Throughout the country, state governments have been introducing bills which grant state authorities the ability to closely scrutinize health care transactions – specifically, with an eye toward those involving private equity. In Pennsylvania, the recent closure of the Crozer-Chester Medical Center and the bankruptcy of its parent organization, Prospect Medical Holdings, spurred a revival of the Pennsylvania legislature’s interest in overseeing proposed transactions relating to health care facilities.
The Bill
The bill seeks to expand the AG’s supervision of health care related transactions involving for-profit and investor owned-entities. While private equity’s involvement in hospital acquisitions seems to have served as the impetus for the bill, the text of the bill would apply to a broader group of facilities – including but not limited to, ambulatory surgery centers, home health and home care agencies, hospices, and long-term care nursing facilities.
The bill states, as a general rule, that a person “may not enter into a covered transaction that is against the public interest.” There is an exception to this rule when, as determined by the AG, there is no feasible alternative which would prevent the facility from closing or a loss of health care services, if the transaction does not occur.
Procedurally, the parties to a covered transaction must undergo a sixty (60) day waiting period prior to being legally bound to enter into the transaction. The waiting period begins to run on the date that the AG receives the required notification of the proposed transaction. The AG can extend the waiting period for an additional period of thirty (30) days.
If the AG determines that there is “clear and convincing evidence” that the proposed transaction is against the public interest (as defined in the bill), the AG may either: 1) commence an action in court to enjoin the transaction, or 2) enter into an agreement with the parties that imposes conditions or mitigates the aspects that the AG has determined make the transaction against the public interest.
Covered Transactions
The bill covers transactions, which involve a “change in control” or a “sale, transfer, lease or other encumbrance of a material amount of the assets, including real property, employment groups, emergency departments or other units” of a “health care entity” and a “covered entity.” “Control” is defined as a 10% ownership interest or more. The bill defines a “material amount” as $10M or more.
“Health care entity” is defined very broadly, as “[a] person that directs, or through an affiliate directs, control of one or more health care facilities,” and a “health care facility” includes, but is not limited to, “a general, chronic disease or other type of hospital, a home health care agency, a home care agency, a hospice, a long-term care nursing facility, cancer treatment centers using radiation therapy on an ambulatory basis, an ambulatory surgical facility, a birth center regardless of whether such health care facility is operated for profit, nonprofit or by an agency of the Commonwealth or local government.”
“Covered entit[ies]” include for-profit entities or affiliates of for-profit entities that “own, operate[] or control[] or seek[] to own, operate or control a health care entity[,]” and investors or groups of investors that “primarily engage in the raising or returning of capital and who invest, develop or dispose of specified assets, a private equity company, a private equity fund or a real estate investment trust or affiliate.” As written, the bill does not define “for-profit entities,” which could conceivably include physician groups, or any other entity that is not a non-profit entity.
Due to these broad definitions, a host of health care transactions unrelated to hospital acquisitions by private equity would fall under the bill’s purview.
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