Transactions
Vermont Joins Growing Trend to Oversee Private Equity Investment in Clinical Care
On June 15, 2026, Vermont Governor Phil Scott signed H.583 (“Act 133”) into law, making Vermont the most recent state to reinforce their Corporate Practice of Medicine doctrine by restricting private equity and hedge fund influence over clinical decision-making. The legislation follows a flurry of interest from states inspired by similar legislative action in both Oregon and California. This blog post provides a general overview of Vermont’s new restrictions and places them in the context of the broader national trend toward scrutiny of private investment in health care. Act 133 has three operative sections: § 9772 codifies Vermont’s common-law prohibition on corporate involvement in clinical decision-making as it relates to private equity and hedge fund investments; § 9773 requires disclosure of private equity and hedge fund ownership and control interests in certain health care entities; and § 9774 provides for public transparency and sharing of such ownership information. Restrictions on Private Equity Influence Over Clinical Decision-Making Section 9772 is the substantive heart of Act 133. It establishes that clinical decision-making and other core functions affecting patient care must remain under the control of licensed health care professionals, effectively codifying, at least in part, Vermont’s Corporate Practice of Medicine doctrine. This section specifically prohibits private equity groups or hedge funds from: interfering with providers’ clinical judgment, including by determining appropriate diagnostic tests, referrals to other providers, patient treatment options, work schedules, and patient loads; and exercising control over, or being delegated the power to set: (i) clinical standards or policies; (ii) access to and control of patient medical records; (iii) hiring or firing of medical professionals based on clinical competency or proficiency; (iv) parameters for contracting with third-party payers or other providers; (v) prices or rates for a provider’s services; (vi) coding and billing decisions; and (vii) selection or approval of medical equipment and supplies. Section 9772 does not prohibit private equity firms and hedge funds from investing in health care entities. Nor does it ban unlicensed individuals or entities from providing non‑clinical management, administrative, or business services, so long as a licensed health care professional retains ultimate responsibility for or approval of any decisions affecting patient care. Finally, § 9772 creates a private right of action for health care providers to seek equitable relief, actual damages, costs, and attorney’s fees against a private equity group or hedge fund (or entity controlled directly, in whole or part, by one). New Ownership and Control Disclosure Requirements Section 9773 establishes a mandatory disclosure and data sharing regime to ensure transparency around private equity and hedge fund involvement in health care. It requires defined health care entities and management services organizations (“MSO”), which are owned at least in part by private equity groups or hedge funds (“Applicable Entities”), to report specific ownership and control information (enumerated below) to Vermont’s state health regulatory board, the Green Mountain Care Board (the “State Board”). Certain entities are exempted, including nursing homes, health care staffing companies, organizations whose services are delivered exclusively through telehealth, and federally qualified health centers. Notably, health care entities and MSOs with no private equity or hedge fund ownership or investment must still attest to no such ownership or investment. Under this section, Applicable Entities must report to the State Board: the name, business address, and business identification numbers for each person that has an ownership, investment, or controlling interest, has a significant equity investment, or is an MSO of a health care entity; a current organizational chart showing the business structure of the health care entity or MSO, including affiliates and subsidiaries; and the health care entity’s or MSO’s most recent fiscal year’s profit and loss statement and balance sheet. Additionally, the State Board must work with the Agency of Human Services and relevant stakeholders to develop data reporting processes pursuant to these requirements. Information shared pursuant to this section shall be public information and not considered confidential, proprietary, or a trade secret, except for specified personal identifying information and certain confidential financial information. Lastly, § 9773 institutes financial penalties of up to $10,000 per year for failing to report required information and up to $25,000 for each material misrepresentation reported. Public Reporting and Transparency Requirements Section 9774 promotes transparency by requiring the State Board to report all ownership and control disclosures made under § 9773. It authorizes interagency sharing of that information for oversight and enforcement and provides that, except for specified personal identifiers, the information is public. Lastly, the section permits the State Board to share reported information with the Attorney General, Secretary of State, and other state agencies and officials to prevent duplicative reporting requirements and facilitate oversight and enforcement pursuant to Vermont law. The Big Picture Act 133 is one example of the larger national trend toward increased scrutiny of health care ownership and control. While Vermont’s new law appears to specifically focus on control over clinical decision-making by private equity and hedge funds, numerous other states, including Oregon, Massachusetts, Indiana, New Mexico, and Washington, passed broader ownership transparency-related laws in 2025 and 2026 (with other additional states at least considering such bills). Collectively, these measures reflect a broad national movement toward increased scrutiny of lay-investor influence in the health care sector. Please contact the authors or your regular Dorsey attorney with any questions about how these restrictions could affect your current business model or any contemplated transactions.
