S4844

An Act concerning physician and dental practices and supplementing Titles 26 and 45 of the Revised Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. This act shall be known and may be cited as the “Health Care Clinical Independence and Transaction Transparency Act.”

2. As used in this act:

“Affiliate” means a person or entity that directly or indirectly controls, is controlled by, or is under common control with another person or entity.

“Control” shall include the direct or indirect power to direct management or policies through ownership, voting rights, governance rights, contract, financing arrangements, management agreements, or another arrangement.

“De facto control” means the direct or indirect exercise of ultimate decision-making authority over a function that State law, professional standards, or this act reserves to a licensed physician, licensed dentist, or professional practice, regardless of whether the person exercising that authority possesses formal ownership of the professional entity.

“Management services organization” or “MSO” means an entity that provides management, administrative, financial, operational, or other nonprofessional services to a professional practice pursuant to contract or another arrangement.

“Nonprofessional entity” means a person or entity not legally authorized to exercise professional medical or dental judgement.

“Professional practice” means activity which is defined as "practicing dentistry" pursuant to R.S.45:6-19 or the “practice of medicine and surgery” as defined pursuant to R.S.45:9-5.1.

“Private equity company” means any company that collects capital investments from individuals or entities and purchases, as a parent company or through another entity that the company completely or partially owns or controls, a direct or indirect ownership share of a provider, provider organization or management services organization. “Private equity company” shall not include venture capital firms exclusively funding startups or other early-stage businesses, commercial lenders solely providing debt financing without rights amounting to control of the professional practice, and venture-capital investment in startup or early-stage enterprises.

“Significant equity investor” means: a private equity company possessing a direct or indirect financial interest in a covered professional practice or its MSO; or another investor or affiliated group possessing 10 percent or more of the equity, capital, voting rights, or profits of the practice or MSO.

3. a. A nonprofessional entity shall not directly or indirectly exercise de facto control over the professional clinical judgement of a licensed physician, dentist, or professional practice. A licensed physician or dentist or professional practice shall have the ultimate authority over decisions related to:

(1) diagnosis;

(2) treatment;

(3) medical necessity;

(4) diagnostic testing;

(5) referrals and consultations;

(6) patient-specific clinical decisions;

(7) clinical standards and protocols;

(8) clinical competency determinations;

(9) the hiring, disciplining, or termination of an employee, who is a licensed physician or dentist, when such decision is based on professional competence, quality of care, patient safety, or professional conduct;

(10) clinical staffing, when such decision materially affects patient safety or professional clinical judgement;

(11) the time clinically necessary to evaluate or treat an individual patient;

(12) patient-volume requirements, where application of the requirement would interfere with patient safety or professional clinical judgement;

(13) diagnostic and procedural coding to the extent professional clinical judgement is required;

(14) the clinical content of patient records;

(15) selection of pharmaceuticals, devices, equipment, or supplies when professional clinical judgment is required; and

(16) any other decision that is required to be made by a licensed physician or dentist pursuant to State law.

b. Provided that a licensed physician or dentist or professional practice retains ultimate authority over decisions that require professional clinical judgement as provided in subsection a. of this section, a nonprofessional entity shall be permitted to perform or manage, for the professional practice: accounting and bookkeeping; payroll and employee-benefit administration; nonclinical human resources; information technology and cybersecurity; facilities and real estate; nonclinical procurement; equipment administration; marketing and lawful advertising; billing administration; revenue-cycle management; coding support; budgeting; financial planning and analysis; strategic planning; compliance infrastructure; data analytics; payer-contract analysis and negotiation support; value-based-care infrastructure; scheduling administration; and other nonprofessional business functions.

4. No contract or agreement shall confer a nonprofessional entity the authority to make decisions prohibited pursuant to section 2 of this act. Beginning 12 months after the effective date of this act, any provision of such a contract or agreement that violates a provision of section 2 of this act shall be void and unenforceable with respect to the violation; provided, however, that nothing in this section shall be construed to render void or unenforceable the remaining provisions of the contract or agreement.

