On October 1, 2021, Nevada will join a handful of states that are actively seeking to monitor the growth and impact of health care transactions in their states, and will also designate specific contracting practices viewed as anticompetitive as unfair trade practices. Nevada’s Senate Bill 329 (SB 329) and Assembly Bill 47 (AB 47) will significantly impact provider contracting and business operations for hospitals and physician group practices in the state.
Specifically, SB 329 will require hospitals and physician groups to notify the Nevada Department of Health and Human Services (DHHS) of specific changes of ownership, management agreements, or similar transactions. The information will be made public and DHHS is required to monitor the impact on the industry, and publish an annual report on market transactions and concentration in health care. In addition, AB 47 will require separate notification to the Nevada Attorney General of transactions that will result in a material change to a group practice or health carrier, if the transaction would result in the group or carrier providing more than 50% of any health care service within a geographic service area. In addition, SB 329 prohibits health care providers from entering into contracts with insurers that contain certain restrictive covenants, bringing them under the state’s regulation of unfair trade practices.
In adopting SB 329 and AB 47, Nevada joins a small handful of states, including Connecticut, Washington and Massachusetts, in actively seeking to monitor the impact of consolidation in the health care industry. Other state legislatures are considering ways to address health care consolidation and costs. The Nevada legislature noted that in 2020, those states included California, Indiana, New Jersey, New York, Mississippi, Virginia, and Washington.
Notice of Change of Ownership, Joint Venture, and Management Activities
The first major change under SB 329 is the obligation for hospitals and physician group practices to notify DHHS of certain types of transactions.
Hospitals must notify DHHS of any merger, acquisition, or joint venture with any entity (including a physician group practice), or entry into a contract for the management of the hospital, no later than 60 days after the finalization of the transaction or execution of the management agreement.
Significant physician group practices must also notify DHHS of certain transactions no later than 60 days after the finalizing of the transaction or execution of the management agreement. Specifically, the notice requirements apply if the physician group practices party to the transaction represent at least 20% of the physicians who practice any specialty in a primary service area (being defined as the area from which the hospital or practice draws at least 75% of its patients, by zip code). The notice must be provided by the practice that represents the largest number of physicians party to the transaction. The notice requirement applies to the following sorts of transactions: (a) mergers, consolidations, or other affiliation between physician group practices, persons who own physician group practices, or any combination thereof; (b) the acquisition of property and assets of a physician group practice; (c) the acquisition of the stock, membership interest, or other equity interest of a physician group practice; (d) the employment of all or substantially all of the physicians in a physician group practice; or (e) the acquisition of an insolvent physician group practice.
In the form of notice, DHHS will require basic summary information about the transaction, including the name of the parties to the arrangement, a description of the nature of the relationship, the names and specialties of each physician that is a party to the transaction, a description of the health services to be provided at each business entity that will provide health services after the transaction, and the primary service area to be served by each location of a business entity. This information will be posted on DHHS’ website, and DHHS is expected to prepare an annual report regarding market transactions and concentration in health care.
SB 329 does not give DHHS the authority to approve the hospital or physician group practice transactions. Rather, the intent of the law appears to be to allow DHHS to have better insight into the health care market in Nevada, make this information available to the public, and better monitor consolidation trends.
Notice of Reportable Health Care or Health Carrier Transactions
In addition to the new obligations under SB 329, Nevada’s AB 47 will require physician group practices and health carriers that enter into “reportable health care or health carrier transactions” to notify the Nevada Attorney General at least 30 days prior to the consummation of the transaction. Reportable health care or health carrier transactions are transactions that: (a) result in a material change to the business or corporate structure of a group practice or health carrier; and (b) would cause a group practice or health carrier to provide 50% or more of any health care service within a geographic market, including a health care service involving a specialty or any health carrier service. AB 47 defines material changes to the business or corporate structure of a group practice or health carrier to include mergers of a group practice, the acquisition of a group practice through asset or stock transactions, employment of all or substantially all of the practitioners in a group practice, and the acquisition of an insolvent group practice. Reportable health care transactions do not include transactions involving business entities that are under common ownership, or have a contracting relationship that was established before October 1, 2021.
