New Washington Law Requires Advance Notice to the Attorney General for Certain Healthcare Transactions
Starting January 1, 2020, hospitals, health systems, and many other healthcare providers must give notice to the Attorney General 60 days in advance of closing certain transactions. Unlike the federal Hart-Scott-Rodino Act, which requires notice to the federal antitrust agencies for certain deals worth $90 million or more, House Bill 1607, signed into law by the Governor on May 7, 2019, has no minimum dollar threshold and will require reporting even for very small transactions that are unlikely to raise antitrust concerns.
The notice should be relatively straightforward to prepare for most transactions. The law requires the following information to be included in the notice:
- The names and addresses of the parties to the transaction;
- The locations where the parties provide healthcare services;
- A “brief description of the nature and purpose” of the proposed transaction; and
- The anticipated effective date of the transaction.
For transactions that are also reportable under the HSR Act, the parties must submit their HSR filing to the AG in lieu of the notice otherwise required by the law.
The more challenging part of compliance will be determining whether a transaction requires a notice. The reporting is required only for deals involving two or more hospitals, hospital systems, or other provider organizations that represent seven or more health care providers in contracting with insurance companies or third-party administrators. A health care “provider” is defined as any person that practices a profession identified in RCW 18.130.040, which includes physicians, nurses, therapists, midwives, athletic trainers, home care aides, and many other providers of healthcare services. A transaction involving a physician group with only one or two doctors could still trigger the reporting requirement if there are enough advanced practice professionals to make seven total providers whose services are reimbursed by payers. The law covers transactions between Washington entities and out-of-state entities if the out-of-state party generates $10 million or more in revenue from Washington patients.
There are three categories of transactions between providers that must be reported: (1) mergers; (2) acquisitions; and (3) “contracting affiliations,” which are defined as the “formation of a relationship between two or more entities that permits the entities to negotiate jointly with carriers or third-party administrators over rates for professional medical services.” The law clarifies that contracting affiliations do “not include arrangements among entities under common ownership.” Contracting affiliations would include, among other transactions, formation of an IPA, a clinically integrated network, or a joint venture through which the parties jointly contract with payers. With collaborative, value-based care models like CINs on the rise, providers will need to be mindful that changes to these delivery systems (like addition of a physician group to a CIN) could require notice to the AG.
There are some aspects of the law that are unclear on the face of the statute. For instance, a transaction between two providers has to be reported only if “the hospitals, hospital systems, or provider organizations did not previously have common ownership or a contracting affiliation.” It is not clear whether hospital systems that have contracting affiliations with many other providers (e.g. through an accountable care organization or clinically integrated network) need to report new or different contracting affiliations with the same providers.
While the $200 a day penalty for failing to file is nowhere near the maximum penalty of $42,530 per day for non-compliance with the HSR reporting requirements, if a violation were discovered two years after closing the penalty would be six figures.
It’s worth noting that unlike pre-merger clearance under federal law, which governs transactions in all industries, the new Washington law only requires reporting of deals in the healthcare industry. The Legislature states that the law is intended “to ensure that competition beneficial to consumers in health care markets across Washington remains vigorous and robust.” The actual scope of the statute is narrower: it only covers transactions involving healthcare providers. The law does not require reporting of mergers by health insurance or pharmaceutical companies, among others.
What happens after parties submit a notice to the AG? If the proposed transaction raises no antitrust concerns, there should be no aftermath. The new law gives the AG thirty days to request additional information from the parties under RCW 19.86.110, but that law only permits the AG to serve civil investigative demands to investigate potential antitrust violations. If there is no antitrust concern with a deal, the AG should not issue a request for additional information.