June 24, 2026
by Randall Hanson, Jamie McCarty, and Michael Forstein
Transactions
Oregon Expands Prohibition on the Corporate Practice of Medicine, Severely Restricting Management Services Organizations
On June 9, 2025, Oregon Governor, Tina Kotek, signed SB 951[1] into law, making Oregon’s “corporate practice of medicine” doctrine one of the country’s most restrictive. SB 951 places numerous restrictions on the relationships between management services organizations and clinician practices, which will impact many of the written arrangements and techniques that management services organizations and clinician practices currently use. SB 951 also places new and/or clarified restrictions on professional medical corporation structuring and the use of certain restrictive covenants in contracts among health industry parties. This blog post provides a general overview of these new restrictions. Key Definitions Here are key definitions that help clarify the scope of SB 951: “Management services organization” or “MSO” is defined as an entity that provides management services to a professional medical entity in return for monetary compensation under a written agreement. “Management services” is broadly defined and includes payroll, human resources, employment screening, employee relations, and other administrative or business services. “Medical licensee” or “licensee” is defined as an individual who is licensed in Oregon to practice medicine or naturopathic medicine or as a nurse practitioner or physician assistant. “Professional medical entity” is defined as an Oregon professional corporation organized for the purpose of practicing medicine, practicing naturopathic medicine, or allowing physicians, nurse practitioners and physician assistants to jointly render healthcare services, or a limited liability company, partnership limited liability partnership or partnership organized for a medical purpose that is authorized to transact business in Oregon.[2] Restrictions on MSOs MSOs, including their shareholders, directors, members, managers, officers and employees (collectively, “agents”), may not, with certain exceptions: own or control a majority of; be a director, officer, employee or independent contractor of, or receive compensation from the MSO to manage; or exercise a proxy, right or power to vote the shares of; a professional medical entity with which it has a management services agreement (“MSA”). Additionally, MSOs and their agents may not, with certain exceptions: control or enter into agreements to, or otherwise permit a non-licensee to, control or restrict the sale or transfer of a professional medical entity’s ownership interests or assets; issue, or cause a professional medical entity to issue, ownership interests in the professional medical entity or a subsidiary or affiliate of the professional medical entity; pay dividends from a professional medical entity’s ownership interests; acquire, or finance the acquisition of, a majority of a professional medical entity’s ownership interests; or exercise de facto control over a professional medical entity’s administrative, business or clinical operations in a manner that affects the professional medical entity’s clinical decision making or the nature and quality of its medical care, which includes, but is not limited to, hiring or setting compensation for licensees, setting clinical or billing and collection policies, and negotiating agreements with third-party payors and other third parties that are not employees of the professional medical entity. So, what can an MSO still do? SB 951 clarifies that the restrictions still permit an MSO to: enter into agreements to control or restrict the transfer or sale of a professional medical entity’s ownership interests or assets for cause, including, but not limited to, an owner’s loss of their professional license, exclusion from a federal health care program, breach of the MSA or death; provide management services as long as the MSO is not exercising de facto control over a professional medical entity’s operations in a manner that affects the professional medical entity’s clinical decision making or the nature and quality of its medical care; purchase, lease or take assignment of a right to possess a professional medical entity’s assets in an arms’-length transaction with a willing seller, lessor or assignor; provide support and consultation on any business operations matters, such as accounting, facilities management and compliance with applicable laws; advise a professional medical entity’s participation in payor arrangements, value-based arrangements or vendor agreements; collect quality metrics as required by law or one of the professional medical entity’s agreements; and set criteria for reimbursement under an agreement between a professional medical entity and a payor. Any MSA provision that violates any of the above restrictions is void and unenforceable. Additionally, professional medical entities and licensees have a private right of action against MSOs and the MSO’s agents, and damages may include actual damages, an injunction or other equitable relief, punitive damages and attorneys’ fees. Existing MSOs and professional medical