The Attorney General notice must include a considerable amount of detail about the transaction, including the names and specialties of the practitioners working for the group practice in the transaction, identification of each location where health care services will be provided following the effective date of the transaction, the services provided by each practitioner at each location, and the primary service area to be served by each location. Unlike the DHHS notice, the information provided to the Attorney General will remain confidential. In the event that a reportable health care transaction must be reported to the Federal Trade Commission or United States Department of Justice pursuant to the Hart-Scott-Rodino Antitrust Improvement Act, the parties must submit a copy of that filing to the Attorney General.
The Attorney General does not appear to have the authority to approve the transaction, although AB 47 clarifies that the Attorney General is not prohibited from issuing an investigative demand if there is a suspected violation of Nevada law. Willful violations of AB 47 can also result in civil penalties of up to $1,000 per day.
Health Care Provider Insurance Contracts
SB 329 also designated certain payor contracting practices as unfair trade practices. As of October 1, 2021, it is considered a restraint of trade for a provider of health care in Nevada to enter into or solicit a contract with an insurer that directly or indirectly does any of the following: (a) restricts the insurer from offering incentives to a covered person to use specific health care providers or otherwise steers covered persons to a specific health care provider; (b) restricts the insurer from assigning health care providers into tiers for the purpose of encouraging the use of certain health care providers; (c) requires the insurer to place all health care providers affiliated with a business entity in the same tier; (d) requires the insurer to contract with a business entity affiliated with a health care provider as a condition of entering into a contract with the provider; or (e) prohibits the insurer from contracting with a health care provider that is not a party to the contract, or penalizes the third party for entering into such a contract. This law applies to contracts between insurers and “providers of health care,” which are defined to include physicians, licensed health care practitioners, hospitals, ambulatory surgery centers, skilled nursing facilities, residential group facilities, laboratories and institutions providing health care services.
In adopting SB 329, the state legislature took the position that unless the contract expressly prohibits the third party from contracting with another provider, the contract will not violate the provisions of this bill. After the October 1, 2021 effective date, contract provisions containing these restrictions will be deemed void and severed from the agreement, and providers will not be able to enter into new contracts, amendments, or renewals which contain these types of restrictive covenants. Persons who violate this law may be found guilty of a misdemeanor.
SB 329’s restrictions on payor contracting are fairly unique, although a handful of states are considering similar legislation. In any event, SB 329 puts Nevada at the forefront of state activity when it comes to consolidation in the health care industry, and signals an increasing trend in enforcement and oversight.
Unlike counterpart statutes in Connecticut, Washington and Massachusetts, which are fairly broadly defined, the Nevada laws specifically target high levels of provider concentration, and filings are only required when the parties to a transaction would pass a certain threshold of market dominance (20% and 50%, respectively). In all of these states, parties to a potential transaction must consider the additional time and filing requirements and build them into their planning. For example, Connecticut and Washington each require 30 days’ prior notice to the state of certain provider transactions, and in Massachusetts, providers must file 60 days’ prior notice of certain transaction with the state’s Health Policy Commission (HPC), which has a mandate to examine significant changes in the health care marketplace and their potential impact on cost, quality, and market competitiveness. The HPC has the further authority to conduct a detailed review of the impact of the potential transaction on the market (an up to 185-day process, with significant additional costs to the parties).
As discussed above, SB 329 is a 30-day post-closing filing, and AB 47 requires 60-days pre-closing notice. Moreover, SB 329 and AB 47 create additional levels of complexity, given that the definitions of who and what types of transactions are covered differ. Parties to a potential health transaction in the state are encouraged to coordinate closely with counsel to ensure that any appropriate requirements are satisfied.
How Nevada will implement and enforce the words and spirit of the law, and its impact on the health care environment in that state, remain to be seen. Advocates believe such laws will increase transparency and be pro-competitive. What is certain is that such new laws will further complicate entering into transactions that many see as a means of survival in an increasingly challenging health care environment. Nevertheless, it is reasonable to expect more states to follow suit in implementing similar laws. Providers are encouraged to monitor legislative developments in their states, and consult with counsel before embarking in a transaction that may be covered by similar requirements.
Foley is here to help you address the short- and long-term impacts in the wake of regulatory changes. We have the resources to help you navigate these and other important legal considerations related to business operations and industry-specific issues. Please reach out to the authors, your Foley relationship partner, or to our Health Care Practice Group with any questions.