HB4019 - 572R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 44, chapter 11, Arizona Revised Statutes, is amended by adding article 2.1, to read:

ARTICLE 2.1. VETERINARY MEDICINE PRACTICE

START_STATUTE44-1617. Definitions

In this article, unless the context otherwise requires:

1. "Licensee" means a natural person who is licensed pursuant to title 32, chapter 21.

2. "Management services organization" means any organization or entity that contracts with a licensee or veterinary practice to perform management or administrative services that relate to, support or facilitate a provision of veterinary care services.

3. "Veterinary medicine" has the same meaning prescribed in section 32-2201.

4. "Veterinary practice" means a corporate entity or partnership that is organized for the purpose of practicing veterinary medicine.END_STATUTE

START_STATUTE44-1617.01. Licensees; ownership of veterinary practices; violation; classification; civil penalty; attorney general; enforcement

A. A person in this state may not do any of the following unless the person is a licensee:

1. Own a veterinary practice.

2. Receive compensation to practice veterinary medicine.

3. Engage in the practice of veterinary medicine.

4. Employ an individual who is licensed pursuant to title 32, chapter 21.

5. Advertise in a manner that demonstrates a lawful ability to practice veterinary medicine.

B. An owner of a veterinary practice must be licensed pursuant to section 32-2212 and be substantially engaged in providing veterinary medicine.

C. A person may not interfere with, control or otherwise direct the professional judgment or clinical decisions of a licensee unless the person is licensed pursuant to section 32-2212.

D. A director of a veterinary practice is subject to removal based on a consideration of the director's course of conduct and the inadequacy of other available remedies. A veterinary practice may be dissolved or its charter or certificate of authority revoked if it is established that the entity violated this section.

E. Within twelve months after the death of an owner of A veterinary practice, all of the owner's ownership interest must be acquired by the veterinary practice or by a person allowed to own the ownership interest, or a combination of both.

F. A veterinary practice may employ licensees and engage in the practice of veterinary medicine if:

1. The licensees hold a majority of each class of voting shares.

2. The licensees are located in this state and are a majority of the managers.

3. The officers are licensees, except for the secretary and treasurer, as applicable.

G. A shareholder, director or officer of a veterinary practice may not:

1. own or control shares in, serve as a director or an officer of, be employed by, act as an independent contractor for or otherwise participate in the management of both the veterinary practice and a management services organization.

2. receive substantial compensation or remuneration from a management services organization in exchange for ownership, control or management interest in the veterinary practice.

H. Subsection F, paragraph 1 of this section does not apply to the shareholders, directors or officers of a veterinary practice if the veterinary practice is owned by a majority of the interest in the management services organization or a separate legal entity.

I. A veterinary practice may not transfer or relinquish control over:

1. The sale, restriction on the sale or an encumbrance of the veterinary practice's shares of assets.

2. The issuance of shares of stock in the veterinary practice, any subsidiary of the veterinary practice or any entity that is affiliated with the veterinary practice or the declaration or payment of dividends.

J. A noncompetition agreement between a licensee and another person is void and unenforceable unless the licensee owns or controls an ownership or membership interest of at least twenty-five percent of the total ownership or membership interest in that other person. this subsection does not restrict any cause of action with respect to a statement that constitutes libel, slander, a tortious interference with contractual relations or another tort.

K. A nondisclosure agreement or nondisparagement agreement between a licensee and a management services organization is void and unenforceable.

L. A management services organization or other legal entity that is not the veterinary practice may not advertise the veterinary practice's services under the name of an entity other than the veterinary practice.

M. The attorney general shall enforce this section and may adopt rules to implement this section.

N. The attorney general may subpoena any records that are necessary to enforce or to investigate suspected violations of this section.

O. The attorney general may impose a civil penalty of not more than $10,000 per day for each violation of this section. The attorney general may dissolve or revoke the charter or certificate of authority of any veterinary practice that has violated this section.

P. A person who violates subsection A, B or C of this section is guilty of a class 3 misdemeanor and shall pay a fine of not more than $5,000 for each offense of a violation. Each day of a violation is a separate offense. END_STATUTE

START_STATUTE44-1617.02. Reporting of ownership and control of veterinary practices; exceptions; rules; annual report

A. Each veterinary practice shall report to the Arizona state veterinary medical examining board, on an annual basis and when a veterinary practice makes a material change that involves the veterinary practice, on a form and in a manner as prescribed by the Arizona state veterinary medical examining board that includes the following:

1. The name of the veterinary practice's legal entity.

2. THe veterinary practice's business address.

3. The veterinary practice's locations of operation.

4. The veterinary practice's business numbers, as applicable, including:

(a) The taxpayer identification number.

(b) The Employer identification number.

(d) A personal identification number that is associated with a license that is issued by the department of insurance and financial institutions.

5. The name and contact information of a representative of the veterinary practice.

6. The names of each INDIVIDUAL or person that:

(a) Has ownership or investment interest in the veterinary practice.

(b) Has a controlling interest in the veterinary practice.

(d) Is a significant equity investor in the veterinary practice.