entities conducting business in Oregon have until January 1, 2029 to comply with these restrictions. However, new MSOs and professional medical entities planning to conduct business in Oregon, including those involved in a sale or transfer of ownership, must comply with these restrictions by January 1, 2026. Restrictions on Professional Medical Corporations SB 951 also imposes restrictions on professional medical corporations (“PCs”), with certain exceptions. PCs’ articles, bylaws and other organizational arrangements may not allow for the removal of any director or officer without a majority vote of licensee-shareholders or licensee-directors, except for cause. Additionally, PCs may only replenish or transfer control over their operations through a valid shareholder agreement that is solely among and for the benefit of a majority of shareholders who are physicians licensed in Oregon. These restrictions apply to any agreements that are entered into or renewed on or after June 9, 2025. Non-Competition, Non-Disclosure and Non-Disparagement Agreements Lastly, non-competition agreements with professional licensees that restrict the practice of medicine or nursing as well as non-disclosure and non-disparagement agreements between an MSO, hospital or hospital-affiliated clinic and an employed licensee are void and unenforceable, with certain exceptions. These restrictions also apply to any agreements that are entered into or renewed on or after June 9, 2025. The Big Picture Notably, as of 2022, OHA requires notice of and reviews material health care transactions. This, along with the passage of SB 951, indicates Oregon’s strong focus on its regulation and oversight of the “corporate practice of medicine.” And Oregon is not alone. These are recent developments in a long history of state concerns with the separation of corporations and unlicensed individuals and healthcare professional’s medical decision making and patients’ care (i.e., the corporate practice of medicine) and, more recently, private equity involvement in health care. SB 951 materially reinforces and expands Oregon’s “corporate practice of medicine” doctrine and impacts not only MSAs but other MSO-practice relationships, MSO and PC governance and agreements with restrictive covenants. SB 951 raises difficult issues such as the permitted scope of an MSO’s authority if the requirement is to avoid control that affects the professional medical entity’s clinical decision making or the nature and quality of medical care. Given the wide-reaching implications of this new law and to ensure compliance with SB 951 by the applicable compliance dates, existing MSOs and clinician practices conducting business in Oregon will need to review and likely revise their current business models, practices, and written agreements as necessary, and new MSOs and clinician practices planning to conduct business in Oregon will need to closely review their proposed business models and practices. Please contact the authors or your regular Dorsey attorney with any questions about how these restrictions could affect your current business model or any contemplated transactions. [1] https://olis.oregonlegislature.gov/liz/2025R1/Downloads/MeasureDocument/SB951/Enrolled. [2] While this law does not currently apply to other healthcare providers. Oregon House Majority Leader, Ben Bowman, predicts that future legislative sessions will likely address the expansion of this law to other healthcare providers, such as hospitals and dentists.
June 25, 2025
by Ross C. D'Emanuele, Randall Hanson, and Laura C.S. Newberry
Transactions
Indiana Notification of Health Care Transactions Law Takes Effect
On July 1, 2024, Indiana’s new health care transactions notification law takes effect.[1] The law is designed to increase government oversight of mergers and acquisitions involving health care entities. Indiana joins a growing number of states that have passed similar legislation implementing notice requirements and increasing antitrust evaluations for certain health care transactions.[2] The following provides a general overview of Indiana’s new law. General Purpose and Key Definitions Indiana’s health care transactions notification law grants the Indiana Attorney General (AG) the authority to review certain mergers and acquisitions between two health care entities if at least one of the entities is an Indiana health care entity.[3] To enforce this oversight power, the law establishes specific notice requirements for the transacting health care entities. Such notice must be provided to the Indiana AG at least ninety (90) days before the date of the merger or acquisition.[4] Upon reviewing a submission of notice, the Indiana AG may issue a civil investigative demand for more information regarding the merger or acquisition. Below are key definitions from Indiana’s law defining the applicable scope: Transactions affected by the new notification requirements include mergers and acquisitions. “Merger” is defined as any change of ownership including:An acquisition or transfer of assets, or The purchase of stock effectuated by a merger agreement. “Acquisition” is defined as any agreement, arrangement, or activity that results in a person acquiring, directly or indirectly, control of another person. Entities affected by the new law are those specifically falling within the statute’s definition of health care entities.