United States: Massachusetts Health Policy Commission Releases New Guidance Expanding The Scope Of Health Care Transactions Requiring Notices Of Material Change

On January 10, 2024, the Health Policy Commission ("HPC") released new FAQ guidance relating to the types of providers, transactions, and revenues that trigger a Notice of Material Change ("MCN") filing. This is the first MCN-related guidance issued by the agency in six years and comes during a time of increased scrutiny into investments in health care by private equity sponsors and other for-profit investors. The HPC, through this guidance, has broadened the scope of transactions subject to the MCN filing requirement, specifically targeting common deal structures used in for-profit health care investments.

Overview

Any Provider or Provider Organization with $25 million or more in Net Patient Service Revenue ("NPSR") in the preceding fiscal year that proposes a Material Change must submit an MCN.¹ While the HPC does not have the right to approve or disapprove a Material Change transaction, it may order a Cost and Market Impact Review ("CMIR") of the transaction and may make a referral to the Attorney General for review and further action if appropriate.² In its history, the HPC has ordered nine CMIRs, the most recent of which was ordered in late January.

The HPC's new guidance expands the types of transactions that constitute Material Changes and the categories of entities that qualify as Provider Organizations, and therefore are subject to MCN filing requirements.

The guidance states that management services organizations ("MSOs") that represent a Provider in payor contracting are considered Provider Organizations subject to MCN filing requirements.³

• Historically, many MSOs have taken the position that they are not Provider Organizations subject to MCN requirements. The California Office of Healthcare Affordability, another agency with market oversight authority similar to the HPC, has also taken that position.
• However, the HPC has taken the opposite position in this guidance, clarifying that MSOs and similar entities that represent one or more Providers in contract negotiations with third parties such as insurers and HMOs are considered Provider Organizations. Further, the HPC noted that MSOs providing only messenger model-style payor negotiation assistance to Providers are also considered Provider Organizations. The MSO need not be a party to any third-party payer contracts; mere involvement in negotiations is sufficient. Status as a Provider Organization subjects these entities to MCN filing requirements. Notably, MSOs that do not represent Providers in contracting are not considered Provider Organizations.
• Importantly, the HPC confirmed that formation of a new MSO that represents Providers in contracting constitutes a reportable Material Change.
• Bottom Line: health care providers delivering services using MSO models in Massachusetts should be aware of this guidance and confer with counsel to determine whether proposed transactions and arrangements may now trigger MCN filing requirements.

The guidance states that common investment structures involving indirect control (such as board appointment rights), purchases of nonclinical assets, and management services arrangements involving payor contracting may constitute reportable Material Change transactions.

• Examples of these types of transactions include Corporate Affiliations involving indirect control (e.g., where one party has the authority to appoint members to the board of directors of an otherwise unrelated Provider or Provider Organization) or Contracting Affiliations that include the acquisition of non-clinical assets.
• The inclusion of board appointment rights as potentially constituting indirect changes of control may significantly expand the scope of transactions requiring MCN filings. This change may potentially implicate nonprofit affiliations as well as private equity and other for-profit transactions.
• The HPC emphasized that an MSO entering into a management services agreement with an unrelated Provider or Provider Organization may constitute a Material Change.
• Bottom Line: parties should be mindful that entering into affiliations involving changes in governance rights (such as board appointments) or management services agreements with payor contracting functions may now trigger an MCN filing requirement.

The guidance states that NPSR calculations must aggregate revenue across entire provider platforms, including all Providers represented by MSOs in payor contracting, even if not owned by the MSO.⁴

• The NPSR of the "highest corporate parent" in a Provider Organization must be included in the $25 million NPSR calculation. A Provider Organization must include the revenue of all Providers for which it negotiates in its NPSR calculation.
• A Provider Organization, such as an MSO, that represents a Provider in contract negotiations must assume that a Provider's total revenue into the Provider Organization's NPSR calculation, including revenue derived from contracts where the Provider Organization was not involved in the negotiations. For example, an MSO that negotiates a physician's group payor contract with a single payor must include the revenue generated through the physician group's contracts with other payors in its NPSR.
• Bottom Line: MSOs in Massachusetts should be mindful of the need to aggregate revenue across platforms in their NPSR calculations.

Footnotes

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.