March 28, 2025 • 27 mins
Based on AHLA's annual Health Law Connections article, this special series brings together thought leaders from across the health law field to discuss the top ten issues of 2025. In the tenth episode, Ragini Acharya, Partner, Husch Blackwell LLP, speaks with William S. Richmond, Partner, Kirkland & Ellis LLP, about the latest developments related to state health care transaction review laws. They discuss the growth in the number of states introducing new or expanding current health care transaction review laws; trends related to notice versus consent; the types of transactions these laws apply to; and how parties to transactions should navigate the variation in state timing requirements, contingency planning, and confidentiality of deal terms. From AHLA’s Business Law and Governance Practice Group.
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Speaker 1 (00:00):
Speaker 2 (00:04):
A HLA is pleased to present this special series
highlighting the top 10 healthlaw issues of 2025, where we
bring together thought leadersfrom across the health law
field to discuss the majortrends and developments of the
year. To stay updated on allthe major health law news,
subscribe to ALA's New HealthLaw Daily podcast, available
exclusively for premiummembers@americanhealthlaw.org
(00:27):
slash daily podcast .
Speaker 3 (00:35):
Good morning. Thank you for joining us for this A
HLA top 10 issues and healthlaw podcast series where we'll
be talking about the evolvinglandscape of state healthcare
transaction review laws. I'mrag Ria , a partner at Husch
Blackwell, located in Denver. Ihave a healthcare regulatory
and transactional practice, andI'm also a vice chair of ALA's
(00:55):
Business Law and GovernanceGroup. Joining me today is Will
Richmond, a partner at Kirklandand Ellis, will recently
co-authored the evolvinglandscape of state healthcare
transaction review laws , uh,section of the A HLA top 10
issues 2025 in the Health LawConnections magazine. Um, I'll
let, will give a fullerintroduction regarding his
background for our discussiontoday.
Speaker 4 (01:18):
Yes, thank you so much. I appreciate it. Happy to
be here and happy to talk aboutthis topic. Um, I'm, look , I'm
a partner in Kirkland AnalysisDC office. I focus in
healthcare transactional andregulatory space. And as part
of that, I've spent a good partof the last three years
thinking pretty heavily aboutstate healthcare transaction
(01:38):
review laws, how they impactour practice area today , um,
what that might look like atthe end of the year, and kind
of practical implications as wework through transactions and
regulatory hurdles , um, tryingto assist clients in
acquisitions , um, dispositionsand, and things of that nature.
So it's an exciting time, lotsof changes , um, and even some,
(02:02):
I suspect, between the timethis is recorded and released.
Speaker 3 (02:06):
Awesome. So to get us started , um, you mentioned
in your article that there arenew states likely to bring
similar legislation this year,and I kind of wanted to get
your opinion. What, what otherstates do you think will expand
the current requirements andwhat do you think those
requirements will be like?
Speaker 4 (02:21):
Yeah, it's, it's a great question. You know, these
types of laws started outreally with Massachusetts about
a decade or so now, and therewas a little bit of a pause
until the last three years andyou had a rush where , um,
about 10 or 15 states passedtheir own set of laws, but it,
they really trickled in, right?
(02:41):
It was one a month, one everythree or four months, a new
state would come to the fray.
This year, just between January1st and where we are today at
March 7th , um, there are 12states. Those are either states
of the existing laws or newstates that don't have one
that, that want to implement,one that are thinking about
putting some type of healthcaretransaction review process in
(03:06):
place. Now, I think that someof these states, not
everything's gonna make itthrough state legislatures, and
even if they do right, there'sno guarantee that these will be
signed into law. But there isclearly a concerted effort at
the state level and really anorganized effort to pass
legislation that puts greaterscrutiny into private
(03:27):
investment into healthcareassets. Um, I would say by and
large, these are focused moreto healthcare providers, right?
States wanting to say, Hey, whois kind of , um, gonna be the
gatekeeper or own or controlhealthcare provider access in
our state? Um, and what is thatgonna look like from a
(03:51):
transactional perspective? Ithink it's really interesting.
The biggest impact is going tobe you're gonna be entering a
new review process that youreally haven't seen before, and
that most, and that therehaven't really been that many
transactions that have gonethrough. So in , in a lot of
ways you're building this, you, you're building the plane as
(04:11):
you're trying to fly it interms of how do I get this deal
done? What does this regularregulator want to focus on? Um,
I suspect there'll be somebumps along the road initially,
but at the end of the year, Ithink that we'll go from 15
states having these laws topotentially 20 or more. It's
really quite a thing to see.
Speaker 3 (04:31):
That's interesting.
Yeah. And I, I know that youand I had previously talked a
little bit about , um, a coupleof the states in particular. So
I think New Mexico, forexample, is one of the ones
that, that had introduced abill earlier this year and ,
um, recently I think they , uh,made some revisions to their
draft of the bill. Um, and Ithink they're really taking
(04:53):
public comment intoconsideration regarding notice
and consent requirements and,and the scope of this . So I
kind of wanna lead into thenext question, which is what ,
um, what is the split you'reseeing between states that only
require notice versus thosethat require consent? And what
are the trends that you'renoticing there Air ?
Speaker 4 (05:10):
Sure. So that , another very interesting
question, and what I thinkyou're seeing there is right
now the majority of states havea, what they'll call a notice
requirement. And that's simplytell me about your transaction,
give me some information aboutit, and I'm gonna take a look
at this. And then at the end ofwhatever notice period there is
, um, theoretically you'resupposed to be able to move
(05:33):
forward with that transaction.
However, even in only noticestates , there are typically
provisions of after we thestate review this notice we'll
decide whether to refer it toour attorney general or some
other enforcement body in thestate that could potentially
take action to stop condition ,um, or otherwise impair the
(05:55):
transaction. So I would saythat's the majority of states.