[5] “Health care entity” is defined as:Any organization or business that provides diagnostic, medical, surgical, dental treatment, or rehabilitative care. An insurer that issues a “policy of accident and sickness insurance,”[6] which generally includes a policy or contract covering bodily injury, disablement by injury or illness, or death by accident or disease.[7]The statute provides specific exceptions for several types of coverage.[8] A health maintenance organization. A pharmacy benefit manager, which refers to an entity that performs certain administrative functions on behalf of a health plan, state agency, insurer, managed care organization, or other third party payor.[9] An administrator, meaning a person who, on behalf of an insurer, “underwrites, collects charges or premiums from, or adjusts or settles claims on residents of Indiana in connection with life, annuity, or health coverage offered or provided by an insurer.”[10]The statute provides several specific exclusions for persons not considered an administrator.[11] A private equity partnership, regardless of where the private equity partnership is located, seeking to enter a merger or acquisition with any entity described above.[12] If a transaction meets the definition of merger or acquisition, and the entities involved are “health care entities” under the statute, then the transaction may be subject to certain notification requirements. Notification Requirements Indiana’s health care transactions notification law requires an Indiana health care entity “involved in a merger or acquisition with another health care entity with total assets, including combined entities and holdings, of at least ten million dollars ($10,000,000)” to provide written notice to the Indiana AG at least ninety (90) days before the date of the merger or acquisition.[13] For notice to be required under Indiana’s health care transactions notification law, the transaction must: (1) satisfy the statute’s definition of either a merger or acquisition; (2) involve two or more “health care entities,” one of which must be based in Indiana; and (3) concern at least ten (10) million dollars in total assets. If these characteristics are met, then the transacting health care entities must submit notice as outlined below. If the transaction is subject to Indiana’s notice requirements, each health care entity involved in the transaction must submit written notice to the Indiana AG, which must include the following information: The entity’s business address and federal tax number. The name and contact information of a representative of the health care entity concerning the merger or acquisition. A description of the health care entity. A description of the merger or acquisition, including the anticipated timeline. A copy of any materials that have been submitted to a federal or state agency concerning the merger or acquisition.[14] Attorney General Obligations and Oversight Powers Following a health care entity’s compliance with the above notice requirements, the Indiana AG will review the information submitted and provide a written analysis of any antitrust concerns regarding the merger or acquisition. The Indiana AG must provide its analysis not later than forty-five (45) days following the health care entity’s submission of notice. The analysis is given to the representative of the health care entity that submitted notice. Additionally, the Indiana AG has the power to issue a civil investigative demand to collect further information regarding the merger or acquisition from the health care entities submitting notice. The civil investigative demand must be made pursuant to Indiana’s existing law, which, in part, requires the attorney general to have reasonable cause to believe a person has violated a statute enforced by the attorney general.[15] Finally, Indiana’s health care transactions notification law imposes certain confidentiality requirements. The Indiana AG must keep confidential all nonpublic information provided through the notice requirements. Furthermore, any information received or produced by the Indiana AG is also considered confidential. If you have any questions regarding Indiana’s health care transactions notification law and how your organization or transaction may be impacted, please contact the authors or your regular Dorsey attorney. Summer Associate Katelyn Tarrolly provided substantial assistance researching and drafting this blog post. [1] Burns Ind. Code Ann. §§ 25-1-8.5-1—25-1-8.5-4. [2] See Lillie Cox, Randall Hanson, Jamie McCarty & Neal Peterson, Minnesota Attorney General Notification of Health Care Transaction, Dorsey Health Law Blog (May 30, 2023), https://www.dorseyhealthlaw.com/minnesota-attorney-general-notification-of-health-care-transactions/ (noting several states have enacted or are considering similar legislation, including California, Connecticut, Delaware, Massachusetts, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, and Washington). [3] To trigger Indiana’s transactions notification