5. a. Prior to any material transaction involving a material change outlined in subsection b. of this section between a nonprofessional entity and a professional practice, the professional practice shall, at least 60 days prior to the use or adoption of the change:

(1) provide a notice of the material transaction pursuant to subsection c. of this section to the Attorney General and Commissioner of Health; and

(2) post on the professional practice’s Internet website a notice of the material transaction pursuant to subsection d. of this section.

Nothing in this section shall be construed to authorize the Attorney General or Commissioner of Health to review, approve, or disapprove the material transaction, unless such a transaction violates a provision of this act.

b. (1) The requirements of subsection a. shall apply to the following material transactions:

(a) a transaction, in which the value of the transaction is $25 million or more;

(b) a transaction, in which the parties to the transaction have combined revenue in the State of $25 million or more; and

(c) a transaction, whether through a single transaction or series of transactions, that would result in the acquisition of, ownership, or control of a professional practice, involving 10 or more licensed physicians or dentists practicing in New Jersey.

(2) The Attorney General, in consultation with the Department of Health, may periodically increase the monetary thresholds established in subparagraphs (a) and (b) of this subsection, by regulation, to reflect inflationary increases.

(3) The requirements of subsection a. shall not apply to the following:

(a) internal reorganizations or transactions between or among entities under common control that do not result in a change of beneficial ownership or control;

(b) the employment of a physician or dentist by the professional practice, provided that the employment does not result in a change in ownership or control of the practice;

(d) a transfer of an ownership interest in a professional practice in connection with the death, retirement, withdrawal, or succession of a licensed owner, provided that the transfer does not result in a significant equity investor or other outside entity acquiring control of the practice;

(e) transactions under bankruptcy-court supervision; and

(f) any other transactions, for which substantially equivalent information has already been submitted to the Office of the Attorney General or the Department of Health under State law or regulation. The Office of the Attorney General or the Department of Health shall be authorized to share such information with each other as necessary to implement the provisions of this act.

c. The notice required pursuant to paragraph (1) of subsection a. shall include the following information:

(1) identification of the parties to the transaction;

(2) a description of the proposed transaction, the structure of the transaction, and the ultimate controlling entities after the transaction;

(3) the anticipated closing date of the transaction;

(4) the value of the transaction;

(5) the ownership and control structure of the professional practice before and after the transaction;

(6) the address of all practice locations in New Jersey that would be affected by the transaction;

(7) the medical or dental specialties that would be affected by the transaction;

(8) the number of licensed physicians or dentists that would be affected by the transaction;

(9) any material closure, elimination, reduction, relocation, consolidation, or expansion of a health care service that is reasonably anticipated as of the date of the notice;

(10) any material reductions in staffing that is reasonably anticipated as of the date of the notice; and

(11) if a significant equity investor is a party to the transaction:

(a) an organization chart:

(i) listing the identity of each person or entity having a direct or indirect beneficial ownership or control interest in the significant equity investor and the nature and extent of that interest; and

(ii) identifying the direct and indirect ownership and control relationships among the parties to the transaction and any significant equity investor;

(b) the material sources and terms of financing for the transaction, including the amount and type of debt and equity financing;

(c) any material debt to be incurred, assumed, or guaranteed by the professional practice in connection with the transaction;

(d) any management services agreement between the professional practice and any management services organization involved in the transaction;

(e) any material management, advisory, monitoring, consulting, or similar fee payable in connection with the transaction to the significant equity investor or an affiliate thereof;

(f) any material transaction or arrangement between the professional practice and the significant equity investor or an affiliate thereof;

(g) any material recapitalization or distribution to the significant equity investor or an affiliate thereof that is contemplated in connection with the transaction;

(h) any transfer of interest in real property used by the professional practice in connection with the transaction; and

(i) any sale-leaseback arrangement involving real property used by the professional practice in connection with the transaction; and

