The Washington State Legislature proposed bills that would not only amend existing state laws related to healthcare transaction notices to require state approval of transactions but would also strengthen corporate practice restrictions in the state. House Bill 1881 and its companion bill, Senate Bill 5704, introduced Feb. 7, 2025, would expand the scope and state oversight of Washington’s current healthcare transactions notice requirements for healthcare providers. Separately, Senate Bill 5387, introduced Jan. 21, 2025, formalizes certain corporate practice restrictions for professional healthcare entities.
As drafted, H.B. 1881 would enhance the healthcare transaction notice requirements currently in place by including additional entities subject to the notice requirements and by giving the state attorney general the authority to conduct an antitrust review and the authority to approve, deny, or approve with conditions or modifications any material transaction. H.B. 1881 would also potentially incorporate an access, affordability and equity review by the Washington Health Care Authority (HCA). In light of these additional requirements, H.B. 1881 increases the timeline for filing pre-closing notices from 60 days to 90 days and provides that the AG will disclose the information contained in this notice on its website within seven days of receipt.
H.B. 1881 is currently in the House Committee on Civil Rights & Judiciary. S.B. 5387 has undergone amendments through two substitution bills, and it is currently under review with the Rules Committee.
Key Aspects of H.B. 1881
- Covered Transactions. The current version of the transaction notice statute applies to mergers, acquisitions or contracting affiliations. If passed, H.B. 1881 would give the AG discretion to determine whether any specific transaction qualifies as a material change transaction, potentially broadening the number of transactions to which the requirements may apply.
- Covered Entities. The entities subject to the transaction notice requirements currently include hospitals, hospital systems and provider organizations. If passed, H.B. 1881 would also include entities entering into a transaction with a hospital that are (i) carriers and insurers and (ii) other persons or entities that have as their primary function the provision of healthcare services, or parent organizations of such entities. The current rules apply only to entities in Washington. If passed, the requirements would also apply to transactions between entities in Washington and an out-of-state entity, irrespective of the share of revenue that the out-of-state entity derives from Washington residents.
- Timing. H.B. 1881 would increase the timing for notice requirements from 60 to 90 days. The AG may permit entities to file notice less than 90 days pre-closing under extraordinary situations but the proposed bills do not define what those circumstances may be.
- Submission Requirements. As proposed, H.B. 1881 specifies what information and documentation must be included in the notices, depending on the parties to a transaction and the type of transaction. The submission would be reviewed by the AG and the HCA. The HCA review would include a public hearing.
- Fees and Penalties. If passed as drafted, the AG and HCA would be responsible for implementing a fee structure in connection with transaction notice filings. If passed as drafted, violations of H.B. 1881 could result in a civil penalty up to 10% of the value of the material change transaction, subject to the discretion of the AG.
- Market Studies. H.B. 1881 directs the AG to conduct antitrust reviews to determine if a transaction may violate state or federal antitrust laws, and the proposed bill also directs the HCA to conduct access, affordability, quality and equity assessments of the proposed transaction.
Key Aspects of S.B. 5387
S.B. 5387 codifies corporate practice restrictions and would become effective Jan. 1, 2027, if passed. S.B. 5387 would place an express prohibition on the corporate practice of medicine by forbidding any unlicensed entity from owning a medical practice, employing licensed healthcare providers or otherwise engaging in the practice of a healthcare profession, subject to limited exceptions. The proposed bill would place ownership and governance restrictions on professional service corporations, requiring licensed healthcare providers to hold a majority of each class of voting shares, to represent a majority of the directors, and to hold all officer positions except secretary and treasurer. S.B. 5387 would also indirectly provide for an active practice requirement because licensed shareholders must be substantially engaged in delivering care or managing the practice.
Further, S.B. 5387 would prohibit shareholders, directors and officers of a physician practice from owning or controlling shares in, serving as a director or officer of, or being an employee or independent contractor of a management services organization (MSO) with which the healthcare practice contracts; participating in management of both the practice and the MSO with which the healthcare practice contracts; receiving substantial compensation from an MSO in exchange for owning or managing a practice; transferring or relinquishing control over the sale or the restriction of the sale of a practice or over the issuance of shares of stock in a practice or an entity affiliated with a practice; or entering into financial relationships that violate the rebating prohibition.
S.B. 5387 would also place restrictions on the clinical activities in which an unlicensed entity may participate. The bill would codify prohibitions on the ability to interfere with, control or otherwise direct clinical decision-making of a licensed physician related to the period of time a provider may spend with a patient, the period of time after which a provider must discharge a patient, the clinical status of a patient, diagnoses or codes entered into medical records, and the range of clinical orders available to a provider.
McGuireWoods has provided insights to other state healthcare transaction reporting requirements and will continue to monitor other states introducing and enacting similar requirements. McGuireWoods’ healthcare transactions team — which brings together regulatory, corporate and antitrust expertise — has significant experience navigating state healthcare filings. Our lawyers closely track guidance and developments in this area to provide clients with informed strategic advice, from considering the regulatory burden associated with acquiring individual targets to achieving approval by state regulators. For questions, reach out to the authors or your McGuireWoods contact.