requirements, both entities must be health care entities. Additionally, the law requires at least one of those entities to be an “Indiana health care entity.” The statute does not define “Indiana health care entity.” Currently, there is no guidance that clarifies the criteria for being considered an “Indiana health care entity” under the new law. Burns Ind. Code Ann. § 25-1-8.5-4. [4] The statute provides that notice shall be given “at least ninety (90) days prior to the date of the merger or acquisition[.]” This likely means notice must be given ninety (90) days prior to the closing date of the merger or acquisition; however, there is no guidance currently clarifying the correct interpretation of this provision. Burns Ind. Code Ann. § 25-1-8.5-4. [5] “Health care entity” does not include the Medicaid program or the Medicare program. Burns Ind. Code Ann. § 25-1-8.5-2(b). [6] Burns Ind. Code Ann. § 25-1-8.5-2. [7] See Burns Ind. Code Ann. § 27-8-5-1 (“‘[P]olicy of accident and sickness insurance’, as used in this chapter, includes any policy or contract covering one (1) or more of the kinds of insurance described in Class 1(b) or 2(a) . . . .”).; see also Burns Ind. Code Ann. § 27-1-5-1 (defining Class 1(b) and Class 2(a) insurance). [8] An insurer that issues one or more of the following types of coverage is explicitly excluded from the definition of health care entity: “(A) accident only, credit, dental, vision, long term care, or disability income insurance; (B) coverage issued as a supplement to liability insurance; (C) automobile medical payment insurance; (D) a specified disease policy; (E) a policy that provides indemnity benefits not based on any expense incurred requirements, including a plan that provides coverage for: (i) hospital confinement, critical illness, or intensive care; or (ii) gaps for deductibles or copayments.; (F) worker’s compensation or similar insurance; (G) a student health plan; (H) a supplemental plan that always pays in addition to other coverage. Burns Ind. Code Ann. § 25-1-8.5-2(a)(2). [9] A pharmacy benefit manager is an entity that: “(1) contracts directly or indirectly with pharmacies to provide prescription drugs to individuals; (2) administers a prescription drug benefit; (3) processes or pays pharmacy claims; (4) creates or updates prescription drug formularies; (5) makes or assists in making prior authorization determinations on prescription drugs; (6) administers rebates on prescription drugs; or (7) establishes a pharmacy network.” Burns Ind. Code Ann. § 27-1-24.5-12. [10] Burns Ind. Code Ann. § 27-1-25-1. [11] Administrator does not include: (1) an employer or wholly owned direct or indirect subsidiary of an employer acting on behalf of the employees of: (A) the employer; (B) the subsidiary; or (C) an affiliated corporation of the employer; (2) a union acting for its members; (3) an insurer; (4) an insurance producer licensed under IC 27-1-515.6 that has a life or accident and health or sickness qualification and whose activities are limited exclusively to the sale of insurance; (5) a creditor acting for its debtors; (6) a trust established under 29 U.S.C. 186 and the trustees, agents, and employees acting pursuant to that trust; (7) a trust that is exempt from taxation under Section 501(a) of the Internal Revenue Code; (8) a financial institution that is subject to supervision or examination by federal or state banking authorities to the extent that the financial institution collects and remits premiums to an insurance producer or an authorized insurer in connection with a loan payment; (9) a credit card issuing company that: (A) advances for; and (B) collects from, when a credit card holder authorizes the collection; credit card holders of the credit card issuing company, insurance premiums or charges; (10) a person that adjusts or settles claims in the normal course of the person’s practice or employment as an attorney at law and that does not collect charges or premiums in connection with life, annuity, or health coverage; (11) a health maintenance organization; (12) a limited health maintenance organization; (13) a mortgage lender to the extent that the mortgage lender collects and remits premiums to an insurance producer or an authorized insurer in connection with a loan payment; (14) a person that is licensed as a managing general agent and acts exclusively within the scope of activities under the license; (15) a person that (A) directly or indirectly underwrites, collects charges or premiums from, or adjusts or settles claims on residents of Indiana in connection with life, annuity, or health coverage provided by an insurer; (B) is affiliated with the insurer; and (C) performs the duties specified in clause (A) only according to a contract between the person and the insurer for the direct and assumed life, annuity, or health coverage provided by the insurer. Id. [12] The statute does not define “private equity partnership.” Currently, there is no guidance interpreting what is considered a “private equity partnership.” Burns Ind. Code Ann. § 25-1-8.5-2(a)(6). [13] Burns Ind. Code Ann. § 25-1-8.5-4(a). [14] Burns Ind. Code Ann. § 25-1-8.5-4(b). [15] Burns Ind. Code Ann. § 4-6-3-3.
