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

Recently, New York Governor Kathy Hochul unveiled the 2023-2024 budget for New York State (the “Budget”), including an amendment to Part L of the Health and Mental Hygiene Article VII (the “Proposed Legislation”). The Proposed Legislation would require the New York Department of Health (the “DOH”) to review and approve “material transactions” between health care entities which take place in New York.

What Constitutes a “Material Transaction”?

Under the Proposed Legislation, a “material transaction” loosely defined as:

  • A merger with a health care entity;
  • An acquisition of one or more health care entities including, but not limited to,the assignment, sale, or other conveyance of assets, voting securities, membership, or partnership interest or the transfer 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.[i]

Given this vague wording of the definition, it is likely that we will need to wait for the regulatory rulemaking process to conclude before we have a better idea of the extent to which the Proposed Legislation will apply to a given healthcare transaction.[ii]

What will the DOH Review and How will this Proposed Legislation Impact Health Care Transactions?

If enacted as part of the proposed Budget, the Proposed Legislation could increase costs in transactions, cause delays in closings, and result in increased transparency with respect to any “material transaction”. In particular:

  • The Proposed Legislation would require parties to a “material transaction”, thirty (30) days prior to any closing of such material transaction to submit to the DOH the following: 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, the desired closing date and several other items;
  • If after the initial review of a transaction, the DOH determines additional action is required, the DOH could require that the parties to the material transaction in question make monetary investments for “community reinvestment” or New York’s health care transformation fund. Such “community reinvestments” or contributions to New York’s health care transformation fund would provide financial contributions to underfunded parts of the health care delivery system. By requiring these investments and contributions, New York intends to remedy the perceived negative implications of a problematic transaction.

These requirements have potentially huge implications for healthcare investors, including private equity. Furthermore, non-compliance with the Proposed Legislation could lead to civil penalties of up to $10,000.00 per day of non-compliance and grants the DOH the right to obtain an injunction to prevent a non-compliant closing.

How Frier Can Levitt Help

As it is still early in this Proposed Legislation’s lifecycle, and as its overall impact on health care transactions will depend largely on regulatory rulemaking following enactment, Frier Levitt will continue to monitor the Proposed Legislation through the Budget negotiation and rulemaking processes and will provide further updates as additional information becomes available. 

If you have questions or concerns on how the Proposed Legislation may impact your health care business or any potential future transactions, contact Frier Levitt.

 

[i] NY Pub. Health. 45-A § 4551(4)(a).

[ii] Note, however, certain exceptions exist to the definition of “material transaction”. Specifically, a “material transaction” does not include (1) a clinical affiliation of health care entities formed for the purpose of collaborating on clinical trials or graduate medical education programs; or (2) transactions already subject to approval under either New York’s Certificate of Need process or insurance entity approval under the New York Public Health or Insurance Laws. NY Pub. Health.[ii]

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