In a move to provide the Attorney General with oversight authority with respect to certain health care transactions in the State of Florida, the Florida House Health Market Reform Subcommittee recently approved a measure that would give the Florida Attorney General power to probe those deals.
What is the Legislation?
House Bill 711 (2020 Fla. H.B. No. 711 (N.S.), 122 Reg. Sess. (West)), which builds off a similar bill floating through the Florida Senate (2020 Fla. S.B. No. 758 (N.S.), 222 Reg. Sess. (West)), will require the parties to certain transactions to provide notice to the Florida Attorney General (AG). While the proposed legislation, ostensibly, seems to provide the AG with antitrust oversight, the legislation is silent as to the purpose of the filing or the review. For example, it would seem that the AG could use the review to exercise its cy pres (or charitable trust) doctrinal authority to ensure appropriate use of not for profit proceeds in the event of a transaction involving a tax exempt hospital or health system.
To Whom Does it Apply?
The proposed legislation applies to any hospital, health system, or “provider organization,” which includes any physician group practice, physician-hospital, or accountable care organization (ACO), with more than four providers that engages in a transaction that (i) requires a filing under the Hart Scott Rodino Antitrust Improvements Act (HSR), or (ii) involves a material change in two or more of the abovementioned organizations.
A “material change” is defined to include any merger, acquisition, or contracting affiliation that “generates” a combined revenue of more than $50 million. Transactions that are covered include acquisitions, mergers, and so-called “contractual affiliations,” such as arrangements that allow two or more parties to jointly contract with payors, or allow one party to contract on behalf of multiple parties.
How Does it Apply?
If a transaction meets the above jurisdictional requirements, and if the organizations to the transaction are required to file an HSR notice, that notice must be filed with the AG at the same time the notice is filed with the Federal authorities, which, normally can be as short as 30 days prior to the proposed closing. Any transaction that doesn’t merit an HSR filing, but meets the definition of a material change must be noticed no less than 90 days prior to the effective date of the proposed transaction.
In both instances, the filing must list all acquisitions within the five years immediately prior to the date of the notice, a description of the proposed transaction and the services to be affected. The AG has the authority to request additional information, issue a civil investigative demand, and/or hire consultants and other professionals deemed necessary to evaluate the transaction, the cost of which will paid by the filing parties. The proposed legislation provides that any hospital, health system, or provider organization “that fails to comply” with the statute is subject to a civil penalty of not more than $500,000. As a final matter, unlike many AG approval statutes, this statute applies regardless of the tax status of the parties (i.e., whether or not the parties are for-profit or not-for-profit).
The proposed legislation makes clear that if hospitals or health systems combine, and the combination requires an HSR filing, or, even if not, the parties have combined revenues of more than $50 million, the transaction must be reported to the AG, which means that it will sweep almost every hospital combination within its ambit.
Unanswered Questions
The proposed legislation leaves quite a number of questions unanswered. For example, what is the purpose of the AG review? Is it an antitrust review? Is it a cy pres review? The timing of the filing is also a bit perplexing. Because it is often common to make an HSR filing less than 90 days prior to a closing, are deals that are subject to HSR allowed to file with the AG in less than 90 days? Also, must the parties to a transaction that requires an HSR filing wait 90 days to close, even if they are otherwise allowed to do so under the HSR Act? Will the AG issue any notice or simply let the waiting period expire?
Given the $50 million threshold, does this mean that every time a large hospital system (i.e., any system with $50 million or more in revenues) acquires a physician practice with four or more physicians, no matter how small the practice’s revenue, both parties need to make a filing? Moreover, for example, if a hospital were to partner with a radiology group with regard to an imaging center that bills globally, is that a transaction that triggers a filing? If a hospital were to form an ACO and it is anticipated that the revenues are going to be $50 million, does that formation transaction trigger a filing? When listing acquisitions, do the parties need to list acquisitions that don’t meet the statutory limits (i.e., no matter how small)?
Takeaways
The proposed legislation, if enacted, will add time, cost, and a level of complexity to many health care transactions in the State of Florida. It will require reporting of transactions to Florida that need not be reported under the HSR. Furthermore, it will require reporting of both not-for-profit, as well as for-profit transactions. At a minimum, it will result in some interesting analysis of proposed arrangements in the State of Florida.
If you have any questions, contact Roger Strode at rstrode@foley.com or at 414-202-8717 (M) or 312-832-4565 (D).
