New York Passes New Healthcare Transaction Notice Requirements

New York State recently passed its budget for 2023-2024. In doing so, it amended the state Public Health Law (NYPHL) and created new notification requirements for healthcare entity-related transactions. Several other states, including Massachusetts, Connecticut, and California, already have such requirements in place. The purpose of the amendment is to ensure that investor-backed entities, a growing phenomenon in healthcare, are subject to the same regulations to which the state subjects other hospital systems and similar entities.
Per the new chapter 45-A of the NYPHL, “Transactions involving the change of control, by virtue of a sale, merger or acquisition of these providers, are not subject to any state change of ownership or control review, such that the state is not able to track or monitor the impact of these transactions on cost, quality, access, equity, and competition…A health care entity shall not consummate a material transaction without obtaining approval from the department for such material transaction.”
Beginning August 1, 2023, certain healthcare-related entities will have to disclose “material transactions” to the NYS Department of Health (DOH) at least 30 days prior to such transaction’s closing. In the coming months, the DOH will provide more clarity and information regarding the requirements, but the state budget outlined the initial requirements, explained in more detail below.

What types of transactions qualify as “material”?
 The amendment defines “material transaction” in relation to a health care entity as:

1. a merger with a health care entity;
2. 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;
3. an affiliation or contract formed between a health care entity and another person; or
4. 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 as prescribed by the commissioner by regulation.

How do I know whether I have to disclose my transaction?
While your transaction might involve one of the above situations, certain entities are exempt from the disclosure requirements. The amendment specifies that a material transaction does not include:

1. Clinical affiliations of health care entities formed for the purpose of collaborating on clinical trials;
2. Graduate medical education programs;
3. Any transaction that is already subject to review under article 28, 30, 36, 40, 46, 46-A, or 46-B of the NYPHL; or
4. “de minimis transactions”, meaning any transaction(s) that will/are likely to result in a healthcare entity increasing its total gross in-state revenue by less than $25 million.

If I have to disclose a transaction to the DOH, what do I need to provide?
The DOH will provide more guidance in the months to come, but the state has created a short list for the time being to prepare entities and their counsel for the changes in the future. Entities will need to provide written notice and an application to the DOH, along with a non-refundable application fee, no less than 30 days before the transaction’s proposed closing date.
Such written notice shall include, but not be limited to:

1. The names of the parties to the proposed material transaction and their current addresses;
2. Copies of any definitive agreements governing the terms of the material transaction, including pre- and post-closing conditions;
3.  Identification of all locations where health care services are currently provided by each party and the revenue generated in the state from such locations;
4.  Any plans to reduce or eliminate services and/or participation in specific plan networks;
5.  The desired closing date of the proposed material transaction;
6. A brief description of the nature and purpose of the proposed material transaction, including:
   1.  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
   2. any commitments by the health care entity to address anticipated impacts.
      
      

How will I know if the transaction has been approved?
The DOH will examine the information provided and post certain excerpts to the DOH website for the public to comment on. The DOH will share a copy of the notice and supporting documentation with the antitrust, healthcare, and charities bureaus of the Office of the New York State Attorney General, depending on the entity in question.
If the DOH does find an issue with the transaction, it will, within 30 days of the entity’s submission, “notify the parties to the transaction …that it is withholding approval of the transaction if necessary to conduct a thorough examination and complete analysis of whether the transaction is consistent with the [established criteria].”
The DOH may approve the transaction with conditions, and shall do so by issuing a “final order.” The DOH may also notify the Attorney General’s office that an investigation “into whether the health care entities have engaged in unfair competition or anticompetitive behavior” is warranted.

The transaction “shall be deemed approved” if the DOH does not reach out to the parties regarding the transaction’s approval or disproval within 30 days of submission.

Parties must also notify the DOH when the transaction has officially closed.
Failure to disclose a material transaction could lead to a fine of $2,000 per day.
The budget in its entirety can be found here.

These changes will greatly impact the future of transactional law in the healthcare field; contact the attorneys at Crush & Varma to guide you through this changing process.