Colorado SB 25-198 Would Expand Notice Requirements for Material Change Healthcare Transactions

BACKGROUND

Under current Colorado law, parties to certain healthcare mergers, acquisitions, affiliations, and other transactions involving hospitals must provide the CO AG with 60 days’ notice prior to closing. The CO AG has the power to review the transaction and, for transactions involving both for-profit and nonprofit entities, challenge the proposed transaction in court if it is not in the public interest.

SB 25-198 Proposed Notice Requirements

SB 25-198 would expand the 60 days’ prior notice for hospital transactions to any material change transaction involving healthcare entities, long-term care entities, veterinary care entities, or related entities, including management services organizations. The bill provides an extensive list of information required to be included in the notice based on the average annual revenues of the entities involved in or resulting from the proposed material change transaction.

The parties also would have to provide subsequent notice to the CO AG of any alterations or modifications following the submission of the notice, including new copies of any documents or information subject to the alteration or modification. The CO AG may waive any of the disclosure requirements.

For at least five years after the effective date of material change transaction, the parties would have to provide the CO AG with annual reports meeting specified requirements regarding any additional material change transactions, any change in charitable purpose of any assets, and the activities to satisfy any conditions agreed upon, where applicable. These annual reports would be published on the CO AG website and would have to be published on the websites of the involved parties.

Material Change Transactions Involving Entities With Average Annual Revenues of $80 Million or More

For material change transactions that involve or would result in an entity with an average annual revenue of at least $80 million (which appears to be inclusive of out-of-state revenues), the notice would require the most extensive disclosures, including the following information:

• The names, headquarters business addresses, and websites of the parties; the ultimate parent entities of the parties; and any brokers, experts, or consultants used to facilitate or evaluate the transaction.
• The leadership of the entities involved in the transaction, including all board members, managing partners, member managers, and officers.
• The services and attributed revenue of each entity by location and type of service.
• The current and proposed relationships between the entities and the affected care or service providers, and the locations of and services provided by such providers.
• The current and proposed contractual relationships between the entities and insurers or third-party administrators.
• The agreement or agreements of the transaction, any related agreements, and all related consideration.
• The markets in which the entities expect the transaction to produce synergies or other competitive advantages, and any plans to close facilities, reduce workforce, or reduce or eliminate services.
• A brief description of each material change transaction involving one or more of the parties in the five years immediately preceding the notice.
• Any expert or consultant reports evaluating the transaction within the three years immediately preceding the notice.
• Audited and unaudited financial statements and tax filings from all parties to the transaction for the preceding five fiscal years.
• A certification that the parties will make a notice of the transaction available on a public website within seven days of notifying the CO AG.

Any nonprofit entities involved in a material change transaction must also include an explanation of how the transaction is in the public interest and any changes to the entity’s charitable purpose resulting from the transaction. Nonprofit entities also must disclose each declarant’s compensation and benefits related to the transaction for the three years following closing along with a disclosure of any conflicts of interest.

Material Change Transactions Involving Entities With Average Annual Revenues of at Least $30 Million and Less Than $80 Million

For material change transactions that involve or would result in an entity with an average annual revenue of at least $30 million but less than $80 million, the notice would require disclosures that are less extensive than those noted above but still significant, including the following information:

• The names, headquarters business addresses, and websites of the parties and the ultimate parent entities of the parties.
• The leadership of the entities involved in the transaction, including all board members, managing partners, member managers, and officers.
• The services and attributed revenue of each entity by location and type of service.
• The current and proposed contractual relationships between the entities and insurers or third-party administrators.
• The agreement or agreements that give rise to the transaction and any related agreements.
• The markets in which the entities expect the transaction to produce synergies or other competitive advantages, and any plans to close facilities, reduce workforce, or reduce or eliminate services.
• A brief description of the nature and purpose of the proposed transaction, including the number of individual providers affected.
• A brief description of the nature and purpose of each material change transaction involving one or more of the parties in the five years immediately preceding the notice.
• A certification that the parties will make a notice of the transaction available on a public website within seven days of notifying the CO AG, or a certification that no involved parties maintain a public website.
• The anticipated effective date of the transaction.

Material Change Transactions Involving Entities With Average Annual Revenues of Less Than $30 Million

For material change transactions that involve or would result in an entity with an average annual revenue of less than $30 million, the notice would require basic disclosures, including the following information:

• The names, headquarters business addresses, and websites of the parties involved in the transaction.
• The names and contact information of all owners, directors, and officers of all parties to the transaction.
• Identification of all locations where healthcare services, long-term care services, or veterinary services are currently provided by each party, and the type of services provided at each location.
• A brief description of the nature and purpose of the proposed transaction, including the number of individual providers affected.
• A brief description of the nature and purpose of each material change transaction involving one or more of the parties in the five years immediately preceding the notice.
• A certification that the parties will make a notice of the transaction available on a public website within seven days of notifying the CO AG, or a certification that no involved parties maintain a public website.
• The anticipated effective date of the transaction.