However, there are a few, andthis is really important , um,
for states such asMassachusetts, Oregon,
California, that even if theysay it's a notice, it's really
a consent, right? You, theytake the positions of
(06:16):
regulatory authorities andbodies take the positions that
you cannot close thetransaction until they have
appropriately reviewed andsigned off on it. That can
really be a long and arduousprocess, and it can put
healthcare transactionalattorneys in an interesting
space that we really haven't ,that we don't often find
ourselves in. I I won't saythat no one has been in it
(06:37):
because I'm sure they have, butwe don't often find ourselves
as healthcare consent in onestate being the holdup for the
entire transaction to close.
Um, however, if you're inOregon or a California or
Massachusetts, you very wellmay find yourself there. So
it's something to really keepin mind, make sure that you
(06:59):
understand the review processof the state that you're gonna
be filing in. Um, it's notalways apparent from their
statutory regulatory language.
And you may find thatregulators and practice kind of
conduct their review processesquite differently than what it
says they will do on paper.
Speaker 3 (07:20):
So what are you seeing in terms of the types of
transactions that these lawsapply to and and what we expect
them to apply to going forward?
Speaker 4 (07:31):
Yeah , uh, really I would say that, I think I said
it at the beginning, but it it, it is worth repeating here,
which is it's really gettingafter direct to patient
healthcare products andservices. So if you have a
direct to consumer medicaldevice company, if you have ,
um, physician practice up forPPM model companies , um,
(07:54):
you're seeing states that areimplementing regulations or
statutes that are specificallycapturing these companies.
They, they want to know when adifferent owner comes in and
takes them over. They want toknow if you're going to do
significant add-ons in somestates. And that's a space at
pri both private equity,different private investment
(08:17):
for-profit hospitals , um, evenright public companies have
been pretty active in over thelast decade or so. And so
you've got folks holding a fairamount, fair number of assets
that are potentiallyimplicated, both one if you own
it and want to sell it tosomeone else, or two, if you
want to be a new entrant intothis space and acquire one of
(08:39):
these existing assets, what areyou not seeing captured as
much? I would say generally ,um, we'll call them wholesale
manufacturers, pharmaceuticalmanufacturers items and folks
who provide items and servicesof that nature are generally
not picked up as much. You cancertainly have a fact pattern
(09:01):
that implicates these, but asdrafted, it's not really what
you're seeing. However, likehaving said that the trend is
both with exist states withexisting laws and states that
are proposing new laws is todraft them more broadly to, to
be able to review moretransactions, not less, right?
(09:23):
It's not specific carve outsthat is excluding wholesale
manufacturers or, orpharmaceutical manufacturers
from these reviews. It's reallyhow states are defining in
their regulations saying, whattransactions are we going to
capture? And so if all theyneed to do at the end of the
day is revise the regulation tosay, Hey, now let's go after
some of these other folks, youmay see that happen. Um, you're
(09:46):
gonna see it in one example Iwould say is gonna be in
California is one that comes tomind where they, at the end of
last year took a look and said,I'm not quite sure why we all
have , we had so few filings inour state for our, at the
Office of Healthcare foraffordability, and they've
(10:06):
looked into strengthening, kindof tightening up their
regulations that in a waythat's gonna capture more
transactions in their reviewprocess this year than less.
Speaker 3 (10:17):
So kind of thinking about the additional
transactions , um, and thetypes of transactions to which
these laws will apply, I, I'venoticed, at least in in my
practice, an increase inarrangements with management
services organizations and um,for example, I think New York
started including those back in2023. I'll correct me if I'm
(10:39):
wrong on my timing, but um,that's included even in the
revised version of the NewMexico bill manage , um,
arrangements with MSOs are alsoincluded, whether they're with
hospitals as a whole or justfor a service line . So I guess
what is your opinion on, Iguess, including arrangements
with MSOs and control from thatperspective?
Speaker 4 (11:01):
Well, it's certainly an area that states are
interested in and largelybecause in states with
corporate practice and medicineand corporate practice and
medicine doctrine states,right? Private investors don't
own or control healthcareproviders because they're not
legally allowed to. And sothey've structured their
arrangements with thesecompanies to management service
organizations and I thinkstates have decided that, you
(11:25):
know, that's all well and good.
You may not directly controlthese folks and you're not
controlling their professionaljudgment 'cause you're not
allowed to legally, but youstill are involved enough where
we want to take a look andunderstand more about one, how
this arrangement's going towork, how it could
theoretically impact patientcare for , um, the constituents
(11:46):
in our states . Now I do thinkthat some of these , um, we'll
call them just corporatestructures are maybe unfairly
maligned, right? It's notalways a malicious intent that
there's physician practicemanagement , um, companies that
are rolling up physicianpractices. The bottom line is
(12:07):
the economics of healthcare arechanging, right? Consolidation
has been coming to thehealthcare industry for the
past 25 years, really may belonger than that. And so the
fact that you're seeing thatmanifest into a management
service organization orphysician practice management
model is really nothing new.
It's just something that statesare interested in learning more
about. And so if you approachit in that manner of your
(12:30):
filings in that manner , ifyou're caught in a state of,
look, here's what we do, it'snot really much different than
what anyone else is doing.
We're not looking to take awayhealthcare services. We're not
looking to massively increasecosts for patients. It's simply
a more efficient way to delivercare that is and has been an
effective strategy for gettingregulators comfortable with
(12:51):
these types of transactions.
Speaker 3 (12:54):
Interesting . Yeah.
So , um, I wanna shift gears alittle bit to timing. I think
you briefly touched on this alittle bit earlier in our
discussion, but you know, thoseentities that are navigating
multi-state , um, and justgenerally timing , um,
requirements associated withthese laws. How should the
parties to a transactionnavigate something that varies
so much?
