that the intent behind the new law is to ensure vigorous and robust competition in healthcare markets, supplementing the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR).
This alert details five things providers and dealmakers should know regarding House Bill 1607, which the governor of Washington signed into law earlier this spring.
1. Overview of the Law. Washington’s new law — which will take effect for transactions with a proposed effective date on or after Jan. 1, 2020 — requires hospitals, hospital systems and “provider organizations” undergoing a “material change” to provide no less than 60 days’ advance written notice to the Washington AG. The term “provider organizations” is broadly defined and includes corporations, partnerships or other groups of persons (organized or not) that are in the business of healthcare delivery or management and that represent seven or more healthcare providers in contracting with carriers or third-party administrators for the payments of healthcare services. The new law gives examples of provider organizations, which include but are not limited to physician organizations, physician-hospital organizations, independent practice associations, provider networks and accountable care organizations. Under the state law, a “material change” includes proposed mergers, acquisitions or contracting affiliations between two or more Washington healthcare entities that did not have previous common ownership. Material changes also include proposed mergers, acquisitions or contracting affiliations between one or more Washington entities and an out-of-state entity if the out-of-state entity generates $10 million or more in healthcare service revenue from patients who reside in Washington. Notably, the state law does not otherwise include any thresholds that would limit notification requirements to transactions that exceed certain size or dollar thresholds.
2. Notice Requirements. Each party to a transaction that is required to provide notice to the Washington AG must submit a written notice that includes, at a minimum, the following information: (i) the names of the parties and their current business addresses, (ii) identification of all locations where healthcare services are currently provided by each party, (iii) a brief description of the nature and objectives of the proposed material change, and (iv) the anticipated effective date of the proposed material change. Importantly, if any party to a proposed transaction is required to file a premerger notification with the Federal Trade Commission and the U.S. Department of Justice in compliance with HSR, such party must submit a copy of that notice to the Washington AG, which will satisfy the state law’s notice requirements. Following submission of the written notice, the Washington AG may request additional information within 30 days of the notice submission. Failure to request additional information does not preclude the Washington AG from conducting an investigation or filing a lawsuit to challenge the transaction under state or federal antitrust laws at a later date.
3. Penalties for Failure to Provide Notice. Any provider who fails to comply with the new state law will be subject to a penalty of up to $200 per each day of noncompliance. While the $200 per day penalty is far less than the penalty that could be imposed for failure to comply with HSR reporting requirements, if parties fail to provide advance notice, and such failure is discovered later, the penalty could be extensive. Healthcare providers should monitor how the Washington AG’s office implements the new law and what, if any, guidance or flexibility it provides around the notice timeline (i.e., whether the Washington AG will allow “early termination” or expedited processing for transactions that present no potential anti-competitive concerns).
4. The New Law Is Fairly Unique. While providers and dealmakers have been well aware of HSR reporting requirements, broad state laws such as this are more uncommon. Aside from Washington, we are only aware of one additional state, Connecticut, that requires reporting and advance notice of certain healthcare transactions. The Connecticut law has been in place since October 2014 and requires 30 days’ advance notice. Notwithstanding, many states do have notice requirements that could be triggered by certain elements of a transaction (e.g., a change of control related to the sale of an entity or a change of ownership regarding licensure, credentialing or Medicaid enrollment). Additionally, broader state laws, like Washington’s, that appear tailored to antitrust concerns could be gaining traction. As discussed in prior McGuireWoods legal alerts, earlier this year, the Florida legislature proposed, but ultimately did not pass, a similar law that would have required mandatory reporting of certain hospital or group practice mergers, acquisitions and other transactions.
5. Practical Implications. Washington’s new law provides a relatively low threshold with regard to when the Washington AG must receive advance written notice of a transaction and, accordingly, will capture a much broader array of transactions within the healthcare space than does the HSR (with its $90 million minimum size-of-transaction threshold). Accordingly, parties to even small transactions must consider and plan for the additional time required in advance of closing a proposed transaction. It is not yet clear the extent to which the Washington AG will enforce the full 60-day notice requirement, or how aggressive the Washington AG’s healthcare antitrust enforcement will be with this new pre-transaction notice. Parties contemplating a transaction in 2020 should consult counsel to carefully and thoughtfully consider whether the transaction will trigger written notice and to facilitate communication with the Washington AG, in preparation of these state antitrust obligations, similar to how dealmakers would under federal law.
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Washington’s new law, while rooted in antitrust considerations, will necessitate additional planning and timing considerations for healthcare transactions, which could influence investor interest. Further, other states may elect to follow suit, either because of similar antitrust concerns or out of an interest in regulating and/or monitoring transactions more generally. Nonetheless, although Washington’s law is fairly unique, most states have unique elements that dealmakers must consider prior to structuring that can be swiftly and successfully addressed by dealmakers and counsel. For additional information regarding Washington’s new law and its implications, please consult one of the authors.