Part II: Proposed New York Law Would Require Certain Health Care Transactions to be Approved by the New York Department of Health

Previously, we outlined New York Governor Kathy Hochul’s proposed 2023-2024 New York State Budget (“Proposed Budget”) and how it may impact the healthcare deal landscape in New York. Specifically, we discussed proposed amendments to Part L of the Health and Mental Hygiene Article VII, which would have required the New York Department of Health (“DOH”) to review and approve “material transactions” between health care entities which take place in New York.

On May 2, 2023, the New York State legislature approved the Budget (“Approved Budget”) . The Approved Budget significantly modifies the previously proposed requirements outlined in our prior article. Now, under the Approved Budget, health care entities must disclose to the DOH the intent to enter into a “material transaction”. In short, the requirements have been significantly narrowed from the Proposed Budget to the Approved Budget.

What is a Health Care Entity?

The definition of “health care entity” includes but is not limited to “a physician practice, group, or management services organization (“MSOs”) or similar entity providing all or substantially all of the administrative or management services under contract with one or more physician practices, provider-sponsored organizations, health insurance plans, or any other kind of health care facility organization or plan providing health care services”. However, insurers and pharmacy benefit managers (“PBMs”) registered or licensed in New York[1] are specifically excluded from the definition of health care entity.

What Constitutes a Material Transaction?

Pursuant to NY Pub. Health L. § 4550(2), a material transaction can be any of the following:

  • A merger with a health care entity;
  • An acquisition of one or more health care entities (including an assignment, sale or other conveyance of assets, membership or transfer of control);
  • An affiliation agreement or contract formed between a health care entity and another person; or
  • The formation of a partnership, joint venture, accountable care organization (“ACO”), parent organization, or MSO for the purpose of administering contracts with health plans, third-party administrators, pharmacy benefit managers, or health care providers as prescribed by the commissioner by regulation.

Due to the broad definition of “material transaction” it is likely that this new disclosure requirement will apply to private equity backed healthcare MSO transactions in which only the non-clinical assets of a health care entity are purchased. The definition also expressly includes forming accountable care organizations (“ACOs”), with the intent to administer contracts with health plans, third-party administrators, PBMs, or health care providers.

That said, the Approved Budget also specifically excludes “de minims transactions”, which are defined as transactions that would result in a healthcare entity increasing its revenues by less than $25,000,000.00[2]. It is unclear over what period of time such revenue increase will be measured. Presumably, further clarification will be provided during the DOH’s rulemaking process, and then ultimately set forth in DOH regulations.

Required Notices

Under the Approved Budget, healthcare entities must disclose their intent to enter into a material transaction to the DOH at least 30 days before the closing of the transaction. Failure to notify the DOH of a material transaction can result in penalties of up to $2,000.00 per day. This disclosure notice is required to include:

  • Names of the parties involved and their current addresses;
  • Copies of any definitive agreements governing the terms of the material transaction, including pre- and post-closing conditions;
  • All locations where health care services are currently provided by each party, as well as the in-state revenue generated at such locations;
  • Any plans to reduce or eliminate services and/or participation in specific plan networks;
  • Anticipated closing date; and
  • A brief description of the purpose and nature of the transaction, including.[3]

In addition to increased costs for preparing the above required disclosures, the new requirements will likely cause delays in closing,to provide the required notice, and may result in more bifurcated sign-and-close transactions whereby the disclosure is made only after the deal documents are signed, but prior to the closing itself.

The new requirements go into effect on August 1, 2023. The DOH is currently preparing forms and guidelines on the notification process, and we will update this article when those forms/guidelines become available.

How can Frier Levitt Help?

In addition to providing counsel on transactions, Frier Levitt can assess proposed transactions to determine whether or not these new requirements apply, and, ultimately, filing the required notifications with the DOH. Contact us to learn more. 

[1] NY Pub. Health L. § 4550(2).

[2] NY Pub. Health L. § 4550(4)(b).

[3] NY Pub. Health L. § 4552(1).