(12) if the transaction includes a sale-leaseback arrangement:

(a) the identity of the purchaser and lessor, and the relationship, if any, of the purchaser or lessor to any party to the transaction;

(b) the sale price of the real property;

(d) any material provision providing for an increase or other adjustment in rent during the term of the lease;

(e) any guarantee of the obligations under the lease and the identity of each guarantor;

(f) any material financial covenant contained in the lease or related agreement; and

(g) any other material financial obligation imposed upon the professional practice pursuant to the sale-leaseback arrangement.

d. (1) The notice required pursuant to paragraph (2) of subsection a. shall include the following information:

(a) the identification of the parties to the transaction;

(b) a description of the proposed transaction, the structure of the transaction, and the ultimate controlling entities after the transaction;

(d) the ownership and control structure of the professional practice before and after the transaction; and

(e) the address of all practice locations in New Jersey that would be affected by the transaction.

(2) To the extent consistent with State law, nothing in this subsection shall be construed to require a professional practice to disclose pursuant to paragraph (2) of subsection a. the following information: trade secrets; proprietary financial information; competitively sensitive contractual terms; personal information; and any other confidential commercial information.

e. The Attorney General or Commissioner of Health, as applicable, may require a professional practice to submit data and information necessary to assess the post-transaction impacts of the material change for a period of 3 years following the completion of a material change, if the Attorney General or commissioner issues a written determination that there is a reasonable basis to monitor a material concern regarding competition in the health care market, health care costs, patient access to health care services, continuity of care, the independent professional clinical judgement of physicians or dentists, or the financial stability of the professional practice. Any data and information submitted pursuant to this subsection shall be limited to data and information necessary to evaluate the material concern identified in the written determination.

6. a. The Attorney General may file an action, in the Superior Court, Law Division in the county in which the professional practice is located, to enforce the requirements of this act and remedy harm caused by a violation of the provisions of this act. In any such action, the court may grant any relief it deems appropriate, including, but not limited to, injunctive, declaratory, and equitable relief.

b. Any person, firm, association, partnership, or corporation who fails to comply with requirements of section 4 of this act shall be subject to:

(1) a warning notice;

(2) an opportunity to cure the violation within 14 days following the issuance of the notice;

(3) if the violation has not been cured pursuant to this subsection:

(a) a penalty of not less than $5,000 or more than $10,000 for each violation; or

(b) a penalty of not less than $10,000 or more than $20,000 for each violation involving:

(i) a knowing failure to comply with the notice requirements of section 4 of this act;

(ii) involving the direct or indirect creation or use of a contract, arrangement, transaction, series of transactions, or other device as part of a plan or scheme to evade the notice requirements of section 4 of this act;

(iii) the knowing concealment of beneficial ownership or control; (iv) a materially false statement; and

(v) any subsequent violation of section 4 of this act.

7. A professional practice shall not take any retaliatory action against any licensed physician or dentist, who in good faith:

a. refuses a directive reasonably believed to be a violation of this act;

b. reports a violation of this act internally or to the Attorney General, the Department of Health, or the practitioner’s respective licensing board; or

c. participates in an investigation in connection with a violation of this act.

As used in this section, “retaliatory action” shall have the same meaning as provided in section 2 of P.L.1986, c.105 (C.34:19-2).

8. Nothing in this act shall be construed to:

a. authorize the corporate practice of medicine or dentistry, interference with professional clinical judgement, or any other conduct prohibited under existing law or regulation, including N.J.A.C. 13:35-6.16 or a successor regulation;

b. supersede or otherwise affect applicable certificate of need, health care facility licensure, transfer-of-ownership, facility ownership, or charitable asset requirements;

c. limit any authority otherwise provided by law to the Attorney General, Commissioner of Health, a professional licensing board, or other State agency or official, including authority under State or federal antitrust or consumer protection law; or

d. prohibit an otherwise lawful MSO arrangement, private equity or other investment, debt or equity financing arrangement, or business-performance standard, provided that the arrangement does not violate the requirements of this act or other applicable State law.

