Historically, states regulated health care transactions through state licensing laws and state attorney general offices. Now, following recent increases in private equity investment and consolidation of health care providers, state legislatures have sought greater oversight of health care transactions and empowered state agencies with new regulatory authority. These laws are having, and will increasingly have, a significant impact on the ability of health plans to expand service offerings through acquisition, create vertically integrated systems or make strategic investments.

In general, the state laws vest state agencies with authority to review mergers, acquisitions, affiliations and other transactions involving health care providers and facilities. The type of transaction covered varies by state. Under the new California law, health care transactions will be subject to agency review if they involve a change to ownership, operations or governance structure. In particular, transactions will be subject to review if they (a) involve the sale, transfer, lease, exchange, option, encumbrance, conveyance or disposal of a material amount of a health care entity’s assets to one or more entities or (b) transfer control, responsibility or governance of a material amount of the assets or operations of the health care entity to one or more other entities. The law or regulations of each state defines the type of transactions subject to the disclosure requirements.

State law also dictates the type of entities covered under the law. Most of these state laws impact transactions involving physician practices. In California, the review process applies to physician practices (generally those with 25 or more physicians), hospitals and health systems, clinics, ambulatory surgical centers, clinical laboratories, imaging centers, pharmacy benefit managers and health plans. New York and Oregon also expressly include health plans as entities covered under state law.