New York Passes Law Targeting Healthcare Transactions

On May 3, 2023, New York Governor Kathy Hochul signed into law (the “New Law”) a bill that requires certain “health care entities” to disclose proposed “material transactions” to the New York State Department of Health (“DOH”) at least 30 days prior to the closing of such transactions. The new law becomes effective on August 1, 2023.

Following is a more detailed description of the New Law and the impact it will have on certain healthcare transactions in New York:

What Material Transactions and Healthcare Entities Are Targeted by the New Law?

The notice requirement in the New Law implicates material transactions, which include:

• a merger with a healthcare entity;
• an acquisition of one or more healthcare entities (e.g., an assignment, sale or other conveyance of assets, voting securities, membership or partnership interest, or the transfer of control (direct or indirect ownership, control or power to vote 10% or more of the voting securities of the healthcare entity));
• an affiliation agreement or contract formed between a healthcare entity and another person; and
• the formation of a partnership, joint venture, accountable care organization (“ACO”), parent organization or management services organization (“MSO”) for the purpose of administering contracts with health plans, third-party administrators, pharmacy benefit managers (“PBMs”), or healthcare providers.

The New Law specifically excludes the following transactions from review:

• clinical affiliations of healthcare entities formed to collaborate on clinical trials or graduate medical education programs;
• transactions already subject to the certificate of need review process or an insurance entity approval process under the New York Public Health or Insurance Laws; and
• “de minimis” transactions, which are defined to mean a transaction or series of transactions resulting in a healthcare entity increasing its total gross in-state revenues by less than $25 million.

Subject to certain narrow exclusions (i.e., licensed New York insurers and PBMs), the definition of a healthcare entity under the New Law includes physician practices, physician groups, and MSOs or similar entity providing all or substantially all of the administrative or management services under contract with healthcare entities.

What Are the Notice Requirements Under the New Law?

The New Law does outline some detail about the notice and review process, but it also directs the DOH to issue additional regulations to further clarify the process. More specifically, the submission must include:

• the names and addresses of the parties to the transaction;
• copies of any definitive transaction agreements;
• identification of all locations where healthcare 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 closing date of the proposed material transaction; and
• a brief description of the nature and purpose of the proposed material transaction, including the following:
  • the material transaction’s anticipated impact on cost, quality, access, health equity, and competition in the affected markets, which may be supported by data and a formal market impact analysis; and
  • any commitments by the healthcare entity to address anticipated impacts.

Immediately upon receipt of the filing, DOH will share the filing with the Antitrust, Healthcare, and Charities bureaus of the New York Attorney General’s office. DOH will post on its website a summary of the proposed transaction, an explanation of the groups or individuals likely to be impacted by the transaction, information about services currently provided by the healthcare entity, commitments by the healthcare entity to continue such services, and any services that will be reduced or eliminated.

Finally, healthcare entities must also notify DOH upon the closing of the transaction in a form to be prepared at a later date by DOH.

What Are the Consequences of Non-Compliance With the New Law?

Failure to comply with the notice requirement under the New Law may result in daily fines ranging from $2,000 to $5,000 for as long as the violation continues.

What Impact Will the New Law Have on Healthcare Transactions?

The New Law will impact certain healthcare transactions in New York in a number of ways. For example, the New Law will likely extend the timeline to close a healthcare transaction, require additional resources to prepare the materials for submission, and bring greater regulatory awareness to the healthcare transaction. Significantly, DOH will publicly post a summary of each transaction, resulting in disclosure of transactional information previously unavailable to the public.

Healthcare entities should monitor DOH guidance in the coming weeks and months to understand how and when the filing requirement will be operationalized. Parties to transactions with anticipated closings after August 1, 2023, should begin preparing information and documentation as set forth in the New Law.