(e) Is included on a current organization chart, including:

(i) Any entity listed in subsection E of this section.

(ii) Any affiliate, including an entity that controls or is under the common control of a veterinary practice.

(iii) Any subsidiary.

7. The compensation amount for any governing board of the veterinary practice.

8. A comprehensive, final report of the veterinary practice and any ownership and control entities, including audited financial statements, cost reports, annual costs, annual receipts, realized capital gains and losses, accumulated surplus and accumulated reserves.

B. A veterinary practice that is owned by at least two licensees is exempt from this section.

C. The Arizona State veterinary medical examining board may adopt rules to implement this section and may establish fees in rule.

D. Information in this section is not confidential.

E. Beginning December 31, 2027 and each year thereafter, the Arizona state veterinary medical examining board shall post on the board's publicly available website a report that contains the following information from the previous calendar year that includes all of the following:

1. The number of veterinary practices during the reporting year with each business structure or entity identified.

2. The names, addresses and business structures of any entity that has ownership or controlling interest in each veterinary practice.

3. Any change in ownership or control for each veterinary practice.

4. Any change in the tax identification number of a veterinary practice.

5. As applicable, the names, addresses, tax identification numbers and business structures of other affiliates that are under common control or that are subsidiaries and management services entities of the veterinary practice and an analysis of trends in horizontal and vertical consolidation, disaggregated by business structure and provider type. END_STATUTE

START_STATUTE44-1617.03. Notice; proposed material change transaction; posting preliminary review; comprehensive review process; approval authority

A. Before a veterinary practice may make any material change transaction, the veterinary practice shall submit written notice to the attorney general's office at least one hundred eighty days before the date of the proposed material change transaction is to take effect. The written notice shall include information the attorney general deems required. The veterinary practice may include additional information that supports the written notice of the material change transaction. Notice is complete when the attorney general receives all of the required information. Information received by the attorney general's office is public information and is not confidential. On receiving written notice of the material change transaction, the attorney general shall post on the attorney general's publicly accessible website information about the material change transaction that includes:

1. A summary of the proposed transaction, including the identity of the parties to the transaction.

2. An explanation of the group or individuals that are likely to be impacted by the material change transaction.

3. INformation about services currently provided by the veterinary practice, any commitments made by the veterinary practice to continue providing veterinary medical services and any services that will be reduced or eliminated.

4. Details about any public meetings, if applicable, and how to submit comments.

5. Any other information that the attorney general determines would be in the public interest.

B. Within thirty days after receiving notice described in section A of this section, the attorney general shall Complete a preliminary review of a material change transaction and shall do any of the following:

1. Approve the material change transaction and NOTIFY the parties.

2. Approve the material change transaction subject to conditions set forth by the attorney general and notify the veterinary practice in writing of the conditions of approval.

C. If the material change transaction qualifies pursuant to subsection E of this section, the attorney general notify the veterinary practice in writing that the transaction is subject to a comprehensive review. The attorney general may request additional INFORMATION necessary to perform a comprehensive review under subsection E of this section.

D. Within ninety business days after determining a material change transaction is subject to a comprehensive review, the attorney general shall conduct one or more public hearings or public meetings, as applicable, one of which shall be in the county where the veterinary practice is located to hear comments from interested parties to comment on any of the following:

1. The market share of any transacting party and the likely effects of the transaction on competition.

2. Any previous transaction involving a transacting party, including acquisitions or mergers that were similar to the material change transaction even if the acquisitions or mergers occurred out of state.

3. The prices charged by either of the transacting parties for services, including their relative prices compared to other prices for the same services in the same geographic area.

4. The quality of services provided by any veterinary practice, including patient experience.

5. The cost of trends of the veterinary practice in comparison to total veterinary care EXPENDITURES statewide.

6. The availability and accessibility of services that are similar to what is performed by the veterinary practice WITHIN the veterinary practice's service area and surrounding areas.

7. The impact of the material change transaction on competing options for the delivery of veterinary services within the veterinary practice's service areas and surrounding service areas.

8. Consumer concerns, including complaints or other allegations that the licensee or veterinary practice has engaged in any unfair method of competition or any unfair or deceptive act or practice.

9. The parties' compliance with prior conditions and legal requirements related to competitive conduct, as applicable.

10. The impact of the transaction on the veterinary workforce, including wages, staffing levels and supply.

11. The impact of a real estate sale or lease agreement on the financial condition of the veterinary practice and the veterinary practice's ability to maintain animal care operations.

12. In the case of a proposed closure or discontinuance of a veterinary practice, the impact of the closure on veterinary care access, outcomes, costs and equity for those in the veterinary practice's service area and the veterinary practice's plan for ensuring equitable access, quality, affordability and availability of veterinary practices within the service area.

13. Any other factor that the attorney general determines to be of public interest.

E. A comprehensive review is required if any of the following applies:

1. The material change transaction will result in the transfer of assets valued above $20,000,000.

2. The material change transaction occurs in a highly consolidated market for any line of services that are offered by any party to the material change transaction.

3. The material change transaction will cause a significant change in market share, such that any resulting veterinary practice possesses market power on completion.

