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Health Law Provider Alert: New Notice Requirement for Material Change to Provider Operations or Governance

15 March 2013       Bookmark and Share

By: Rebecca Merrill, Esq.

Massachusetts hospitals and medical groups contemplating a proposed acquisition, integration or affiliation must be aware of a new governmental reporting mandate and cost/market based oversight unique to Massachusetts that has just gone into effect.

The Massachusetts Cost Containment Law, passed last year, establishes a new requirement that every Massachusetts provider and provider organization must submit notice at least 60 days in advance of any proposed “material change” to its operations or governance structure to (1) the Massachusetts Attorney General, (2) the Center for Health Information and Analysis (“CHIA”), and (3) the new Health Policy Commission (“HPC”) established under the 2012 Cost Containment Law.

 “Provider” is defined as “any person, corporation, partnership, governmental unit, state institution or any other entity qualified under the laws of the commonwealth to perform or provide health care services.”

“Provider organization” includes “any corporation, partnership, business trust, association or organized group of persons, which is in the business of health care delivery or management, whether incorporated or not that represents 1 or more health care providers in contracting with carriers for the payments of heath care services; provided, that ‘provider organization’ shall include, but not be limited to, physician organizations, physician-hospital organizations, independent practice associations, provider networks, accountable care organizations and any other organization that contracts with carriers for payment for health care services.”

The rather limited statutory definition of “Material Change” includes, but is not limited to:

  • Corporate mergers;
  • Acquisitions or affiliations of a provider or provider organization and a carrier;
  • Acquisitions of insolvent provider organizations; and
  • Mergers or acquisitions of provider organizations resulting in provider organization having near majority of market share in a given service or region.

HPC has been charged with adopting regulations for administering these notice and review requirements and for further defining key terms including “material change” and “non-material change.”  While the notice and market impact review regulations are presently being developed by HPC and have not yet been issued, HPC has just released some Interim Guidance.  

In the Interim Guidance HPC has clarified that the following events constitute a Material Change for notification purposes:

  • A Merger or affiliation with a carrier;
  • An Acquisition of or by a carrier;
  • A Merger with or by a hospital or a hospital system;
  • Any other acquisition, merger or affiliation with another provider or provider organization that would result in an increase in annual patient service revenue of the provider or provider organization of $10 million or more;
  • Any clinical affiliation with another provider or provider organization that has an annual patient service revenue of $25 million or more in the preceding fiscal year; and
  • Any formation of a partnership, joint venture, common entity, accountable care organization, or parent corporation created for the purpose of contracting on behalf of one or more provider or provider organizations.

HPC has announced that only those providers and provider organizations with at least $25 million in net patient service revenue in the preceding fiscal year that propose a Material Change to close after March 12, 2013 must file the notice. Acquisition targets with less than $25 million in net patient service revenue could still be party to a reportable proposed transaction if the acquiring provider is in excess of the reporting threshold. Also, all material changes completed on or before March 12, 2013, will not be subject to this notice requirement.

The intent of the new notice requirement and review process is to empower and enable the HPC to conduct cost and market impact reviews with the ultimate goal of improving the quality of care in Massachusetts while simultaneously reducing cost through increased collaboration, transparency and innovation.

In reaction to the rapidly evolving Massachusetts health care market, most hospitals and medical groups in Massachusetts are considering their affiliation and integration options and joining ACOs.  Not all considered ventures and initiatives will trigger the new notice of Material Change under the Interim Guidance, however, providers and their legal counsels must be aware of what types of proposed new relationships and transactions will trigger the required notices and review. These reviews are in addition to already required applicable reviews and approvals by federal and state agencies regarding licensure, DON, closure of facilities, Medicare and Mass Health participation, change in charitable status and anti-trust.  

The requisite Material Change notice must be submitted electronically at least 60 days in advance of the proposed material change. HPC will develop a notice template that will include instructions, definitions, and explanations for all requested information and the form will soon be available online at www.mass.gove/hpc. In the interim, providers and provider groups seeking to submit notice should request the form directly from HPC at HPC-Notice@state.ma.us.  

Stay tuned for developing regulations on Massachusetts Cost Containment Provider Material Change notice and reporting requirements for hospitals, other facilities, medical groups and health plans.  If you have questions about the reporting requirements or need assistance in evaluating affiliation and integration options or joining ACOs, health law attorneys at Pierce & Mandell, P.C., are here to assist you.

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