Driven by a growing wave of enforcer skepticism toward further healthcare consolidation, some state legislatures have begun to propose “mini-HSR” laws explicitly targeting healthcare transactions involving private equity firms or sponsors.
Over the last few years, a growing number of states have proposed or enacted premerger notification laws scrutinizing healthcare transactions.[1] These “mini-HSR Acts” reflect efforts by states to identify, review, and potentially challenge transactions that might consolidate healthcare markets. At the same time, 11 attorneys general submitted a public comment to the US Department of Justice (DOJ) and Federal Trade Commission (FTC) expressing concerns about how private equity involvement in healthcare could increase costs, decrease quality, and reduce access to care.[2]
So far, only one state—Indiana—has enacted a law explicitly mentioning private equity transactions in healthcare as part of a broader state mini-HSR Act. Under Indiana’s mini-HSR Act, which became effective on July 1, 2024, a transaction involving a “private equity partnership” and a “health care entity” (such as a healthcare provider, payor, health maintenance organization, pharmacy benefit manager, or third-party administrator) is likely reportable.
The relatively low size-of-person threshold of $10 million in total assets counts the value of any healthcare assets or holdings of the private equity firm, including those located outside Indiana. As a result, Indiana’s law could be read to capture acquisitions by out-of-state private equity sponsors of healthcare assets located in Indiana.[3]
Some state mini-HSR laws do not expressly target private equity transactions but contain language that affects private equity sponsors and portfolio companies—even those that are not parties to a reportable transaction.
For instance, Washington’s mini-HSR Act, in effect since January 1, 2020, broadly defines a “hospital system” to include not only a parent company (e.g., a private equity sponsor) of a hospital that is a party to the transaction, but also any entities affiliated with that parent company through ownership or control.[4] Therefore, a hospital system owned by a private equity sponsor may be required in its Washington mini-HSR filing to identify healthcare assets of other portfolio companies of the sponsor, even if those other portfolio companies are not parties to the transaction at issue.[5]
Other states also have broad definitions in their mini-HSR Acts that could implicate private equity sponsors and their other healthcare portfolio companies in certain parts of the premerger notices.[6]
Multiple other states have proposed legislation focused on targeting healthcare transactions involving private equity firms. These states—California, Connecticut, Massachusetts, Minnesota, and Oregon—already have healthcare mini-HSR Acts in effect; these mini-HSRs would be supplemented by the new private-equity disclosure requirements, should they pass.
Laws requiring more extensive disclosure of private equity involvement in healthcare transactions and in-depth reviews of these transactions will likely continue to be introduced in state legislatures. Healthcare providers and private equity investors should take note of these enhanced legal requirements as they contemplate expansions or changes to their existing holdings.
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[1] Morgan Lewis LawFlashes California, Illinois, Minnesota: Latest States to Enact ‘Mini-HSR’ Acts for Healthcare Deals (Aug. 28, 2023); New York State: Healthcare Entities Must Disclose Certain Material Transactions (May 9, 2023).
[2] Cal. Dep’t of Justice et al., Comments of Eleven Attorneys General in Response to February 29, 2024 Request for Information on Consolidation in Healthcare Markets (June 5, 2024) (reflecting public comment from attorneys general of California, Connecticut, Delaware, District of Columbia, Illinois, Minnesota, New Jersey, Oregon, Pennsylvania, Rhode Island, and Washington).
[3] Another state—Pennsylvania—has proposed a mini-HSR Act in which a “private equity fund” is explicitly included in the statutory definition of “[h]ealth care facility system.” See H.B. 2012, Reg. Sess., § 1 (as amended July 1, 2024) (Pa. 2023).
[4] Wash. Rev. Code § 19.390.020(8) (“Hospital system” means … a parent corporation of one or more hospitals and any entity affiliated with such parent corporation through ownership or control.”).
[5] A proposed legislative update to Washington’s mini-HSR Act may extend the statute’s reach to private equity sponsors and their portfolio companies. See S.B. 5241, 68th Leg., Reg. Sess., § 3 (as amended Feb. 8, 2024) (Wash. 2023) (“‘Affiliate’ means a person that directly, or indirectly through one or more intermediaries, controls or has ownership of, is controlled or owned by, or is under common control or ownership of a person.”).
[6] See, e.g., Cal. Code Regs. tit. 22, §§ 97431(a), 97435(d) (size-of-person threshold includes revenues of “the submitter and all affiliates,” where an “affiliate” is any entity that “controls, is controlled by, or is under common control with another legal entity” to provide healthcare services); 958 Mass. Code Regs. § 7.02 (defining “Corporate Affiliation” as “[a]ny relationship between two organizations that reflects, directly or indirectly, a partial or complete controlling interest or partial or complete common control”); Or. Rev. Stat. § 415.500(4)(a) (defining “[h]ealth care entity” to include “[a]ny other entity … that is a parent organization of, or is an entity closely related to, an entity that has as a primary function the provision of health care items or services”).
[7] See id. § 1190.10(g). Notably, the separate California mini-HSR law, the Health Care Quality and Affordability Act (HCQAA), contains a similar tolling provision that allows the already-lengthy HCQAA waiting periods to be tolled during the pendency of any federal or state review of the transaction. See Cal. Code Regs. tit. 22, § 97440(b)(2). The joint operation of the federal HSR Act, the HCQAA, and the proposed A.B. 3129 could significantly extend closing timelines. For example, HSR Act merger investigation and litigation by the FTC and DOJ may take over a year to finally resolve. During that time, waiting periods under the HCQAA may be tolled. Id. Once HSR Act waiting periods expire, or once a federal court rules against the FTC or DOJ, then waiting periods under the HCQAA would no longer be tolled. Id. It may take over six months for the California Office of Health Care Affordability (OHCA) to compile a final report under the HCQAA, during which time parties cannot close. See, e.g., Cal. Health & Safety Code § 127507.2(a)(3) (parties cannot close until 60 days after OHCA’s issuance of final report); Cal. Code Regs. tit. 22, §§ 97440, 97442 (identifying lengthy waiting periods under HCQAA). While OHCA conducts its lengthy HCQAA review, the California Attorney General—a different state agency—may toll the lengthy waiting periods of A.B. 3129. See A.B. 3129, Reg. Sess., § 1190.10(g) (Cal. 2024).