On January 8, 2025, Massachusetts Governor Maura Healey took significant action to bolster regulatory oversight over health care transactions by signing H.5159, also known as An Act enhancing the market review process. This legislation imposes False Claims Act liability on health care owners and investors who fail to disclose violations, aiming to fill perceived gaps in oversight identified as factors contributing to the troubling pattern of hospital bankruptcies and closures across the state.
The Act aims to strengthen the oversight of private equity investors and entities involved in health care by enhancing the investigatory and enforcement powers of the Massachusetts Attorney General's Office (AGO) and the Massachusetts Health Policy Commission (HPC). By doing so, the legislators intend to tackle the regulatory shortcomings highlighted by the recent financial troubles of Steward Health Care, which has faced bankruptcy and significant operational challenges.
Among the provisions included, the Act expands the authority of both the HPC and the AGO, introducing definitions for entities involved with private equity operations, such as “significant equity investors” and “management services organizations.” It mandates these entities to report significant transactions to the HPC, including any changes involving ownership or operational control which could affect health care services within the community.
Notably, the Act updates the framework for the material change reporting process. Previously, hospitals were required to report mergers or acquisitions only when they would result in near-majority market shares. Now, the new law mandates reporting if the transaction leads to any form of dominant market share within its service area, thereby increasing scrutiny on market consolidation.
Alongside these measures, the HPC is tasked with adopting implementing regulations to govern these revised requirements, including guidelines for conducting cost and market impact reviews and monitoring post-transaction data for up to five years.
Industry experts have expressed cautious optimism about the potential impact of this new regulation, particularly as health care mergers and acquisitions (M&A) are projected to surge. A recent PwC report highlighted a 70% increase in healthcare deals through November 15 compared to pre-COVID trends, predicting this trend of aggressive M&A activity will persist through 2025. According to the report, "We expect the significant amount of available corporate and private equity capital...to accelerate deal activity" due to financial dynamics like possible interest rate cuts and greater returns on investment from longer hold periods.
Activists, on the other hand, argue this heightened regulatory scrutiny is long overdue. Many maintain it is imperative to curb the influence of private equity on health care pricing and quality. Critics of private equity involvement contend it often leads to cost-cutting measures detrimental to patient care. The overwhelming policy updates from Massachusetts are viewed as necessary to protect the public's interests, particularly amid rising health care costs and declining hospital viability.
Incidents of hospital closures and bankruptcies paint a concerning picture, with companies like Prospect Medical Holdings filing for Chapter 11 bankruptcy on January 11, 2025, marking yet another high-profile casualty of market pressures exacerbated by private equity strategies. This trend raises questions about the sustainability of health care systems heavily influenced by financial maneuvers rather than patient outcomes.
Caution remains on the minds of healthcare providers as they navigate the forthcoming changes ushered in by this legislation. Providers and investors alike must digest the sophisticated layers of operational and financial reporting now required under the expanded oversight framework, as the HPC prepares to revise its practices to align with these requirements.
Proponents of the recent law hope it will create greater transparency within the health care system, allowing Massachusetts residents to feel more secure about the integrity and quality of health services provided. By shedding light on the often opaque dealings of private equity and other financial entities, this law aims to engender accountability and protect patients and communities from potential harm resulting from profit-driven initiatives.
Only time will reveal whether such considerable regulatory efforts will produce the desired outcomes. With increased oversight, greater scrutiny, and the promise of substantive changes, Massachusetts sets the stage for what might be the turning point for health care regulation in the era of private equity and beyond.