June 24, 2024
by Randall Hanson and Neal N. Peterson
Transactions
FinCEN Proposes AML Compliance Obligations for Non-Financed Real Estate Transactions
The Dorsey Health Law blog team keeps readers up-to-date on relevant topics in the health care industry. In order to do so, the members of the blog team communicate regularly with other practice groups within the firm for applicable updates from client publications. For this post, we would like to thank Dorsey’s Joseph Lynyak, Erin Bryan, and Matthew Dickerson for the following e-newsletter update: FinCEN Proposes AML Compliance Obligations for Non-Financed Real Estate Transactions FinCEN has proposed to expand anti-money laundering requirements on a national basis to include non-financed residential real estate transactions in which a transfer of real property would take place between a transferor and a transferee such as an entity or a trust. The reporting obligation would rest with a person or entity that takes the lead role in the settlement process. The proposal when adopted will impose new and significant disclosure responsibilities on non-financed residential real estate transactions, and will impact, among other things, real estate transfers generally, estate and tax planning and related transactions. Accordingly, advance planning to anticipate the reporting requirements of the proposal would be advisable. Read more here.
March 20, 2024
by Joseph Lynyak, Erin Bryan, and Matthew Dickerson
Transactions
New Minnesota Health Care Transaction Oversight Law Imposes Additional Requirements on Nonprofit Health Care Entities
On May 26, 2023, the Governor of Minnesota signed into law Minnesota bill HF 402 to increase government oversight of health care transactions that occur in Minnesota or involve Minnesota-based health care entities. A general overview of the new law’s oversight provisions can be found in a previous Dorsey Health Law blog post. The new law also contains provisions specific to nonprofit health care organizations, including additional transaction requirements and extension of the moratorium on certain conversion transactions. Given the prevalence of nonprofit health care organizations in Minnesota, we expect this new legislation to materially impact both payors and providers in the State. This blog post summarizes those provisions, all of which have already gone into effect. Additional Transaction Requirements for Nonprofit Health Care Entities In addition to the general notice requirements now effective under this new law and summarized in our previous post, HF 402 imposes further requirements on (1) nonprofit health care entities that are either incorporated under the Minnesota Nonprofit Corporation Act or organized as a Minnesota nonprofit limited liability company, and (2) the subsidiaries of such nonprofit entities, regardless of their incorporation or organizational status. These entities are now required to ensure the following before proceeding with a transaction: The transaction complies with the Minnesota Nonprofit Corporation Act, the charitable trusts statutes, and other applicable laws; The transaction does not involve or constitute a breach of charitable trust; The transferring nonprofit entity will receive the full and fair value for its public benefit assets, unless the discount between the full and fair value of the assets and the value received for the assets will further the nonprofit purposes of the entity or is in the public interest; The value of the public benefit assets to be transferred has not been manipulated in a manner that causes or has caused the value of the assets to decrease; The proceeds of the transaction will be used in a manner consistent with the public benefit for which the assets are held by the nonprofit health care entity; The transaction will not result in a breach of fiduciary duty; and There are procedures and policies in place to prohibit any officer, director, trustee, or other executive of the nonprofit health care entity from directly or indirectly benefiting from the transaction. Currently, it is not entirely clear how or to what extent these additional transaction requirements for nonprofit health care entities will be reviewed in conjunction with the general notice requirements for health care entities. Moratorium on Conversion Transactions A moratorium on conversion transactions involving nonprofit health plan entities operating under the Minnesota Nonprofit Health Service Plan Corporations Act or Health Maintenance Act that was set to expire July 2023 has been extended through July 2026. The moratorium was initially enacted in response to concerns of some lawmakers that nonprofit assets could be transferred to for-profit carriers in a merger or acquisition. These nonprofit health plan entities “may only merge or consolidate with; convert; or transfer, as part of a single transaction or a series of transactions within a 24-month period, all or a material amount of its assets to” an entity that is incorporated under the Minnesota Nonprofit Corporation Act; “or to a Minnesota nonprofit hospital within the same integrated health system as the health maintenance organization.” A “material amount” is defined as the “lesser of ten percent of an entity’s total admitted net assets as of December 31 of the previous year, or $50,000,000.” The moratorium does not apply if the nonprofit health plan entity files an intent to dissolve due to insolvency of the corporation or if insolvency proceedings are commenced. Related Study and Recommendations HF 402 requires that the Minnesota commissioner of health study and develop recommendations on the regulation of conversions, mergers, transfers of assets, and other transactions primarily affecting