Speaker 4 (13:15):
It is a great question, right? Because
particularly if you're in morethan one state and you're going
to implicate one of thesefilings, but you know, at the
outset, the initial , um, we'llcall it just the initial
preliminary notice periodlikely varies between those
states. But truthfully, and ,and , and that can vary
anywhere from somewhere like ,uh, New York that says, I think
(13:37):
it's New York that says, Iwould like a 30 day pre-close
notice to an Oregon that says,you know, 180 day pre-close
notice. Even within that,there's still huge variability
of the 30 days or the 180 daysor whatever time period that
you think is gonna startrunning does not necessarily
run when you submit your filingand having answered all the
(14:00):
questions , um, that were onthere, right? In many states,
they're taking the positionthat your filing is not
complete and the clock does notrun until you've answered all
my questions until I , theregulator am satisfied that
your filing is complete and Ihave actually given you a
letter in hand saying it iscomplete. And that uncertainty
(14:20):
really can drive a lot offriction in a deal process. It
can drive it between buyers andsellers. It can drive between
clients and legal count ,right? Your clients and their
le and their legal counsel ,um, to manage through that. Be
upfront , right? Don't tellfolks you're going to be able
to get your transaction throughin 30 days or 60 days 'cause
(14:41):
you very well may not be ableto. And if you're in a state
that's more than just a noticestate , um, for example in
Oregon or California, you don'twanna promise a timing that you
can't meet. And so reallyincident to that is how do you
deal with these in transactiondocuments, which is another
interesting question. And theanswer has to be you need to
(15:04):
build in flexibility to go getthese consents and approvals.
Um, whether you're going to tieit to a hard and fast state
that's certainly risky forreasons outside of your
control, you can't meet itbecause the regulator's not
given approval for atransaction yet. And so really
what I think you're seeing ashift towards is more a best
(15:25):
efforts covenant to go out andget these types of approvals
that are required. And maybethat's tied to an outside date
that says, Hey, if at the endof this , um, at the end of
this, you know, six monthperiod we still can't get our
approvals right , here's someoptions and we can think about
both walking away from thisdeal. It's really more akin to
(15:48):
what you used to see really inthe context of HSR and
antitrust processes thanspecific healthcare regulatory
filings. But now those two arealigning more closely.
Speaker 3 (15:59):
Right . Kind of thinking about, you know,
incorporating those types ofterms into your transaction
documents and just generallythinking about risk and
contingencies, can you speak alittle bit about how parties to
a transaction and their legalcounsel and other advisors
should be looking at this from,you know , in the inherent risk
(16:19):
of uncertainty and, and othercontingency plans?
Speaker 4 (16:24):
Well, it's something that folks need to put a lot of
thought into on the front end,right? You want to think
through, Hey, what happens ifwe cannot get this approval in
place? Um, and whether thatactually makes its way into
writing on the transactiondocument or whether it's just
an understanding between theparties, it's still important
(16:44):
to think through on the frontend. And so what does that
mean? Well, maybe it means thatyou're going to at least
discuss the possibility of ifit's really a set of assets in
one particular state that'scausing a problem , um, but
you're ready to close on theasset , on the assets
operations that are located inmaybe 10 other states. There's
(17:06):
a way to carve out the itemsand the assets that are, that
are holding up your, the , yourbroader transaction from
closing. That may not always bepossible 'cause you may start
just depending on what theactual physical corporate
structure looks like, but it'ssomething to think through. Are
there viable contingency plansto let the transaction move
(17:30):
forward in the absence ofapproval? And sometimes the
answer may be yes, andsometimes the answer may be no.
And that's where, kind ofgetting back to what happens if
we can't get regulatoryapproval, is there, are we able
to walk away with this withoutsome type of fee? Is there a
breakup fee involved? Um, orthe parties just going to start
getting angry at each other andpointing fingers and
(17:51):
potentially trying to sue eachother , uh, over bad faith
negotiation. Uh , I think I'veseen , I've seen it go really
in each of those directions ,um, which I'll reiterate again
leads me to let's pay attentionto this on the front end.
Speaker 3 (18:05):
No, exactly. That makes a lot of sense. Uh,
another big consideration thatI think providers are really
concerned about is theconfidentiality of deal terms.
I know that at least a fewstates are requiring disclosure
of the deal documentsthemselves, including letters
of intent, you know, the actualacquisition definitive
documents. So is this somethingthey should be concerned about
(18:28):
in terms of confidentiality orwhat, what do you propose
providers should do when itcomes to having to disclose
this type of information?
Speaker 4 (18:36):
Yeah, no , I , I really think it is something
that folks need to payattention to and , and be wary
of because information, some ofthese states will require a
really expansive amount ofinformation to be provided for
these filings. They'll, they'llwant business terms, how you
operate your business today,how you price all your products
(18:58):
and services , um, right.
Things that you very well mayconsider trade secrets and the
regulators are gonna say,that's great, I still want to
see them . So now your nextconcern is, well look, I don't
want this to be subject to aFOIA request, right? I don't
want it to be posted onpublicly on your website. So
how do you deal with that? Somestates have, a lot of states
(19:20):
have a confidentialityprovision built directly into
their transaction review laws.
So there is a methodology foryou to provide effectively two
filings. One is a confidentialversion that regulators can see
and one is a public versionthat if there is a FOIA request
or if that state is one thatprovides information publicly
(19:41):
online, will actually be in thepublic domain. Um, for some
states, if they have notdirectly addressed the
confidentiality provision,there are still mechanisms to
provide this information in amanner that is not subject to a
public information request.
Right? I've seen situationswhere you might go and ask the
(20:03):
attorney general to issue acivil investigative demand that
you could produce documentsunder that they're saying they
want for the sole purpose of itnot being discoverable or , or
discoverable from a public ,um, records request standpoint.
