A new Connecticut law, Public Act Number 14-168, entitled “An Act Concerning Notice of Acquisition, Joint Ventures, Affiliations of Group Medical Practices and Hospital Admissions, Medical Foundations and Certificates of Need,” came into effect on October 1, 2014. The new law, which was proposed by Connecticut Attorney General George Jepsen, establishes reporting requirements for physician groups in Connecticut.  It also requires advance notification for physician group transactions that result in a material change to the business or corporate structure of a group practice. A “group practice” is defined to include a medical practice with as few as two physicians practicing through the same entity.[1]

According to the law, [2] a “material change” to a group practice that would require prior notification includes:

• the merger or consolidation or other affiliation of a group practice with another group practice that results in a group practice of eight or more physicians;

• the merger, consolidation, or affiliation of a group practice with a hospital, or other entity controlled by a hospital system;

• the acquisition by a group practice of all or substantially all of the assets or equity interests of another group practice that results in a group practice of eight or more physicians;

• the acquisition by a hospital, or other entity controlled by a hospital system, of all or substantially all of the assets or equity interests of a group practice;

• the employment by a group practice of all or substantially all of the physicians of another group practice that results in a group practice of eight or more physicians;

• the employment by a hospital, or other entity controlled by a hospital system, of all or substantially all of the physicians of a group practice;

• the acquisition by a group practice of one or more insolvent group practices that results in a group practice of  eight or more physicians; and

• the acquisition by a hospital, or other entity controlled by a hospital system, of one or more insolvent group practices.[3]

The law requires the parties to any of the above transactions to submit a written notice to the Connecticut Attorney General at least 30 days prior to the effective date of the transaction. [4]  The notice must identify each party to the transaction and include:

• a description of the nature of the proposed relationship between the parties;

• the names and specialties of each physician who is a member of the physician group and will practice in the resulting physician group;

• the name of the business entities that will provide services once the transaction is complete;

• the name and description of the services to be provided at each physician group location; and

• the primary service area to be served by each such location.

The Connecticut Attorney General encourages parties to voluntarily include a copy of the contract, memorandum of understanding, letter of intent, or other documents implementing the transaction.  The Attorney General’s online instructions emphasize that the confidentiality of the documents will be maintained. [5] The information received would be used by the Connecticut Attorney General’s Office in its antitrust investigation and enforcement functions.[6] While the law requires only the provision of notice, it remains to be seen how active the Connecticut Attorney General or the Connecticut Department of Public Health will be when reviewing proposed transactions, given that the information will be retained for potential antitrust purposes.  The state government could use the information provided to closely oversee transactions that it deems worrisome, potentially slowing down the deal process.

In addition, the law provides a new annual reporting requirement for each group practice comprised of more than 30 physicians.  The initial report must be filed with the Connecticut Attorney General and the Commissioner of Public Health by December 31, 2014, and annually thereafter.  The written report is required to include: [7]

• the names and the specialties of each physician practicing medicine within the group practice;

• the names of the business entities that provide services as part of the group practice and the address for each location where such services are provided;

• a description of the services provided at each such location; and

• the primary service area served by each location.[8]

The Connecticut law impacts multistate group practices with physicians practicing in Connecticut.  Connecticut has taken the position that the annual reporting requirement applies to physician groups with more than 30 physicians in total, even if most of the group’s physicians practice outside of Connecticut.  For example, if a group practice based in New York employs 40 physicians, and eight of them practice in Connecticut, the group practice would need to file the annual report described above. [9]

In contrast to the notification requirement, the law does not state how the information in the annual report will be used.  Additionally, the Connecticut Attorney General’s Office has not released an explanation as to how it will use the annual reports. It is clear, however, that the Connecticut Attorney General’s Office will be paying greater attention to transactions involving, and the general composition of, physician groups moving forward.

Group practices that employ physicians practicing in Connecticut and are considering transactions with other group practices or hospitals should consider whether notification is required under the new law.  Additionally, group practices that employ physicians practicing in Connecticut should be actively preparing their first annual report, which is due not later than December 31, 2014.

ENDNOTES

[1] The law defines a “group practice” as:

two or more physicians, legally organized in a partnership, professional corporation, limited liability company formed to render professional services, medical foundation, not-for-profit corporation, faculty practice plan or other similar entity (A) in which each physician who is a member of the group provides substantially the full range of services that the physician routinely provides, including, but not limited to, medical care, consultation, diagnosis or treatment, through the joint use of shared office space, facilities, equipment or personnel; (B) for which substantially all of the services of the physicians who are members of the group are provided through the group and are billed in the name of the group practice and amounts so received are treated as receipts of the group; or (C) in which the overhead expenses of, and the income from, the group are distributed in accordance with methods previously determined by members of the group.

P.A. 14-168(a)(10), available at: http://www.cga.ct.gov/2014/ACT/PA/2014PA-00168-R00SB-00035-PA.htm (last visited Dec. 3, 2014).

[2] P.A. 14-168(c).

[3] In addition to the notice requirement, the law requires that a certificate of need be obtained for “a transfer of ownership of a group practice to any entity other than a physician or group of physicians,” i.e., by a hospital. P.A. 14-168(a)(14).  The requirements for a certificate of need are outside the scope of this Client Alert.

[4] P.A. 14-168(d).  In order to facilitate the newly required notice, Connecticut Attorney General Jepsen has posted on his website instructions, and a template of the required form. Office of the Connecticut Attorney General, Notice of Material Change Form, available at: http://www.ct.gov/ag/cwp/view.asp?a=2105&q=553102 (last visited Nov. 24, 2014).

[5] Id.

[6] P.A. 14-168(e). 

[7] P.A. 14-168(g).

[8] The law defines “primary service area” as “the smallest number of zip codes from which the group practice draws at least seventy-five percent of its patients.”  P.A. 14-168(a)(11).

[9] The reporting requirement is based on the total number of physicians in the practice, rather than the number of physicians located in Connecticut. The number eight is used here as a hypothetical example.