Minnesota-domiciled nonprofit health maintenance organizations (HMOs). These recommendations must address the following: Monitoring and regulation of Minnesota-domiciled for-profit HMOs; Issues related to public benefit assets held by a nonprofit HMO, including identifying the portion of the organization’s assets that are considered public benefit assets to be protected, establishing a fair and independent process to value the assets, and determining how public benefit assets should be stewarded for the public good; Providing a state agency or executive branch office with authority to review and approve or disapprove a nonprofit HMO’s plan to convert to a for-profit organization; Establishing a process for the public to learn about and provide input on a nonprofit HMO’s proposed conversion to a for-profit organization; and Issues, including statutory language and regulatory implementation, related to a potential statutory requirement that nonprofit HMOs licensed under Minnesota Statutes chapter 62D, and health systems organized as a charitable organization, upon the sale or transfer of control to an out-of-state or for-profit entity, return to the state’s general fund an amount equal to the value of any charitable assets the HMO or health system received from the state. The commissioner is required to seek public comment on the regulation of conversion transactions involving nonprofit HMOs no later than October 1, 2023. A final recommendations report must be submitted to the appropriate legislative committees by June 30, 2024. If you have any questions regarding HF 402 and how your organization or transaction may be impacted, please contact the authors or your regular Dorsey attorney. Summer Associate Lindsey VerMurlen provided substantial assistance researching and drafting this blog post.
June 7, 2023
by Lillie C. Cox, Randall Hanson, Jamie McCarty, Claire H. Topp, and Neal N. Peterson
Transactions
Minnesota Attorney General Notification of Health Care Transactions
On May 26, 2023, the Governor of Minnesota signed into law Minnesota bill HF 402 to increase government oversight of health care transactions that occur in Minnesota or involve Minnesota-based health care entities. Minnesota joins a growing number of states considering or enacting similar measures, including New York, Connecticut, Delaware, Massachusetts, Nevada, New Jersey, Oregon, Rhode Island, Washington, and California. The following is a general overview of this new law, many portions of which have gone into effect already. General Prohibition and Key Definitions HF 402’s purpose is to prohibit transactions by any health care entity that would “substantially lessen competition or tend to create a monopoly or monopsony.” In order to enforce this prohibition, HF 402 institutes a number of transaction notification requirements and grants the Minnesota attorney general with the power to review, enjoin, or unwind any applicable transaction in violation of HF 402. Here are key definitions from HF 402 that outline the law’s scope: “Health care entity” is defined as hospitals, hospital systems, captive professional entities, medical foundations, health care provider group practices, entities organized or controlled by one of the above entity types, and entities that own or exercise control over one of the above entity types. “Transaction” is defined as a single action or a series of actions that occur within a five-year period in Minnesota or involving a health care entity formed or licensed in Minnesota, that constitutes: A merger or exchange of a health care entity with another entity; The sale, lease, or transfer of 40 percent or more of the assets of a health care entity to another entity; The granting of a security interest of 40 percent or more of the assets of a health care entity to another entity; the transfer of 40 percent or more of the shares or other ownership of a health care entity to another entity; An addition, removal, withdrawal, substitution, or other modification of one or more members of a health care entity’s governing body that transfers control, responsibility for, or governance of the health care entity to another entity; The creation of a new health care entity; An agreement or series of agreements that results in the sharing of 40 percent or more of a health care entity’s revenues with another entity, including affiliates of such other entity; An addition, removal, withdrawal, substitution, or other modification of the members of a health care entity formed under the Minnesota Nonprofit Corporation Act that results in a change of 40 percent or more of the membership of the health care entity; or Any other transfer of control of a health care entity to, or acquisition of control of a health care entity by, another entity. “Control,” along with “controlling,” “controlled by,” and “under common control with” is defined as the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a health care entity, whether through the ownership of voting securities, membership in an entity formed under the Minnesota Nonprofit Corporation Act, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with, corporate office held by, or court appointment of, the person. Control is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 40 percent or more of the voting securities of any other person, or if any person, directly or indirectly, constitutes 40 percent or more of the membership of an entity formed under the Minnesota Nonprofit Corporation Act. Furthermore, the attorney general may determine that control exists in fact, notwithstanding the absence of a presumption to that effect. If a transaction meets the definition above (noting that certain transactions are excluded from the definition, including, for