Florida's HB 1243 Stalls, But Restrictive Covenant Provisions Move Forward
Florida’s HB 1243, with its proposed reporting requirements that would have directly affected timelines for health care transactions, particularly those involving hospitals or medical practices with four or more physicians, was withdrawn from consideration in the Florida Senate. However, a new bill – HB 843 – containing identical restrictive covenant provisions is expected to become law on July 1, 2019.
On May 3, 2019, the Florida Senate indefinitely postponed and withdrew from consideration HB 1243, which had caught the attention of providers and dealmakers since it passed the Florida House of Representatives on April 11, 2019. Had this bill passed the Senate and been signed into law by Florida’s governor, it would have directly affected timelines for health care transactions, particularly those involving hospitals or medical practices with four or more physicians.
The bill contained two distinct sections. The first section would have imposed certain reporting requirements when a Florida hospital or group practice contemplated a transaction that would result in a material change to the health care market. The first section also would have required a Florida hospital or group practice to provide notice to the State of Florida any time it made a Hart-Scott-Rodino Act (HSR) filing with the Federal Trade Commission or the US Department of Justice, and, if requested, to allow the State to review the HSR filing and request additional information. The bill’s second section provided that if an entity employed all of the physicians who practice a certain medical specialty in one county, it could not restrict a physician from practicing that same specialty in the county (non-competition restriction).
While the first section of the bill will not become law anytime soon, the second section, with its non-competition restriction, is waiting to be signed into law. On April 29, 2019, the Florida House and Senate approved HB 843, Section 10 of which contains identical language to HB 1243’s non-competition restriction. Assuming the Florida governor signs HB 843 into law, its provisions, including the invalidation of those restrictive covenants, are set to become effective on July 1, 2019.
Although HB 1243 was indefinitely postponed and withdrawn, we will closely monitor new pieces of legislation in future legislative sessions. HB 1243 received unanimous support from the House, and therefore similar reporting requirements or other changes affecting dealmaking could resurface in the future.
Required Reporting for Mergers and Acquisitions
HB 1243 primarily caught dealmakers’ attention because of its proposed reporting requirements, which would have required notification to the State at least 90 days prior to the closing of most transactions involving hospitals or group practices with four or more physicians.
The bill would have required group practices, hospitals and hospital systems with four or more physicians to provide advance notice of certain transactions to the Office of the Attorney General. Specifically, HB 1243 would have required Florida hospitals and group practices intending to go through a material change to provide information to the State, including the primary area served by the parties, a description of the proposed transaction, the physician specialty involved in the material change, and a description of any prior material change occurring in the five years before the date of notice.
The notice was required to be submitted at least 90 days prior to the closing of the transaction.
The proposed requirement also provided for a significant penalty in the event of non-compliance. Under HB 1243, failure to provide timely notice to the Office of the Attorney General within the prescribed 90-day period would have resulted in a fine of up to $500,000.
Transactions Requiring Reporting
The proposed bill required notice upon any material change, including:
- A merger, consolidation or affiliation
- The employment of all or substantially all of the physicians of a group practice
- The acquisition of all or substantially all of the properties and assets of a group practice; the capital stock, membership interest or other equity interests of a group practice; or one or more insolvent practices
The notice requirement applied not just to mergers and acquisitions, but also to any “affiliation” between entities. The bill defined affiliation as “a relationship between two or more entities that allows the entity to jointly negotiate with one or more other parties over professional medical services or reduces the primary service area in which at least one of the entities provides professional services.” Unlike HSR, the bill did not include a dollar threshold for this notice requirement, and thus the hospital or group practice would have been required to report any transaction that fell into one of the enumerated categories above.
Unenforceability of Certain Physician Restrictive Covenants
While HB 1243 did not make it through the Senate this session, HB 843, which contained the same non-competition restriction, did. Section 10 of HB 843 amends Florida’s non-compete statute and invalidates restrictive covenants with licensed physicians in limited circumstances.
Under HB 843, an entity that employs all of the physicians who practice a certain medical specialty in one county will not be able to restrict its physicians from practicing that specialty in the same county. If the entity entered into such a restrictive covenant with its physician, the restrictive covenant will be void and unenforceable. The restrictive covenant will remain void and unenforceable until three years after another entity enters the market in that county and begins offering those specialty services. It is unclear whether this provision would have retroactive application for agreements entered into prior to July 1, 2019.
If the Florida Governor approves HB 843, restrictive covenants with physicians in a specific practice area will be unenforceable if the entity employs all physicians of that certain specialty in one county, and will continue to be unenforceable for three years after another competing entity enters that county.
Dealmakers and health care providers should continue to monitor Florida legislative activities to see if reporting requirements, or similar items that could affect deals, resurface in future legislative sessions.