4. The material change transaction will otherwise lessen competition, including effects of vertical or cross-market transactions AMONG different product of geographic markets.

5. EITHER PArTY to the material change transaction possesses market power prior to the transaction.

6. The attorney general, at its sole discretion, determines that the material change transaction is likely to have a material impact on the cost, quality, equity or access to veterinary medicine services in any region in this state.

F. For the purposes of this section:

1. "Market power" means possessing thirty percent or more market share in any line of service in the relevant geographic area or under other criteria that the attorney general may define in rule.

2. "MATERIAL CHANGE TRANSACTION":

(a) Means a SINGLE TRANSACTION OR A SERIES OF RELATED TRANSACTIONS WITHIN A CONSECUTIVE FIVE-YEAR PERIOD THAT INVOLVES A VETERINARY PRACTICE THAT HAS TOTAL ASSETS, ANNUAL REVENUES OR ANTICIPATED ANNUAL REVENUES FOR NEW ENTITIES OF AT LEAST $2,000,000, INCLUDing BOTH IN-STATE AND OUT-OF-STATE ASSETS.

(b) Includes any of the following:

(i) A CORPORATE MERGER, INCLUDING ONE OR MORE VETERINARY PRACTICES.

(ii) AN ACQUISITION OF ONE OR MORE VETERINARY PRACTICES, INCLUDING INSOLVENT VETERINARY PRACTICES. FOR THE PURPOSES OF THIS item, "ACQUISITION" MEANS THE DIRECT OR INDIRECT PURCHASE IN ANY MANNER THAT INCLUDES A LEASE, TRANSFER, EXCHANGE, OPTION, RECEIPT OF A CONVEYANCE, CREATION OF A JOINT VENTURE OR ANY OTHER MANNER OF PURCHASE SUCH AS BY A VETERINARY PRACTICE, PRIVATE EQUITY GROUP, HEDGE FUND, PUBLICLY TRADED COMPANY, REAL ESTATE INVESTMENT TRUST, MANAGEMENT SERVICES ORGANIZATION or INSURANCE CARRIER, OR ANY SUBSIDIARIES THEREOF, OF A MATERIAL AMOUNT OF ASSETS OR OPERATIONS OF A VETERINARY PRACTICE.

(iii) ANY AFFILIATION, ARRANGEMENT OR CONTRACT THAT RESULTS IN A CHANGE OF CONTROL FOR A VETERINARY PRACTICE. FOR THE PURPOSES OF THIS item "CHANGE OF CONTROL" MEANS AN ARRANGEMENT IN WHICH ANY OTHER PERSON, CORPORATION, PARTNERSHIP OR OTHER ENTITY THAT ACQUIRES DIRECT OR INDIRECT CONTROL OVER THE OPERATIONS OF A VETERINARY PRACTICE IN WHOLE OR IN SUBSTANTIAL PART. FOR THE PURPOSES OF THIS item, "ARRANGEMENT" INCLUDEs ANY AGREEMENT, ASSOCIATION, PARTNERSHIP, JOINT VENTURE, MANAGEMENT SERVICES AGREEMENT, PROFESSIONAL SERVICES AGREEMENT, STAFFING COMPANY AGREEMENT OR OTHER ARRANGEMENT THAT RESULTS IN A CHANGE OF GOVERNANCE OR CONTROL OF A VETERINARY PRACTICE OR any DEPARTMENT OR SUBSIDIARY OF A VETERINARY PRACTICE.

(iv) THE FORMATION OF A PARTNERSHIP, JOINT VENTURE, PARENT ORGANIZATION OR MANAGEMENT SERVICES ORGANIZATION FOR THE PURPOSE OF ADMINISTERING CONTRACTS WITH CARRIERS, THIRD-PARTY ADMINISTRATORS OR PROVIDERS.

(v) A SALE, PURCHASE, LEASE, AFFILIATION OR TRANSFER OF CONTROL OF A BOARD OF DIRECTORS OR GOVERNING BODY OF A VETERINARY PRACTICE.

(vi) A REAL ESTATE SALE OR LEASE AGREEMENT INVOLVING A MATERIAL AMOUNT OF ASSETS OF A VETERINARY PRACTICE.

(vii) THE CLOSURE OF A VETERINARY PRACTICE.

(i) A CLINICAL AFFILIATION OF VETERINARY PRACTICES FORMED SOLELY FOR THE PURPOSE OF COLLABORATING ON CLINICAL TRIALS.

(ii) GRADUATE VETERINARY MEDICINE EDUCATION PROGRAMS.

(iii) THE OFFER OF EMPLOYMENT or hiring a single veterinarian.

(iv) SITUATIONS IN WHICH THE VETERINARY PRACTICE DIRECTLY OR INDIRECTLY THROUGH ONE OR MORE INTERMEDIARIES ALREADY CONTROLS IS CONTROLLED BY OR IS UNDER COMMON CONTROL WITH ALL OTHER PARTIES TO THE TRANSACTION, SUCH AS A CORPORATE RESTRUCTURING. END_STATUTE