And also I think that wherepreviously I had seen people
(20:27):
take position of really broadlydesignating all this
information as confidential'cause they didn't really want
anything out there, right? Youare seeing state regulators
push back on that. They, in thestates that we've worked with
and , and the , and I've reallydone a filing almost in every
single state right now. Theywant you to justify why
something is designated isconfidential. Um, it can't just
(20:49):
be a blanket, right? Here's theexecutive summary for one page
that can describe thetransaction. This can be public
and the rest of this filing isconfidential. You're not seeing
that you really need to go andunderstand and justify that
one, this is a trade tradesecret or two, this is client
privilege. I'm not gonna giveit to anybody. And it's a
(21:10):
balance. Um, you may findyourself trying to explain to
regulators that why somethingis a trade secret where you
don't feel like you don't haveto, but just be prepared for
those. Um, some folks in somestates would be a little bit
easier to deal with thanothers, but at the end of the
day, it's a question that verywell may come across your desk.
Speaker 3 (21:30):
Yeah, and I think , um, something to keep in mind
that you previously touched onwith respect to timing and if ,
I think you had, you and Ipreviously discussed how
sometimes the efforts tomaintain the confidentiality of
some of this information may befutile and expensive and affect
ultimately the timing. Um, doyou think that's still the case
(21:52):
going forward as well?
Speaker 4 (21:55):
It really comes down to a matter of leverage in my
mind, which is if you're in astate that requires consent,
you need to consent to closeyour transaction, you really
just don't have a lot of groundto stand on. So what's the cost
benefit analysis of reallyfighting over keeping that
information confidential? Youmay not win it anyways, right?
(22:16):
They may just say, that'sgreat, we're not gonna give our
approval till you complete thefiling and give us all the
information we requested. Um,so, and , and it is expensive,
right? Going back and forthwith these various state
regulators. It , it costsclients an extraordinary amount
of money and extraordinaryamount of money, right? It's
(22:37):
not your typical license changeof ownership or even what some
people might think of likecertificate of needs being a
more involved process, right ?
It's really, these can costquite a bit more than that. So
being upfront about the timeand expense associated with
one, completing the filings,two, going back and forth with
state regulators or trying tohold your ground on a specific
(23:00):
portion of a filing, like aconfidentiality request. Um,
those are conversations youwanna have on the front end and
perhaps game plan out and , andreally maybe not game plan out,
but maybe rank where it is thathere's what I'm willing to give
on, here's what I'm not goingto give on. If you end up in
(23:20):
that place, regulators are soreasonable people, you can talk
to them. Um, and if you cancome up with a good argument
for why something should remainconfidential or you shouldn't
need to provide a piece ofinformation, go and make that
argument, right? It's, it canbe a give and take.
Speaker 3 (23:35):
That's interesting concept of thinking about,
you're always thinking aboutwhich hill am I willing to die
on in the context of thetransaction and negotiating
with the counterparty. Butthinking about that now in
context of working withregulators is a , is something
else entirely . Um, sothe last question I have for
you is, do you have any othermiscellaneous thoughts or tips
(23:57):
for providers and theiradvisors as they're considering
transactions in thisenvironment , um, and the type
of preparation they should be,you know, doing , um, in
advance of these types oftransactions?
Speaker 4 (24:10):
Sure. So I think the biggest thing is that you need
to get it , it is , and I'vesaid it three or four times,
right ? But , but get in, getin front of this early, right?
Even at the term sheet stagefor some of your clients, when
your clients tell you thatthey're thinking about
transacting in a space, youdon't want your client submit
to or commit to something likea simultaneous sign and close
(24:34):
in a matter of weeks if youreally can't get the regulatory
approvals in place to do that.
Whereas there have beeninstances where clients will
take risks of closing overcertain, you know, perhaps
indirect change of ownershiplicense filings in the past.
These are not those, there arereal penalties tied to
non-compliance with these, withthese laws, right? They can
(24:55):
range from monetary penaltiesto referral to state attorney
general's offices , um, todecide if they want to take
further action. So I would sayunderstand which states you are
in and in a, in , in a timewhen there are 12 states that
are proposing either expandingexisting laws or passing new
(25:16):
laws. Understand if thatlandscape's gonna shift in the
next couple of months whenyou're trying to get your
transaction done. Keep all ofthat in mind. Inform your
clients of it upfront sothere's no surprises later on.
Um, and just workcollaboratively with your, with
your opposing counsel . 'causeultimately you're both gonna
(25:39):
need provide info , provideinformation in order to get
these filings through . This isnot just one party providing
information. This is both buyerand seller coming together to,
in most cases , most casescreate a unified filing. I
think if you do those things,which is something that we do
on a daily basis as transactionwith regulatory attorneys , um,
you'll be well positioned tonavigate these , um, these
(26:01):
types of laws. It'll beinteresting to see where it
ends up at the end of the yearand even beyond. But I suspect
that we are just now enteringthe age where these are
foundational transactionalconsiderations as opposed to
five years ago when theserequirements really didn't
exist.
Speaker 3 (26:20):
Will , will, thank you so much to for your time
today. Um, that's the end oftoday's podcast. Uh , for our
audience, if you're looking formore information regarding
state healthcare transactionslaws or, or similar content, I
first recommend checking outthe Health Law Connections
publication in particularWill's article , uh, which is
available on the EH HLAwebsite. Also ALA's Business
(26:40):
Law and Governance PracticeGroup has a lot of really good
resources and , um, if I'm notmistaken, we'll be publishing a
webinar on this same topic inthe next couple of months. So a
little bit of a plug for that.
Um, will, again, this has beenincredibly helpful. Thank you
so much for your time today. Iappreciate you synthesizing all
of this really denseinformation into something
(27:01):
concise , um, and helpful for,you know, both transactional
attorneys and their clients sothey can use that going
forward.
