We have all heard the saying before, "The biggest killer of a deal is time." Whether an owner gets cold feet about selling the business he/she founded, market conditions change the deal valuation, or there is an abrupt change to the operations of the business, there are many unforeseen challenges that can derail a transaction. Naturally, these issues are mitigated by reducing the time it takes to go from the initial negotiation stage to reaching the closing date.
Healthcare transactions face additional unique challenges that must be considered. How is the ever-changing regulatory environment going to impact the closing date? Are there any notification/approval requirements by state agencies of the transaction? Are there any privacy concerns about the exposure of Protected Health Information (PHI) during the process? Are there safeguards in place to protect all parties if any billing issues arise? These are some of the questions that all participants in a healthcare transaction should be asking themselves. In this article, we have highlighted some of the key regulatory considerations that can impact a transaction and hopefully can help avoid the time-killer aspect of risks involved with a delayed closing.
Compliance – More Oversight, But to What End? Current State Regulatory Environment:
The main objectives of federal, state, and local regulations include protecting sensitive patient information, ensuring quality patient care, and curtailing rising costs. At a federal level, it is important to mention that the "One Agency Act" bill H.R. 384 ("Bill") was reintroduced in Congress in January 2025. The Bill intends to transfer to the Attorney General all Federal Trade Commission (FTC) antitrust actions and processes. The Bill states as a finding that the overlapping agencies -- the Department of Justice and FTC -- have created a waste of taxpayer funds, hampered enforcement efforts, and created uncertainty for business.1 The Bill, if passed, points to an increasing trend of enforcement and oversight over antitrust actions and regulations by the federal government and a centralization of the antitrust investigation process. States have begun establishing regulatory bodies to monitor the impact of healthcare transactions. As an example, states that require Certificates of Need (CON) have historically required healthcare providers to obtain approval from a state health agency before opening or expanding certain types of healthcare facilities or adding new services. In some states, CONs may require notification and even approval of mergers and acquisitions by state government agencies. Following a similar trend, some states have begun establishing regulatory bodies to monitor the impact of healthcare transactions. It is important to clearly establish that CONs and these new state regulations are different in their requirements and vary from state to state. We have highlighted states in which current regulations could pose threats to mergers and acquisitions – starting with two states that are leading this process:
California
In California, the Office of Health Care Affordability (OHCA) was recently established to monitor transactions.
The rollout of this governing body and the requirements it imposes have been anything but seamless. SB184 was passed into law in June 2022, and it established and gave OHCA the authority to review healthcare transactions starting in 2024. Although OHCA does not have the ability to block a transaction, it can delay a transaction through its review process. Late into 2023, there were still many unanswered questions, including: What transactions are actually covered? When exactly does OHCA need to be notified? How long will OHCA take to review a transaction? Whether by design or not, the effect was uncertainty among all parties engaged in a potential healthcare transaction within the state of California.
In August 2024, OHCA expanded its reach of covered transactions. Additionally, the state legislature passed AB 3129, which would give the Attorney General the ability to veto certain healthcare transactions, with a focus on transactions involving private equity and hedge funds. This bill was vetoed in September 2024 by Governor Gavin Newsom, but it clearly demonstrated the state's legislative agenda. Currently, OHCA's authority is limited to its ability to review transactions.
Oregon
The Oregon Health Authority (OHA) operates in a similar manner to California's OHCA with several key distinctions. OHA requires notification 180 days prior to closing, which contrasts with OHCA's requirement of filing 90 days prior to closing. Additionally, transactions in Oregon require OHA approval. While both OHCA and OHA require notification of a transaction and could elect to perform a review, only OHA currently has the ability to deny the proposed transaction.
Other States
Similar regulations exist in other states, and each state's regulatory body currently has authority that generally fits into one of three categories: i) Notification only, ii) Notification and Review, and iii) Notification, Review, and Approval. In addition to differing regulatory powers and length of review, each state has separate criteria for triggering the initial notification process. These include which healthcare entities are covered, what forms of transactions are included, and what operating thresholds must be met. These states include Indiana, Illinois, Massachusetts, New York, and Rhode Island.
Specifically, New York and Illinois have regulations for CONs that have been in place for over 30 years. To that end, when discussing how notification and review by state regulators could jeopardize a deal, a closer look at these states could be helpful.
For instance, under both Illinois and New York regulations, the states have tasked administrative agencies and/or Boards to oversee the application process under CONs. The regulations' requirements are activated in mergers and acquisitions or significant changes in facility operations. Depending on the deal, the state could hold public hearings and request specific data points and analysis that support the deal. Additionally, the complexity of the transaction and the size of the organizations involved in the process could carry a longer review time.
The key takeaway is to be aware of the regulatory body within your state, since this could hold up or even destroy a deal in its tracks.
Footnote
1 https://www.congress.gov/bill/119th-congress/house-bill/384/text
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
