Tuesday, October 21, 2014

Connecticut Law Imposes New Merger Regulations on Physician Combinations

By James M. Burns and Jessica Russell

On October 1, a first-of-its-kind law became effective in Connecticut that requires group medical practices and hospitals in that state to provide the Attorney General with 30 days’ notice prior to consummating any merger or affiliation-type transaction. The new law (P.A. 14-168) is noteworthy because the threshold for pre-closing notification of such transactions is significantly lower than the threshold under the Hart-Scott-Rodino Act, the federal pre-merger reporting law. While the current reporting obligation under the Hart-Scott-Rodino Act is not triggered where a transaction is valued under $75.9 million – a threshold too high to include many physician group practice transactions – the Connecticut law applies to any combination of group practices totaling as few as eight physicians or the acquisition of any group practice by a hospital. Accordingly, the Connecticut law captures many more transactions within its scope and greatly increases the likelihood that these smaller transactions, which have previously “flown under the radar,” will be subjected to pre-closing antitrust scrutiny. In addition, the reporting obligations of this new law impose an additional regulatory burden on merging healthcare providers, even if the transactions do not present any competitive concerns.

The new law, which was passed by the Connecticut legislature earlier this year, had the strong support of the Connecticut Attorney General’s Office. Explaining the need for such a law, Connecticut Attorney General George Jepsen declared that while “acquisitions and mergers often make business sense and may lead to some efficiencies and more integrated care,” they “also may lessen competition, leading to higher prices and fewer consumer options.” As Attorney General Jepsen further explained, “[t]he notice requirement will allow us better to monitor the healthcare market and, where appropriate, to enforce antitrust laws designed to protect Connecticut consumers.” The Connecticut Attorney General’s office has created a form that is to be used by healthcare providers when reporting their transactions. This form is available on the Attorney General’s Office website at http://www.ct.gov/ag/cwp/view.asp?a=2105&q=553102. To assist the Attorney General in assessing the potential competitive implications of the transaction, the reporting form requires the provider to set forth a narrative description of the proposed transaction and to calculate market share information concerning the parties’ primary service area (a somewhat complex calculation also required of providers when seeking FTC approval for proposed accountable care organizations).

While most provider transactions do not present any significant competitive concerns – as even Attorney General Jepsen acknowledged – the benefits of pre-closing reporting of healthcare provider transactions is likely to be attractive to regulators in other states. For this reason, while this new law applies only to Connecticut transactions, it would not be surprising to see similar legislation introduced in other states in 2015. Stay tuned.