CO AG REVIEW AND ASSESSMENT

Upon submission of notice, the CO AG may review the proposed material change transaction and issue an assessment. The parties would not be permitted to close on the material change transaction until one of the following occurred:

• The CO AG issues a statement that no formal assessment or review is necessary, or that the proposed transaction is not a material change transaction.
• The CO AG issues an assessment that the proposed material change transaction is not likely to be contrary to the public interest.
• A court affirms the CO AG’s assessment that the proposed material change transaction is not likely to be contrary to the public interest.
• A court finds that the proposed material change transaction is not likely to be contrary to the public interest.
• The CO AG does not issue a response within 90 days of notice.
• The CO AG notifies the parties that more time is required to review the proposed material change transaction and does not issue a response within 45 days of such notice.

The CO AG also may issue an assessment subject to the parties’ agreement to certain conditions that the CO AG deems necessary to prevent harm to the public interest.

The parties may not close a proposed material change transaction if the CO AG determines that it is against the public interest.

Parties may contest any assessment by the CO AG that the proposed material change transaction is contrary to public interest by petitioning the district court of the city and county of Denver within 35 days of the assessment.

ENFORCEMENT

Following receipt of notice, the CO AG may require additional information, statements, or documents reasonably deemed necessary and issue subpoenas. For failures to respond to such CO AG requests, the CO AG may request that a district court require such information, assess civil penalties of up to $5,000, or grant any other relief as may be necessary to obtain compliance.

Any information received by the CO AG under the notice requirement may be shared with government agencies to assist with ongoing investigations where the agencies execute a confidentiality agreement stating that such information will remain confidential and not be admitted as evidence in a criminal prosecution against the party producing such information. The CO AG may convert any notice assessment into an antitrust investigation at any time.

Any violations of the notice requirements would be subject to $200 fines for each day in violation, and any material change transaction for which no notice was provided may be enjoined or unwound by the CO AG.

KEY DEFINITIONS

• “Acquisition” means an agreement, arrangement, or activity which results in an entity acquiring the ownership or control of another entity, either directly or indirectly, including:
  • Any acquisition of 30% or more of voting securities or noncorporate interests, including assets, capital, stock, membership interests, or equity interests; or
  • Written or oral arrangements that include the sale of any amount of voting securities or noncorporate interests that alters voting control of, responsibility for, or control of the governing body of an entity.
• “Contracting affiliation” means a relationship between two or more entities that permits the entities to negotiate jointly, or for one entity to negotiate on behalf of the other entity, with insurers or third-party administrators over rates for healthcare services, long-term care services, or veterinary services. It does not include arrangements among entities under common ownership.
• “Healthcare entity” means any entity, whether incorporated or not, that provides healthcare services.
• “Healthcare services” means services relating to the prevention, cure, or treatment of an illness, injury, condition, or disease, including medical, surgical, chiropractic, hospital, optometric, podiatric, dental, pharmaceutical, ambulance, mental health, substance use disorder, therapeutic, preventive, diagnostic, curative, rehabilitative, palliative, and custodial services.
• “Long-term care entity” means any entity that provides long-term care services.
• “Long-term care services” means the services and supports used by members of all ages with functional limitations and chronic illnesses who need assistance to perform routine daily activities.
• “Material change transaction” means a merger, acquisition, or contracting affiliation involving one or more of the following entities and includes any series of transactions taking place in any five-year period that in the aggregate result in the transfer of ownership or control of 50% or more of an entity’s assets:
  • Healthcare entities, long-term care entities, or veterinary care entities.
  • Entities organized or controlled by such entities.
  • Entities that own, manage, or exercise control over such entities.
  • Entities that represent or act on behalf of such entities in contracting with insurers or third-party administrators.
• “Merger” means a consolidation of two or more organizations, including two or more organizations joining through a common parent organization, or two or more organizations forming a new organization.
• “Third-party administrator” means an entity that administers payments for healthcare services on behalf of a client in exchange for an administrative fee.
• “Veterinary care entity” means any entity that provides veterinary services.
• “Veterinary services” means services provided by a veterinary professional.

ANALYSIS

SB 25-198 continues the nationwide trend toward increased regulation of healthcare transactions. For example, a bill was recently introduced in the Illinois state legislature proposing restrictions on healthcare transactions involving private equity groups and hedge funds. (For a more detailed review of the Illinois bill, read our On the Subject “SB 1998 Would Add Consent Requirement for Certain Transactions.”)

If passed, SB 25-198 would significantly delay future transactions involving healthcare entities in Colorado.

The bill is currently referred to the Health and Social Services Committee. McDermott will continue to monitor the bill’s progression through the state legislature and provide updates.