PE Rx - State Healthcare Law Developments Impacting U.S. Healthcare REITs: What Investors Need to Know

Brief Relevant Background

New state bills aimed at strengthening oversight over investments in the healthcare space are creating unique inflection points for healthcare real estate investment trusts (REITs). Analysts currently predict steady growth trends in the healthcare REIT sector, and new state laws-especially those without grace periods-could affect REITs if investors are not prepared.¹

Recently published OnPoints by the Dechert Healthcare Team discusses changes to state Corporate Practice of Medicine (CPOM) laws and corresponding considerations for private equity and other strategic investors. These legal shifts signal increased state-regulatory scrutiny of REIT involvement in healthcare, which could impact the speed and ease with which REITs partake in certain healthcare-oriented transactions.

This OnPoint provides a targeted look at how certain new and proposed state laws may affect healthcare REITs, building on prior Dechert guidance (as linked above) around CPOM developments.

Why Are States Focusing on Healthcare REITs?

Newly implemented laws-as well as proposed legislation-targeting REITs reflect a broader push for greater corporate transparency in healthcare.

For decades, states implemented their own unique CPOM laws to balance corporate involvement with provider autonomy to promote patient health.² These laws generally assumed relatively modest corporate involvement in healthcare, but in recent years, private equity firms have invested nearly one trillion dollars into the healthcare industry.³ While these investments have resulted in groundbreaking research breakthroughs, the increased presence of corporations in the decision-making process has prompted some states to revisit CPOM regulations and antitrust laws.

Healthcare REITs-in which private equity firms tend to be significant investors-own and lease thousands of medical office buildings, hospitals, skilled nursing facilities, and senior housing/assisted living facilities.⁴ Although the connection between real estate ownership and healthcare delivery may appear tenuous, some legislators have concerns regarding how healthcare real estate investments may affect patient outcomes, with the thought that while REITs cannot direct clinical decisions, corporate ownership of healthcare facilities could have an impact on healthcare's effectiveness.

How Are State Healthcare Laws Impacting REITs?

State legislation affecting REITs' involvement in healthcare can be broadly divided into two categories:

• Expansion or codification of CPOM rule changes.
• Pre-merger notification laws targeting healthcare transactions, known as "mini-HSR"laws.

State CPOM Updates

As noted in previous Dechert OnPoints (as linked above), a growing number of states are codifying or amending CPOM laws to limit corporate involvement in healthcare transactions. Select recent updates include:

• Massachusetts (2025): Broadened the types of transactions for which the transacting entities must provide notice to the Massachusetts Health Policy Commission and required the disclosure of REITs and other equity investors in healthcare provider organizations.⁵
• Maine (2025): Placed a moratorium on REITs and private equity companies owning or managing hospitals until June 15, 2029.⁶
• Oregon (2025): Limited the power of management service organizations (MSOs) (which are common investment structures used by REITs) to exert control over clinical decision-making.⁷

This wave of changes could affect how REITs go about investing in healthcare, altering the timing for entering into and closing transactions, the administrative burden of investing, and the (previous) ease with which investments could be made. Moreover, Connecticut's Senate Bill 1507, introduced earlier this year (but not passed prior to the end of Connecticut's legislative session), would have barred REITs from investing, directly or indirectly, in medical practices. Overall, states are strengthening their CPOM laws to keep the medical decision-making processes independent of corporate investor interest, and stricter proposed laws are forthcoming in a growing number of states.

Mini-HSR Laws

In addition to CPOM reforms, states are introducing mini-HSR laws that would increase state oversight over healthcare transactions, particularly transactions involving private equity. These mini-HSR (or "baby-HSR") laws reflect state demands for an antitrust mechanism akin to the federal Hart-Scott-Rodino Act (the "HSR Act"). Mini-HSR laws have similar notice requirements but apply to smaller, industry-specific transactions like healthcare real estate transactions. For example, the HSR Act currently has a $126.4 million size-of-transaction reporting threshold. In contrast, mini-HSR laws in New York, Massachusetts, Oregon, and California apply to specific healthcare transactions involving at least $25 million.⁸

Mini-HSR laws may impact the structures REITs use to invest in healthcare. Just as CPOM laws target common investment structures used by REITs (such as MSOs), mini-HSR laws tend to characterize acquisitions or other forms of control by MSOs as material transactions, thereby triggering antitrust notification requirements. For example, the definition of "material transaction" in New York's most recently enacted mini-HSR law includes the formation of a partnership, joint venture, accountable care organization, parent organization, or MSO that administers contracts with "third-party administrators"-which could apply to healthcare REITs.⁹ By mandating increased oversight of material transactions that involve REITs, mini-HSR laws arm states with a mechanism to review certain healthcare investment structures.

How Should Investors Prepare for New Healthcare REIT Laws?

Transactions involving healthcare facilities may be subject to antitrust review to prevent market monopolization. For REITs, this can restrict their ability to consolidate properties in certain regions and require them to divest or undergo operational changes to comply with antitrust rulings. REITs should engage with seasoned counsel to proactively navigate legislative changes to CPOM and mini-HSR laws across the United States.

To best address the complexity of the patchwork of CPOM and mini-HSR laws, businesses and REITs-particularly those with a multi-state footprint-should pay due attention to:

• Proactive Due Diligence: REITs should assess state-specific transaction requirements before acquiring or leasing healthcare properties.
• Partnerships with Experienced Operators: Collaboration with tenants who understand regulatory processes can mitigate risks.
• Monitoring Legislative Changes: Staying informed about evolving state laws can help REITs anticipate and adapt to regulatory challenges.

By understanding and planning for these new and evolving transaction processes, REITs can better manage risks and ensure smoother operations in the healthcare sector.