example, those involving only nursing homes and home care providers), such transaction may be subject to certain reporting requirements as outlined further below. Reporting Requirements Now effective, HF 402 requires notice to the attorney general and the Minnesota commissioner of health at least 60 days before the proposed closing date of any transaction where either “(i) the health care entity involved in the transaction has average revenue of at least $80,000,000 per year; or (ii) the transaction will result in an entity projected to have average revenue of at least $80,000,000 per year once the entity is operating at full capacity.” The notice to the attorney general and the commissioner of health must include a number of disclosures, including the following non-exhaustive list of items: The entities involved in the transaction; The leadership of the entities involved in the transaction, including all board members, managing partners, member managers, and officers; The services provided by each entity and the attributed revenue for each entity by location; The primary service area for each location; The proposed service area for each location; The current relationships between the entities and the affected health care providers and practices, the locations of affected health care providers and practices, the services provided by affected health care providers and practices, and the proposed relationships between the entities and the affected health care providers and practices; The terms of the transaction agreement or agreements; All consideration related to the transactions; Markets in which the entities expect post-merger synergies to produce a competitive advantage; Potential areas of expansion, whether in existing markets or new markets; Plans to close facilities, reduce workforce, or reduce or eliminate services; The brokers, experts, and consultants used to facilitate and evaluate the transaction; The number of full-time equivalent positions at each location before and after the transaction by job category, including administrative and contract positions; The current governing documents for all entities involved in the transaction and any amendments to these documents; The transaction agreement or agreements and all related agreements; Any collateral agreements related to the principal transaction, including leases, management contracts, and service contracts; All expert or consultant reports or valuations conducted in evaluating the transaction, including any valuation of the assets that are subject to the transaction prepared within three years preceding the anticipated transaction closing date and any reports of financial or economic analysis conducted in anticipation of the transaction; Copies of all filings submitted to federal regulators, including any filing the entities submitted to the Federal Trade Commission under the Hart-Scott-Rodino Act in connection with the transaction; A certification sworn under oath by each board member and chief executive officer for any nonprofit entity involved in the transaction; Audited and unaudited financial statements from all entities involved in the transaction and tax filings for all entities involved in the transaction covering the preceding five fiscal years; and Any other information or documents relevant to evaluating the transaction that are requested by the attorney general or the commissioner of health. Effective January 1, 2024, HF 402 requires data reporting of certain smaller transactions to the commissioner of health at least 30 days before the proposed closing date of the transaction or within 10 business days of the date the parties first reasonably anticipate entering into the transaction if the expected completion is within less than 30 days, where either “(i) the health care entity involved in the transaction has average revenue between $10,000,000 and $80,000,000 per year; or (ii) the transaction will result in an entity projected to have average revenue between $10,000,000 and $80,000,000 per year once the entity is operating at full capacity.” This data reporting includes disclosure of much of the same type of information as outlined above. Please note that HF 402 imposes additional requirements on nonprofit health care entities not identified above. Attorney General Enforcement Powers HF 402 grants the attorney general broad enforcement powers. It permits the attorney general to extend the notice and waiting period for the $80,000,000+ transactions for an additional 90 days by notifying the health care entity in writing of the extension or to waive all or any part of the waiting period or disclosure requirements, including requirements for disclosures to the commissioner of health. Additionally, the attorney general is permitted to bring an action in district court to compel compliance with the notice, waiting period, disclosure and submission requirements, or to enjoin or unwind a transaction or seek other equitable relief necessary to protect the public interest if a health care entity or transaction violates HF 402 or is contrary to the public interest. Failure of the entities involved in a transaction to provide timely information to the attorney general or the commissioner of health is an independent and sufficient ground for a court to enjoin or unwind the transaction or provide other equitable relief, however the attorney general must notify the entities of the deficiency and provide a reasonable opportunity to remedy it. If you have any questions regarding HF 402 and how your organization or transaction may be impacted, please contact the authors or your regular Dorsey attorney.
May 30, 2023
by Lillie C. Cox, Randall Hanson, Jamie McCarty, and Neal N. Peterson