Speaker 4 (27:08):
Sure. Well, thank you so much for having me. I
really enjoyed the conversation, um, and I look forward to
hopefully working with all thelisteners here at some point in
the future.
Speaker 2 (27:24):
Thank you for listening. If you enjoyed this
episode, be sure to subscribeto ALA's speaking of health
Law, wherever you get yourpodcasts. To learn more about a
HLA and the educationalresources available to the
health law community, visitAmerican health law.org .
Speaker 2 (00:04):
A HLA is pleased to present this special series
highlighting the top 10 healthlaw issues of 2025, where we
bring together thought leadersfrom across the health law
field to discuss the majortrends and developments of the
year. To stay updated on allthe major health law news,
subscribe to ALA's New HealthLaw Daily podcast, available
exclusively for premiummembers@americanhealthlaw.org
(00:27):
slash daily podcast .
Speaker 3 (00:35):
Good morning. Thank you for joining us for this A
HLA top 10 issues and healthlaw podcast series where we'll
be talking about the evolvinglandscape of state healthcare
transaction review laws. I'mrag Ria , a partner at Husch
Blackwell, located in Denver. Ihave a healthcare regulatory
and transactional practice, andI'm also a vice chair of ALA's
(00:55):
Business Law and GovernanceGroup. Joining me today is Will
Richmond, a partner at Kirklandand Ellis, will recently
co-authored the evolvinglandscape of state healthcare
transaction review laws , uh,section of the A HLA top 10
issues 2025 in the Health LawConnections magazine. Um, I'll
let, will give a fullerintroduction regarding his
background for our discussiontoday.
Speaker 4 (01:18):
Yes, thank you so much. I appreciate it. Happy to
be here and happy to talk aboutthis topic. Um, I'm, look , I'm
a partner in Kirkland AnalysisDC office. I focus in
healthcare transactional andregulatory space. And as part
of that, I've spent a good partof the last three years
thinking pretty heavily aboutstate healthcare transaction
(01:38):
review laws, how they impactour practice area today , um,
what that might look like atthe end of the year, and kind
of practical implications as wework through transactions and
regulatory hurdles , um, tryingto assist clients in
acquisitions , um, dispositionsand, and things of that nature.
So it's an exciting time, lotsof changes , um, and even some,
(02:02):
I suspect, between the timethis is recorded and released.
Speaker 3 (02:06):
Awesome. So to get us started , um, you mentioned
in your article that there arenew states likely to bring
similar legislation this year,and I kind of wanted to get
your opinion. What, what otherstates do you think will expand
the current requirements andwhat do you think those
requirements will be like?
Speaker 4 (02:21):
Yeah, it's, it's a great question. You know, these
types of laws started outreally with Massachusetts about
a decade or so now, and therewas a little bit of a pause
until the last three years andyou had a rush where , um,
about 10 or 15 states passedtheir own set of laws, but it,
they really trickled in, right?
(02:41):
It was one a month, one everythree or four months, a new
state would come to the fray.
This year, just between January1st and where we are today at
March 7th , um, there are 12states. Those are either states
of the existing laws or newstates that don't have one
that, that want to implement,one that are thinking about
putting some type of healthcaretransaction review process in
(03:06):
place. Now, I think that someof these states, not
everything's gonna make itthrough state legislatures, and
even if they do right, there'sno guarantee that these will be
signed into law. But there isclearly a concerted effort at
the state level and really anorganized effort to pass
legislation that puts greaterscrutiny into private
(03:27):
investment into healthcareassets. Um, I would say by and
large, these are focused moreto healthcare providers, right?
States wanting to say, Hey, whois kind of , um, gonna be the
gatekeeper or own or controlhealthcare provider access in
our state? Um, and what is thatgonna look like from a
(03:51):
transactional perspective? Ithink it's really interesting.
The biggest impact is going tobe you're gonna be entering a
new review process that youreally haven't seen before, and
that most, and that therehaven't really been that many
transactions that have gonethrough. So in , in a lot of
ways you're building this, you, you're building the plane as
(04:11):
you're trying to fly it interms of how do I get this deal
done? What does this regularregulator want to focus on? Um,
I suspect there'll be somebumps along the road initially,
but at the end of the year, Ithink that we'll go from 15
states having these laws topotentially 20 or more. It's
really quite a thing to see.
Speaker 3 (04:31):
That's interesting.
Yeah. And I, I know that youand I had previously talked a
little bit about , um, a coupleof the states in particular. So
I think New Mexico, forexample, is one of the ones
that, that had introduced abill earlier this year and ,
um, recently I think they , uh,made some revisions to their
draft of the bill. Um, and Ithink they're really taking
(04:53):
public comment intoconsideration regarding notice
and consent requirements and,and the scope of this . So I
kind of wanna lead into thenext question, which is what ,
um, what is the split you'reseeing between states that only
require notice versus thosethat require consent? And what
are the trends that you'renoticing there Air ?
Speaker 4 (05:10):
Sure. So that , another very interesting
question, and what I thinkyou're seeing there is right
now the majority of states havea, what they'll call a notice
requirement. And that's simplytell me about your transaction,
give me some information aboutit, and I'm gonna take a look
at this. And then at the end ofwhatever notice period there is
, um, theoretically you'resupposed to be able to move
(05:33):
forward with that transaction.
However, even in only noticestates , there are typically
provisions of after we thestate review this notice we'll
decide whether to refer it toour attorney general or some
other enforcement body in thestate that could potentially
take action to stop condition ,um, or otherwise impair the
(05:55):
transaction. So I would saythat's the majority of states.
However, there are a few, andthis is really important , um,
for states such asMassachusetts, Oregon,
California, that even if theysay it's a notice, it's really
a consent, right? You, theytake the positions of
(06:16):
regulatory authorities andbodies take the positions that
you cannot close thetransaction until they have
appropriately reviewed andsigned off on it. That can
really be a long and arduousprocess, and it can put
healthcare transactionalattorneys in an interesting
space that we really haven't ,that we don't often find
ourselves in. I I won't saythat no one has been in it
(06:37):
because I'm sure they have, butwe don't often find ourselves
as healthcare consent in onestate being the holdup for the
entire transaction to close.
