On May 3, 2023, New York joined California, Connecticut, Delaware, Massachusetts, Nevada, New Jersey, Oregon, Rhode Island, and Washington in enacting legislation that increases oversight over certain health care transactions. Governor Kathy Hochul, signed into law an omnibus spending bill[1] which includes a new law requiring certain health care entities to provide notice to the New York Department of Health (the “DOH”) prior to consummating certain “material transactions.” The new law takes effect on August 1, 2023.
What type of “health care entities” are covered?
The new law defines a “health care entity” broadly to include not only a physician practice or health care facility, but also a management services organization or similar entity providing all or substantially all administrative or management services under contract with one or more physician practices, a provider-sponsored organization, a health insurance plan, or “any other kind of health care facility, organization or plan providing health care services in [New York].”[2] “Health care entity” does not include an insurer authorized to do business in New York, but does include non-insurance subsidiaries or affiliates of such an insurer. Pharmacy benefit managers registered or licensed in New York are also exempt from the definition.[3]
What constitutes a “material transaction?”
A “material transaction,” includes any of the following:
- a merger with a health care entity;
- an acquisition of one or more health care entities, whether by sale of equity, assets, or other transfers of control;
- an affiliation or contract formed between a health care entity and another person; or
- the formation of a partnership, joint venture, accountable care organization, parent organization, or management services organization for the purpose of administering contracts with health plans, third-party administrators, pharmacy benefit managers, or health care providers.[4]
It is immaterial whether the above-listed material transactions occur during a single transaction or across a series of transactions, if (a) they take place within a rolling 12-month time period and (b) the transaction meets or exceeds thresholds for changes in revenue and other factors to be determined by the DOH.[5]
Are there specific exceptions?
Yes. The following are expressly excluded from the definition of “material transaction” and do not require notice:
- clinical affiliation of health care entities formed for the purpose of collaborating on clinical trials or graduate medical education programs;
- a transaction that is already subject to review under other provisions of the New York Public Health or Insurance Laws; and
- transactions which result in a healthcare entity increasing its total gross in-state revenues by less than twenty-five million dollars.[6]
What constitutes sufficient notice?
A health care entity must submit written notice to the DOH and said notice must be received at least 30 days before the closing date of a material transaction.[7] The notice must include:
- The names of the parties to the proposed material transaction and their current addresses;
- Copies of any definitive agreements governing the terms of the material transaction, including pre- and post-closing conditions;
- Identification of all locations where health care services are currently provided by each party and the revenue generated in the state from such locations;
- Any plans to reduce or eliminate services and/or participation in specific plan networks;
- The desired closing date of the proposed material transaction;
- A brief description of the nature and purpose of the proposed material transaction, including: the anticipated impact of the material transaction on cost, quality, access, health equity, and competition in the impacted markets, which may be supported by data and a formal market impact analysis; and
- any commitments by the health care entity to address anticipated impacts.[8]
What happens after providing notice to the DOH?
Upon receipt of the notice, the DOH will publish the following information to its website:
- a summary of the proposed transaction,
- an explanation of the groups or people most likely to be impacted by the proposed transaction,
- information about the services currently provided by the health care entity and the commitments by the health care entity to continue such services and any services that will be reduced or eliminated, and
- details about how to submit comments. [9]
The DOH will also immediately submit electronic copies of the notice to the antitrust, health care, and charities bureaus of the office of New York attorney general.[10]
What are the penalties for non-compliance with the notice requirement?
Health care entities that fail to notify the DOH of a material transaction could incur civil penalties up to $2,000 per day for each violation of the new law.[11]
Impact going forward and unaddressed issues.
The newly enacted legislation in New York symbolizes a growing movement to subject certain health care transactions to review and approval processes. Some states, including Illinois[12], Maine[13], North Carolina[14], and Minnesota[15] are currently reviewing similar legislation to introduce varying review and notice requirements.
Given the significant civil penalties coupled with the increased public scrutiny these transactions will now be subject to, it is imperative for all health care entities contemplating a material transaction to consult with local counsel to ensure compliance with the emerging requirements these laws impose. Health care entities should allow for ample time for transaction timelines, considering the pre-closing notice requirement, and understand that the information about their transactions, and related documentation will become visible to the public.
Moreover, the new law is not without ambiguities. For example, it does not outline the process for disclosure or notice of a material transaction, only stipulating that notice must be given. The new law authorizes the DOH to adopt a process for disclosure and notice, which means parties involved in potential material transactions after August 1, 2023, must continue to monitor the DOH for guidance.
It is also not clear whether any Securities and Exchange Commission (“SEC”) regulations are potentially triggered due to the DOH’s public disclosure summarizing the material transaction since the extent of information included in the summary is not described in the new law. A publicly traded company seeking to consummate a material transaction may need to consult counsel to address whether any further disclosures must be made to the SEC or other SEC regulations relating to the proper timing of public disclosure of pending transactions considering the DOH’s disclosure.
Additionally, the new law does not clarify how twenty-five million dollar total gross revenue exemption will be measured. The method of calculating the total gross revenue remains open to interpretation – whether it is achieved in a single year, over an undefined period, or on an annual basis.
While the full implications of this law are yet to be fully understood, our firm closely monitors New York’s implementation of the legislation, the actions taken by the DOH in the coming months, and the progress of similar laws across the country.
Frier Levitt handles a vast range of national and local healthcare transactions. Our attorneys have extensive knowledge of the rigorous requirements New York imposes on health care transactions. If you are considering a health care transaction in New York, we encourage you to contact us without delay.
[1] NY LEGIS 57 (2023), 2023 Sess. Law News of N.Y. Ch. 57 (S. 4007-C)
[2] NY Pub. Health L. § 4550(2).
[3] Id.
[4] NY Pub. Health L. § 4550(4).
[5] Id.
[6] NY Pub. Health L. § 4550(4)(b).
[7] NY Pub. Health L. § 4552(1).
[8] Id.
[9] NY Pub. Health L. § 4552(2)(b).
[10] NY Pub. Health L. § 4552(1)
[11] NY Pub. Health L. § 4552(4).
[12] https://legislature.maine.gov/legis/bills/getPDF.asp?paper=HP0894&item=1&snum=131
[13] https://webservices.ncleg.gov/ViewBillDocument/2023/51/0/DRS45000-MGf-3
