On May, 3, 2023, New York Gov. Kathy Hochul signed into law a requirement for certain healthcare entities to notify the New York State Department of Health (NYSDOH) at least 30 days before closing certain “material transactions.” The notice requirement, which is a change from the original proposal, which required approval by NYSDOH, goes into effect on August 1, 2023. Key considerations include:
- The law considers management services organizations (MSOs) to be health care entities subject to the notice requirement, and therefore could apply to MSO transactions involving private equity sponsors, their portfolio companies, and other corporate transactions.
- Currently only the names of the actual parties to the transaction are required to be disclosed (although additional clarity may be provided during the implementation process).
- Transaction documents are not subject to disclosure under New York’s Freedom of Information Law. Nevertheless, careful planning on the timing of the notice and consideration for submission of redacted documents will be critical.
- NYSDOH will submit the notice and supporting documentation to the Office of the New York Attorney General and will post a summary of the proposed transaction online for public comment.
- NYSDOH states that it will be issuing rules and regulations implementing this notice requirement that shall further develop the submission process. Buyers and other stakeholders should carefully monitor the implementation process for notice and comment opportunities before the August 1, 2023, effective date.
Key Defined Terms
Under the new law, “health care entity” is defined to broadly include, without limitation, “a physician practice, group, or management service organization (MSO) 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 in” the state of New York. Pharmacy benefit managers (PBMs) and insurers authorized to do business in New York are excluded from the definition. Implementing regulations may clarify whether non-medical-doctor practitioners (e.g., dentists, chiropractors) are subject to the law.
“Material transaction” is defined to include
- a merger with a healthcare entity
- an acquisition of one or more healthcare 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 agreement or contract formed between a healthcare entity and another person
- 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 healthcare providers
Certain transactions involving a clinical affiliation of healthcare entities, transactions already subject to the certificate of need or insurance approval process under the New York Public Health or Insurance Laws, and “de minimis” transactions (defined as transactions resulting in a healthcare entity’s increasing its total gross in-state revenues by less than $25 million) are exempt.
Under the new law, buyers of healthcare entities must submit written notice to NYSDOH at least 30 days before closing a proposed transaction. Such notice must include the following:
- the names of the parties to the material transaction and their current addresses
- copies of any definitive agreements governing the terms of the transaction, including pre- and postclosing conditions
- 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 services and/or participation in specific plan networks
- the desired closing date of the proposed transaction
- a brief description of the nature and purpose of the proposed material transaction, including the anticipated impact of the transaction on cost, quality, access, health equity, and competition in the affected markets, and any commitments by the healthcare entity to address anticipated effects
NYSDOH will provide a copy of the notice and supporting materials to the Office of the New York Attorney General. In addition, within 30 days of receipt, NYSDOH will post publicly a summary of the proposed transaction, an explanation of the groups or individuals likely to be affected by the transaction, information about services currently provided by the healthcare entity and any services that will be reduced or eliminated, and details regarding how to submit comments. As noted, transaction documents submitted are not subject to disclosure under New York’s Freedom of Information Law.
Healthcare entities must also notify NYSDOH upon the closing of the material transaction.
Failure to comply with the foregoing requirements could result in civil penalties ranging from $2,000 to $10,000 per day of noncompliance.
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As we noted in a prior alert, this law is part of a broader trend among states toward expanding regulatory oversight of proposed healthcare transactions. To date, at least six states (California, Connecticut, Massachusetts, Nevada, Oregon, and Washington) have enacted laws requiring review and/or notice of certain healthcare transactions by a state authority, and an additional four states (Illinois, Maine, North Carolina, and Minnesota) have proposed such laws. Sidley will continue to closely monitor these state-level developments.
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