Driven by goals to increase affordability and access to high-quality care, states are stepping into the gaps left by federal antitrust law to understand and address increasing market transactions that affect their residents, all while trying to preserve a sustainable provider workforce.

Increasingly, across the health care market (affecting providers, pharmacy benefit managers, and insurers) there are acquisitions and joint ventures with other for-profit entities, not-for-profit hospitals and health systems, and group practices that lessen competition and consolidate market power to extract higher prices. As a result, purchasers of care, including states, residents, and employers face the challenges of unaffordable health care and increased medical debt.

Research has identified that private equity ownership and control are associated with pricing and quality impacts. Studies found that private equity acquisitions of specialty physician practices and surgical centers and other transactions can lead to higher prices. Nursing home private equity transactions are also associated with higher overall spending, increased emergency department visits, hospitalizations, and public spending. Researchers recently reported on changes in hospital adverse events and patient outcomes associated with private equity transactions. Furthermore, private equity plays an increasing role in the acquisitions of hospitals; hospice, dialysis, primary care, women’s health, behavioral health, and fertility centers; and other entities.

State policymakers are seeking to better understand increasingly sophisticated business relationships across health care and establish guidance that supports financial soundness for providers and hospitals but that sets boundaries of investors to support access to key services. State officials are also striving to balance the importance of capital investment and appropriate reimbursements, particularly for smaller practices to support their operations at scale as they face trends of consolidation and other factors. This improved model legislation seeks to allow a state role in ensuring a competitive market by including multiple provisions that can be used together or separately.

Model Provisions

Together, state officials and legal experts developed key definitions to ensure clarity of the terms that are important to the successful implementation of market oversight. For instance, the new model legislation includes ownership definitions that include governance and contractual control to ensure organizations that exercise control over an entity through contract versus asset ownership are captured.

The law defines private equity companies, management service organizations, and other entities. It also includes definitions of acquisitions and affiliations to ensure market transaction reviews and corporate practice of medicine provisions can reach newer organizational structures that may not be captured under existing state laws, such as sale-leaseback agreements.

The model legislation specifically closes gaps on reviews of transactions that avoid review under the federal Hart-Scott Rodino Act and under existing state laws. Provisions grant state attorneys general and state health officials with overarching authority on cost, through an oversight office, the authority to review, placing conditions upon, and blocking potentially harmful transactions in their state. It creates a comprehensive review process for transactions with the potential to reduce access or increase costs or that are otherwise not in the public interest.

There are also provisions that extend oversight to joint ventures, affiliations, and contractual relationships that affect the market, such as management service organizations, and staffing agencies. The model legislation also reaches transactions that can create disruption to access to care, such as real estate investment trusts (REITs) or other vehicles that may escape market oversight review in states. Further, there is language that specifically addresses reporting and oversight of the closure of essential services, such as labor and delivery, and strengthens criteria for review of the transactions. It expands the look-back period to cover related transactions over a prior five-year period and strengthens the duration of oversight and authority for enforcement.

Part II of the model legislation addresses the ongoing concerns of states about potential interference by corporate actors with the practice of medicine. While many states have laws restricting corporate practice of medicine, the provisions of the model legislation ensure protection of physician/provider decision-making from control by potentially misaligned, pecuniary corporate unlicensed interests. It also restricts the use of non-competes, non-disclosure, and non-disparagement agreements against licensed health professionals.

Part III creates an annual ownership reporting mechanism to allow states to collect information on health care market participants, ranging from group practices to hospitals and health systems, nursing facilities, and insurers and pharmacy benefit managers (PBMs). Reporting includes corporate and private equity owners and relationships to other entities. Understanding the health care landscape in states is essential to evaluating health care market transactions.

NASHP is available to help answer state questions related to health market oversight and will continue to support states with policy options to address competition and oversight of health care markets.