9. The Attorney General and the Commissioner of Health, in consultation with the State Board of Medical Examiners and the New Jersey State Board of Dentistry, shall adopt rules and regulations, pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), as may be necessary to implement the provisions of this act, includes rules and regulations concerning:

a. the filing of a notice required pursuant to this act and the coordination of such a filing between departments and other State agencies, as applicable;

b. calculating the value of a transaction involving a material change outlined in subsection b. of section 5 of this act;

c. the calculating New Jersey-derived revenue of a party to such a transaction;

d. identifying any aggregate related transactions to such a transaction;

e. confidentiality;

f. any exemptions to the provisions of this act;

g. the development of standardized forms to be used to implement the provisions of this act

h. the implementation of the post-transaction reporting requirements pursuant to subsection e. of section 5 of this act.

10. This act shall take effect on the first day of the seventh month following enactment, except that the Attorney General and the Commissioner of Health may take any anticipatory administrative action in advance as shall be necessary for the implementation of this act.

STATEMENT

This bill establishes the “Health Care Clinical Independence and Transaction Transparency Act.”

The bill provides that a nonprofessional entity is prohibited from directly or indirectly exercising de facto control over the professional clinical judgement of the professional practice of a licensed doctor or dentist. The bill defines a “nonprofessional entity” to mean a person or entity not legally authorized to exercise professional medical or dental judgement.

Under the bill, a licensed physician or dentist or professional practice is to have the ultimate authority over decisions related to: diagnosis; treatment; medical necessity; diagnostic testing; referrals and consultations; patient-specific clinical decisions; clinical standards and protocols; clinical competency determinations; the hiring, disciplining, or termination of an employee, who is a licensed physician or dentist, when such decision is based on professional competence, quality of care, patient safety, or professional conduct; clinical staffing, when such decision materially affects patient safety or professional judgement; the time clinically necessary to evaluate or treat an individual patient; patient-volume requirements, where application of the requirement would interfere with professional clinical judgement or patient safety; diagnostic and procedural coding to the extent professional clinical judgement is required; the clinical content of patient records; selection of pharmaceuticals, devices, equipment, or supplies when professional clinical judgment is required; and any other decision that is required to be made by a licensed physician or dentist pursuant to State law.

Under the bill, a nonprofessional entity is still permitted to perform or manage certain operations for the professional practice as outlined under the bill; provided that a licensed physician or dentist or professional practice retains ultimate authority over decisions that require professional clinical judgement.

The bill requires that, prior to certain material transactions involving material changes as outlined in the bill, a professional practice is to provide a notice of the transaction to the Attorney General and Commissioner of Health and to publish a notice of the transaction on the professional practice’s Internet website.

The Attorney General or Commissioner of Health, as applicable, may require a professional practice to submit data and information necessary to assess the post-transaction impacts of the material change for a period of 3 years following the completion of a material change, if the Attorney General or commissioner issues a written determination that there is a reasonable basis to monitor a material concern regarding competition in the health care market, health care costs, patient access to health care services, continuity of care, the independent professional clinical judgement of physicians or dentists, or the financial stability of the professional practice. Any data and information submitted pursuant to this subsection will be limited to data and information necessary to evaluate the material concern identified in the written determination.

The bill provides that the Attorney General may file an action, in the Superior Court, Law Division in the county in which the professional practice is located, to enforce the requirements of this act and remedy harm caused by a violation of the provisions of this act. The bill establishes certain penalties for violations of the bill’s notice requirements.

The bill provides that a professional practice is prohibited from taking any retaliatory action against any licensed physician or dentist, who in good faith: refuses a directive reasonably believed to be a violation of the bill’s provisions; reports a violation of the bill’s provisions internally or to the Attorney General, the Department of Health, or the practitioner’s respective licensing board; or participates in an investigation in connection with a violation of the bill’s provisions.