Um, however, if you're inOregon or a California or
Massachusetts, you very wellmay find yourself there. So
it's something to really keepin mind, make sure that you
(06:59):
understand the review processof the state that you're gonna
be filing in. Um, it's notalways apparent from their
statutory regulatory language.
And you may find thatregulators and practice kind of
conduct their review processesquite differently than what it
says they will do on paper.
Speaker 3 (07:20):
So what are you seeing in terms of the types of
transactions that these lawsapply to and and what we expect
them to apply to going forward?
Speaker 4 (07:31):
Yeah , uh, really I would say that, I think I said
it at the beginning, but it it, it is worth repeating here,
which is it's really gettingafter direct to patient
healthcare products andservices. So if you have a
direct to consumer medicaldevice company, if you have ,
um, physician practice up forPPM model companies , um,
(07:54):
you're seeing states that areimplementing regulations or
statutes that are specificallycapturing these companies.
They, they want to know when adifferent owner comes in and
takes them over. They want toknow if you're going to do
significant add-ons in somestates. And that's a space at
pri both private equity,different private investment
(08:17):
for-profit hospitals , um, evenright public companies have
been pretty active in over thelast decade or so. And so
you've got folks holding a fairamount, fair number of assets
that are potentiallyimplicated, both one if you own
it and want to sell it tosomeone else, or two, if you
want to be a new entrant intothis space and acquire one of
(08:39):
these existing assets, what areyou not seeing captured as
much? I would say generally ,um, we'll call them wholesale
manufacturers, pharmaceuticalmanufacturers items and folks
who provide items and servicesof that nature are generally
not picked up as much. You cancertainly have a fact pattern
(09:01):
that implicates these, but asdrafted, it's not really what
you're seeing. However, likehaving said that the trend is
both with exist states withexisting laws and states that
are proposing new laws is todraft them more broadly to, to
be able to review moretransactions, not less, right?
(09:23):
It's not specific carve outsthat is excluding wholesale
manufacturers or, orpharmaceutical manufacturers
from these reviews. It's reallyhow states are defining in
their regulations saying, whattransactions are we going to
capture? And so if all theyneed to do at the end of the
day is revise the regulation tosay, Hey, now let's go after
some of these other folks, youmay see that happen. Um, you're
(09:46):
gonna see it in one example Iwould say is gonna be in
California is one that comes tomind where they, at the end of
last year took a look and said,I'm not quite sure why we all
have , we had so few filings inour state for our, at the
Office of Healthcare foraffordability, and they've
(10:06):
looked into strengthening, kindof tightening up their
regulations that in a waythat's gonna capture more
transactions in their reviewprocess this year than less.
Speaker 3 (10:17):
So kind of thinking about the additional
transactions , um, and thetypes of transactions to which
these laws will apply, I, I'venoticed, at least in in my
practice, an increase inarrangements with management
services organizations and um,for example, I think New York
started including those back in2023. I'll correct me if I'm
(10:39):
wrong on my timing, but um,that's included even in the
revised version of the NewMexico bill manage , um,
arrangements with MSOs are alsoincluded, whether they're with
hospitals as a whole or justfor a service line . So I guess
what is your opinion on, Iguess, including arrangements
with MSOs and control from thatperspective?
Speaker 4 (11:01):
Well, it's certainly an area that states are
interested in and largelybecause in states with
corporate practice and medicineand corporate practice and
medicine doctrine states,right? Private investors don't
own or control healthcareproviders because they're not
legally allowed to. And sothey've structured their
arrangements with thesecompanies to management service
organizations and I thinkstates have decided that, you
(11:25):
know, that's all well and good.
You may not directly controlthese folks and you're not
controlling their professionaljudgment 'cause you're not
allowed to legally, but youstill are involved enough where
we want to take a look andunderstand more about one, how
this arrangement's going towork, how it could
theoretically impact patientcare for , um, the constituents
(11:46):
in our states . Now I do thinkthat some of these , um, we'll
call them just corporatestructures are maybe unfairly
maligned, right? It's notalways a malicious intent that
there's physician practicemanagement , um, companies that
are rolling up physicianpractices. The bottom line is
(12:07):
the economics of healthcare arechanging, right? Consolidation
has been coming to thehealthcare industry for the
past 25 years, really may belonger than that. And so the
fact that you're seeing thatmanifest into a management
service organization orphysician practice management
model is really nothing new.
It's just something that statesare interested in learning more
about. And so if you approachit in that manner of your
(12:30):
filings in that manner , ifyou're caught in a state of,
look, here's what we do, it'snot really much different than
what anyone else is doing.
We're not looking to take awayhealthcare services. We're not
looking to massively increasecosts for patients. It's simply
a more efficient way to delivercare that is and has been an
effective strategy for gettingregulators comfortable with
(12:51):
these types of transactions.
Speaker 3 (12:54):
Interesting . Yeah.
So , um, I wanna shift gears alittle bit to timing. I think
you briefly touched on this alittle bit earlier in our
discussion, but you know, thoseentities that are navigating
multi-state , um, and justgenerally timing , um,
requirements associated withthese laws. How should the
parties to a transactionnavigate something that varies
so much?
