Senate Bill No. 35: An Act Concerning Notice of Acquisitions, Joint Ventures and Affiliations of Group Medical Practices

At the end of the Connecticut General Assembly’s 2014 Regular Session, "An Act Concerning Notice of Acquisitions, Joint Ventures and Affiliations of Group Medical Practices" (the "Act") was passed and is awaiting the Governor's signature.  Significantly, the Act created a new statute on filing notice of mergers and acquisitions and amended certain statutes, including the statutes on medical foundations and the certificate of need process.

Notice and Reports of Mergers and Acquisitions (Effective October 1, 2014)

The Act requires that when a person files merger, acquisition or other information regarding market concentration with the Federal Trade Commission or the U.S. Department of Justice in compliance with the Hart-Scott-Rodino Antitrust Improvement Act, and the other party to the merger or acquisition is a hospital, health system or other health care provider, that person must, at the same time, provide written notice of the transaction to the Attorney General and, upon request of the Attorney General, provide a copy of the merger, acquisition or other market concentration information.[1]

The Act further requires that at least thirty days prior to the effective date of any transaction that results in a material change (defined below) to the business or corporate structure of a group practice of two or more physicians, the parties to the transaction must submit to the Attorney General written notice of the change providing: (i) a description of the proposed relationship between the parties; (ii) the names and specialties of the physicians in the resulting group practice, hospital, health system, medical foundation, captive professional entity or other entity organized by, controlled by or otherwise affiliated with the hospital or health system; (iii) the names of the business entities that will be providing services following the effective date of the transaction; (iv) a description of the services to be provided at each location; and (v) the primary service area served by each such location. 

Material changes to the business or corporate structure of a group practice include transactions between two group practices resulting in a group practice of eight or more physicians or between a group practice of at least two physicians and a hospital, health system, medical foundation, captive professional entity or any other entity that is organized by, controlled by or otherwise affiliated with a hospital or health system, which transaction is: (i) a merger, acquisition or affiliation between the parties; (ii) an acquisition of all or substantially all of the properties or assets of a group practice, or the capital stock, membership interests or other equity interests of a group practice; (iii) the employment of all or substantially all of the physicians of a group practice; or (iv) the acquisition of one or more insolvent group practices.

By December 31, 2014, and annually thereafter, each hospital and health system must file with the Attorney General and the Commissioner of the Department of Public Health (the “Commissioner”) a written report describing the activities of the group practices of two or more physicians owned or affiliated with such hospital or health system, as well as (i) a description of the nature of the relationship between the hospital or health system and the group practice, (ii) the names and specialties of the physicians practicing in the group practice, (iii) the names of the business entities that provide services as part of the group practice and the address of each location, (iv) a description of the services provided at each location and (v) the primary service area served by each such location.  For group practices compromised of thirty or more physicians, a similar written report must be filed with the Attorney General and the Commissioner, no later than December 31, 2014, and annually thereafter.

Changes to the Medical Foundations Statutes (Effective upon passage)

The Act amends the medical foundation statutes to broaden the definitions of "hospital" and "health system" to include for-profit hospitals and health systems permitting for-profit hospitals and health systems to organize and become members of medical foundations.  Further, the Act provides that a hospital, health system and medical school may organize and be a member of only one medical foundation.

Additionally, the Act prohibits an employee or representative of a for-profit hospital, health system or for-profit medical school or any entity that owns or controls a for-profit hospital, health system or medical school from serving on the board of directors of a medical foundation formed by a non-profit hospital, health system or medical school.  Similarly, an employee or representative of a non-profit hospital, health system or medical school or entity that owns or controls a non-profit hospital, health system or medical school may not serve on the board of directors of a medical foundation organized by a for-profit hospital, health system or medical school.  Also, no person is permitted to serve on the board of directors of a medical foundation organized by a for-profit hospital, health system or medical school while serving on the board of directors of a medical foundation organized by a non-profit hospital, health system or medical school.

The Act requires medical foundations to provide annually to the Office of Health Care Access ("OHCA") a statement of its mission, a description of the services it provides and any significant changes in the preceding year to such services, and the financial information reported to the IRS on the medical foundation's most recently filed tax exempt return (i.e., Form 990).  If the medical foundation is not required to file Form 990, it must provide OCHA with substantially similar information as would be reported on such return.  The information provided annually to OCHA on medical foundations will be made available to the public on OCHA’s website.

Notification to Patient’s Physician of Admission(Effective October 1, 2014)

The Act requires hospital personnel, upon the admission of a patient to the hospital, to ask the patient whether he desires to have the hospital notify his physician of his admission.  If the patient so desires, the hospital must make reasonable efforts to notify the patient’s physician as soon as practicable, but not later than twenty-four hours after the patient’s request.

Changes to the Certificate of Need Statutes (Effective July 1, 2014)

The Act amends Section 19a-638 of the Connecticut General Statutes to require a certificate of need for the transfer of ownership of a group practice of eight or more full-time physicians to any entity other than a physician or group of physicians.  A certificate of need is not required for signed agreements to transfer such ownership on or before September 1, 2014.

The Act also amends Sections 19a-639 and 19a-639a of the Connecticut General Statutes.  The amendments permit OCHA in its deliberations regarding a certificate of need application to consider the following additional principles and guidelines: (i) whether the applicant has satisfactorily demonstrated that the proposal will not negatively impact the diversity of health care providers and patient choice in the geographic region; and (ii) whether the applicant has satisfactorily demonstrated that any consolidation resulting from the proposal will not adversely affect health care costs or accessibility to care.  The amendments further provide that there will be a presumption in favor of approving a certificate of need application for the transfer of ownership of a group practice when an offer was made in response to a request for proposal or similar voluntary offer for sale (collectively a “Proposal”).  The review process for an application involving the transfer of ownership of a group practice of eight or more full-time physicians pursuant to a Proposal will be sixty days from the date on which OCHA posts notice on its website; however, such sixty day time period may be extended.  Also, any transfer of ownership of a group practice of eight or more full-time physicians pursuant to a Proposal shall require that a public hearing be held if twenty-five or more individuals or an individual representing twenty-five or more individuals submits a written request for a public hearing.

Sale of Non-Profit Hospitals Statute (Effective upon passage)

The Act amends Connecticut General Statute Section 19a-486a requiring that the purchaser of a non-profit hospital and the non-profit hospital hold a hearing in the municipality in which the hospital is located not later than thirty days after the Commissioner and the Attorney General receive the certificate of need determination letter.  The non-profit hospital must provide to the public notice of the hearing in a newspaper having substantial circulation in the affected community at least two weeks in advance of such hearing.  The notice must run in such newspaper on three consecutive days.  The notice must include substantially the same information contained in the determination letter.  The hearing must be recorded and such recording or transcription thereof must be available to the Commissioner, the Attorney General and the public upon request.

The Act also amends Connecticut General Statutes Section 19a-486b permitting the Commissioner and the Attorney General to place any conditions on the approval of an application for the conversion of a non-profit hospital to a for-profit hospital and Section 19a-486d requiring that the application for the conversion of a non-profit hospital to a for-profit hospital show continued access to high quality and affordable health care after accounting for any proposed change impacting hospital staffing


[1] A person is defined as any individual, proprietorship, corporation, limited liability company, firm, partnership, incorporated and unincorporated association, or any other legal or commercial entity.

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Topics:  Compliance, Healthcare, Healthcare Reform, Joint Venture, Physicians

Published In: Antitrust & Trade Regulation Updates, General Business Updates, Health Updates, Mergers & Acquisitions Updates, Nonprofits Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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