Texas legislature is in session, as it usually is every odd year. One bill that has caught many eyes in the healthcare industry is House Bill 2747 (“H.B. 2747”), a bill that was introduced last month. The proposed bill would require entities to report certain healthcare transactions to the Texas attorney general. Many other states already have analogue statutes with similar requirements. If H.B. 2747 passes, Texas healthcare transactions will be substantially more regulated with additional governmental oversight, making it less “business friendly” and Texas will become just another overly regulated state in healthcare.
H.B. 2747 delegates rulemaking authority to the Texas attorney general to create and implement regulations. Effectively, any regulations created by the Texas attorney general will likely impact how H.B. 2747 is applied. These regulations are unknown and arguably deters future investors from eyeing Texas as a heavily favorable market. In addition, H.B. 2747 creates a ninety day advance notice requirement to the Texas attorney general for certain healthcare transactions that would result in “material changes.”
There are six types of material change transactions entailing a “material change” to ownership, operations or governance structure of a legal entity that will trigger the notice requirement specified under H.B. 2747 – i.) a merger that includes one or more health care entities; ii.) a sale or acquisition of one or more healthcare entities (including insolvent healthcare entities) or a material amount of the assets or operations of one or more healthcare entities; iii.) a contract or arrangement that results in a person acquiring direct or indirect control over all or a substantial part of a healthcare entity’s operations or governance; iv.) the formation of a partnership, joint venture, accountable care organization, parent organization or management services organization for the purpose of administering contracts with health carriers, third-party administrators, pharmacy benefit managers or healthcare providers; v.) sale, purchase, lease, affiliation, or transfer of control of a healthcare entity’s board of directors or other governing body; and vi.) a real estate sale or lease agreement involving a material amount of healthcare entity assets.
The definition of healthcare entities covered by H.B. 2747 are very broad and includes:
- Healthcare providers – individuals holding Texas licenses or qualifications to provide healthcare services in the state.
- Healthcare facilities – facilities licensed to provide healthcare services, including hospitals, health systems, skilled nursing facilities, ambulatory surgical centers, free standing emergency care facilities, child-care facilities, diagnostic centers, labs, imaging centers, outpatient clinics and rehabilitation centers.
- Provider organizations – persons, businesses or groups in the business of healthcare service delivery or management, including physician organization, physician-hospital organization, independent practice association, provider network, accountable care organization, management services organization, or other organization that contracts with a health carrier for the payment of health care services.
- Pharmacy benefit managers.
- Health carriers – an insurance company, a group hospital service corporation, a stipulated premium company
According to H.B. 2747, the Texas attorney general is allowed to conduct a market study on the healthcare market in Texas, or in a region or political subdivision of Texas, to understand the degree of healthcare ownership or concentrations, competitive forces on price and quality of healthcare services and trends in prices, quality and availability of health care services. Additionally, H.B. 2747 has penalties associated for violating the required notices. Specifically, parties who fail to provide the requisite notices in violation of H.B. 2747 could result in a civil penalty up to $10,000 for each violation. H.B. 2747, including the right to seek attorneys fees by the Texas attorney general.
One distinctive feature of H.B 2747 is the confidentiality of certain information submitted. In section 15A.0003 of this bill, it states that all documents and information provided to the Texas attorney general would be confidential and may not be released or made public on subpoena, unless it is with the consent of the submitting entity or to an expert or consultant bound by the same confidentiality requirements as the Texas attorney general and under contract with the Texas attorney general to create a study related to the healthcare market, degree of healthcare ownerships and concentration, competitive forces, trends, competition and impacts of completed material change transactions on a market.
Ritter Spencer Cheng, PLLC (“RSC”) regularly advises clients on healthcare transactions in Texas and throughout the country. The RSC healthcare team will continue to monitor similar reporting requirements outlined in H.B. 2747, while advising clients on regulatory, corporate and transactional matters. Our clients benefit from informed strategic advice, while being counseled on the regulatory burdens associated with healthcare transactions. For questions, reach out to Richard Y. Cheng, Esq., CHC at rcheng@ritterspencercheng.com.