Speaker 4 (13:15):
It is a great question, right? Because
particularly if you're in morethan one state and you're going
to implicate one of thesefilings, but you know, at the
outset, the initial , um, we'llcall it just the initial
preliminary notice periodlikely varies between those
states. But truthfully, and ,and , and that can vary
anywhere from somewhere like ,uh, New York that says, I think
(13:37):
it's New York that says, Iwould like a 30 day pre-close
notice to an Oregon that says,you know, 180 day pre-close
notice. Even within that,there's still huge variability
of the 30 days or the 180 daysor whatever time period that
you think is gonna startrunning does not necessarily
run when you submit your filingand having answered all the
(14:00):
questions , um, that were onthere, right? In many states,
they're taking the positionthat your filing is not
complete and the clock does notrun until you've answered all
my questions until I , theregulator am satisfied that
your filing is complete and Ihave actually given you a
letter in hand saying it iscomplete. And that uncertainty
(14:20):
really can drive a lot offriction in a deal process. It
can drive it between buyers andsellers. It can drive between
clients and legal count ,right? Your clients and their
le and their legal counsel ,um, to manage through that. Be
upfront , right? Don't tellfolks you're going to be able
to get your transaction throughin 30 days or 60 days 'cause
(14:41):
you very well may not be ableto. And if you're in a state
that's more than just a noticestate , um, for example in
Oregon or California, you don'twanna promise a timing that you
can't meet. And so reallyincident to that is how do you
deal with these in transactiondocuments, which is another
interesting question. And theanswer has to be you need to
(15:04):
build in flexibility to go getthese consents and approvals.
Um, whether you're going to tieit to a hard and fast state
that's certainly risky forreasons outside of your
control, you can't meet itbecause the regulator's not
given approval for atransaction yet. And so really
what I think you're seeing ashift towards is more a best
(15:25):
efforts covenant to go out andget these types of approvals
that are required. And maybethat's tied to an outside date
that says, Hey, if at the endof this , um, at the end of
this, you know, six monthperiod we still can't get our
approvals right , here's someoptions and we can think about
both walking away from thisdeal. It's really more akin to
(15:48):
what you used to see really inthe context of HSR and
antitrust processes thanspecific healthcare regulatory
filings. But now those two arealigning more closely.
Speaker 3 (15:59):
Right . Kind of thinking about, you know,
incorporating those types ofterms into your transaction
documents and just generallythinking about risk and
contingencies, can you speak alittle bit about how parties to
a transaction and their legalcounsel and other advisors
should be looking at this from,you know , in the inherent risk
(16:19):
of uncertainty and, and othercontingency plans?
Speaker 4 (16:24):
Well, it's something that folks need to put a lot of
thought into on the front end,right? You want to think
through, Hey, what happens ifwe cannot get this approval in
place? Um, and whether thatactually makes its way into
writing on the transactiondocument or whether it's just
an understanding between theparties, it's still important
(16:44):
to think through on the frontend. And so what does that
mean? Well, maybe it means thatyou're going to at least
discuss the possibility of ifit's really a set of assets in
one particular state that'scausing a problem , um, but
you're ready to close on theasset , on the assets
operations that are located inmaybe 10 other states. There's
(17:06):
a way to carve out the itemsand the assets that are, that
are holding up your, the , yourbroader transaction from
closing. That may not always bepossible 'cause you may start
just depending on what theactual physical corporate
structure looks like, but it'ssomething to think through. Are
there viable contingency plansto let the transaction move
(17:30):
forward in the absence ofapproval? And sometimes the
answer may be yes, andsometimes the answer may be no.
And that's where, kind ofgetting back to what happens if
we can't get regulatoryapproval, is there, are we able
to walk away with this withoutsome type of fee? Is there a
breakup fee involved? Um, orthe parties just going to start
getting angry at each other andpointing fingers and
(17:51):
potentially trying to sue eachother , uh, over bad faith
negotiation. Uh , I think I'veseen , I've seen it go really
in each of those directions ,um, which I'll reiterate again
leads me to let's pay attentionto this on the front end.
Speaker 3 (18:05):
No, exactly. That makes a lot of sense. Uh,
another big consideration thatI think providers are really
concerned about is theconfidentiality of deal terms.
I know that at least a fewstates are requiring disclosure
of the deal documentsthemselves, including letters
of intent, you know, the actualacquisition definitive
documents. So is this somethingthey should be concerned about
(18:28):
in terms of confidentiality orwhat, what do you propose
providers should do when itcomes to having to disclose
this type of information?
Speaker 4 (18:36):
Yeah, no , I , I really think it is something
that folks need to payattention to and , and be wary
of because information, some ofthese states will require a
really expansive amount ofinformation to be provided for
these filings. They'll, they'llwant business terms, how you
operate your business today,how you price all your products
(18:58):
and services , um, right.
Things that you very well mayconsider trade secrets and the
regulators are gonna say,that's great, I still want to
see them . So now your nextconcern is, well look, I don't
want this to be subject to aFOIA request, right? I don't
want it to be posted onpublicly on your website. So
how do you deal with that? Somestates have, a lot of states
(19:20):
have a confidentialityprovision built directly into
their transaction review laws.
So there is a methodology foryou to provide effectively two
filings. One is a confidentialversion that regulators can see
and one is a public versionthat if there is a FOIA request
or if that state is one thatprovides information publicly
(19:41):
online, will actually be in thepublic domain. Um, for some
states, if they have notdirectly addressed the
confidentiality provision,there are still mechanisms to
provide this information in amanner that is not subject to a
public information request.
Right? I've seen situationswhere you might go and ask the
(20:03):
attorney general to issue acivil investigative demand that
you could produce documentsunder that they're saying they
want for the sole purpose of itnot being discoverable or , or
discoverable from a public ,um, records request standpoint.
