Massachusetts Enacts New Curbs on Private Equity in Health Care

The Massachusetts legislature has passed a bill that aims to rein in private equity (PE) investments in the state's health care sector. The Bill, S2871 (H4653), An Act Enhancing the Market Review Process, expands the Massachusetts Health Policy Commission's (HPC) authority to review and propose modifications to "material change" transactions that could negatively impact health care costs. The Bill also increases reporting requirements and scrutiny by the Center for Health Information and Analysis (CHIA) into investments in health care by PE firms. Additionally, it prohibits certain arrangements between management services organizations (MSOs) and health care practices, which could have significant implications for PE firms and others.



The new regulations are expected to have significant implications for the valuation of PE-backed health care entities in Massachusetts. Increased scrutiny and oversight by the HPC and CHIA may lead to delays in transactions, increased costs, and potential modifications that could negatively impact valuations. Additionally, the challenges to the captive-MSO model and potential liability under consumer protection laws could further contribute to lower valuations.

To comply with the new regulations and maintain profitability, PE firms should consider the following strategic adjustments:

1. Increased Transparency and Reporting: PE firms should expect to be scrutinized closely due to the expanded Notice of Material Change (MCN) requirements. They should report any transactions with PE firms and other investors to the HPC and be prepared to provide detailed information about the transaction.
2. Engage with Regulators Early and Often: PE firms should proactively engage with regulators, such as the HPC and the Attorney General of Massachusetts (AG), to understand their expectations and address any concerns.
3. Review and Adjust Business Models: PE firms should review their current business models to ensure compliance with the new restrictions on MSOs and health care practices. They may need to consider alternative business models or structures that comply with the new regulations.
4. Monitor Regulations and Guidance: As the HPC is empowered to impose conditions on transactions, PE firms should stay up-to-date with regulations and guidance developed by the HPC and monitor the HPC's public meetings and discussions on state policy opportunities.
5. Diversify Investments: Given the increased scrutiny and potential challenges in the Massachusetts market, PE firms may want to consider diversifying their investments across different states or sectors to mitigate risks.

The increased oversight in the Massachusetts health care market is likely to impact the timeline and cost of PE transactions by extending the review process, potentially adding additional costs, increasing legal and advisory fees, and possibly affecting valuations. These factors could make PE transactions in the Massachusetts health care market more expensive and time-consuming.

In conclusion, the new regulations in Massachusetts are expected to have significant implications for PE-backed health care entities and the PE firms investing in them. To navigate this new regulatory landscape, PE firms should be proactive in engaging with regulators, reviewing and adjusting their business models, and diversifying their investments. By doing so, they can better maintain profitability while complying with the new rules and ensuring the long-term success of their investments in the Massachusetts health care market.