And also I think that wherepreviously I had seen people
(20:27):
take position of really broadlydesignating all this
information as confidential'cause they didn't really want
anything out there, right? Youare seeing state regulators
push back on that. They, in thestates that we've worked with
and , and the , and I've reallydone a filing almost in every
single state right now. Theywant you to justify why
something is designated isconfidential. Um, it can't just
(20:49):
be a blanket, right? Here's theexecutive summary for one page
that can describe thetransaction. This can be public
and the rest of this filing isconfidential. You're not seeing
that you really need to go andunderstand and justify that
one, this is a trade tradesecret or two, this is client
privilege. I'm not gonna giveit to anybody. And it's a
(21:10):
balance. Um, you may findyourself trying to explain to
regulators that why somethingis a trade secret where you
don't feel like you don't haveto, but just be prepared for
those. Um, some folks in somestates would be a little bit
easier to deal with thanothers, but at the end of the
day, it's a question that verywell may come across your desk.
Speaker 3 (21:30):
Yeah, and I think , um, something to keep in mind
that you previously touched onwith respect to timing and if ,
I think you had, you and Ipreviously discussed how
sometimes the efforts tomaintain the confidentiality of
some of this information may befutile and expensive and affect
ultimately the timing. Um, doyou think that's still the case
(21:52):
going forward as well?
Speaker 4 (21:55):
It really comes down to a matter of leverage in my
mind, which is if you're in astate that requires consent,
you need to consent to closeyour transaction, you really
just don't have a lot of groundto stand on. So what's the cost
benefit analysis of reallyfighting over keeping that
information confidential? Youmay not win it anyways, right?
(22:16):
They may just say, that'sgreat, we're not gonna give our
approval till you complete thefiling and give us all the
information we requested. Um,so, and , and it is expensive,
right? Going back and forthwith these various state
regulators. It , it costsclients an extraordinary amount
of money and extraordinaryamount of money, right? It's
(22:37):
not your typical license changeof ownership or even what some
people might think of likecertificate of needs being a
more involved process, right ?
It's really, these can costquite a bit more than that. So
being upfront about the timeand expense associated with
one, completing the filings,two, going back and forth with
state regulators or trying tohold your ground on a specific
(23:00):
portion of a filing, like aconfidentiality request. Um,
those are conversations youwanna have on the front end and
perhaps game plan out and , andreally maybe not game plan out,
but maybe rank where it is thathere's what I'm willing to give
on, here's what I'm not goingto give on. If you end up in
(23:20):
that place, regulators are soreasonable people, you can talk
to them. Um, and if you cancome up with a good argument
for why something should remainconfidential or you shouldn't
need to provide a piece ofinformation, go and make that
argument, right? It's, it canbe a give and take.
Speaker 3 (23:35):
That's interesting concept of thinking about,
you're always thinking aboutwhich hill am I willing to die
on in the context of thetransaction and negotiating
with the counterparty. Butthinking about that now in
context of working withregulators is a , is something
else entirely
you is, do you have any othermiscellaneous thoughts or tips
(23:57):
for providers and theiradvisors as they're considering
transactions in thisenvironment , um, and the type
of preparation they should be,you know, doing , um, in
advance of these types oftransactions?
Speaker 4 (24:10):
Sure. So I think the biggest thing is that you need
to get it , it is , and I'vesaid it three or four times,
right ? But , but get in, getin front of this early, right?
Even at the term sheet stagefor some of your clients, when
your clients tell you thatthey're thinking about
transacting in a space, youdon't want your client submit
to or commit to something likea simultaneous sign and close
(24:34):
in a matter of weeks if youreally can't get the regulatory
approvals in place to do that.
Whereas there have beeninstances where clients will
take risks of closing overcertain, you know, perhaps
indirect change of ownershiplicense filings in the past.
These are not those, there arereal penalties tied to
non-compliance with these, withthese laws, right? They can
(24:55):
range from monetary penaltiesto referral to state attorney
general's offices , um, todecide if they want to take
further action. So I would sayunderstand which states you are
in and in a, in , in a timewhen there are 12 states that
are proposing either expandingexisting laws or passing new
(25:16):
laws. Understand if thatlandscape's gonna shift in the
next couple of months whenyou're trying to get your
transaction done. Keep all ofthat in mind. Inform your
clients of it upfront sothere's no surprises later on.
Um, and just workcollaboratively with your, with
your opposing counsel . 'causeultimately you're both gonna
(25:39):
need provide info , provideinformation in order to get
these filings through . This isnot just one party providing
information. This is both buyerand seller coming together to,
in most cases , most casescreate a unified filing. I
think if you do those things,which is something that we do
on a daily basis as transactionwith regulatory attorneys , um,
you'll be well positioned tonavigate these , um, these
(26:01):
types of laws. It'll beinteresting to see where it
ends up at the end of the yearand even beyond. But I suspect
that we are just now enteringthe age where these are
foundational transactionalconsiderations as opposed to
five years ago when theserequirements really didn't
exist.
Speaker 3 (26:20):
Will , will, thank you so much to for your time
today. Um, that's the end oftoday's podcast. Uh , for our
audience, if you're looking formore information regarding
state healthcare transactionslaws or, or similar content, I
first recommend checking outthe Health Law Connections
publication in particularWill's article , uh, which is
available on the EH HLAwebsite. Also ALA's Business
(26:40):
Law and Governance PracticeGroup has a lot of really good
resources and , um, if I'm notmistaken, we'll be publishing a
webinar on this same topic inthe next couple of months. So a
little bit of a plug for that.
Um, will, again, this has beenincredibly helpful. Thank you
so much for your time today. Iappreciate you synthesizing all
of this really denseinformation into something
(27:01):
concise , um, and helpful for,you know, both transactional
attorneys and their clients sothey can use that going
forward.
Speaker 4 (27:08):
Sure. Well, thank you so much for having me. I
really enjoyed the conversation, um, and I look forward to
hopefully working with all thelisteners here at some point in
the future.
Speaker 2 (27:24):
Thank you for listening. If you enjoyed this
episode, be sure to subscribeto ALA's speaking of health
Law, wherever you get yourpodcasts. To learn more about a
HLA and the educationalresources available to the
health law community, visitAmerican health law.org .
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