May 17, 2023

New York Enacts Requirement for Healthcare Entities to Provide Notice of “Material Transactions”

On May 3, 2022, the New York Legislature passed legislation to regulate certain “material transactions” involving healthcare providers and others who provide administrative or management services to other healthcare providers. The requirement is effective August 1, 2023. As discussed in a prior Goodwin client alert, New York had proposed a far more cumbersome requirement for notice and approval of material healthcare transactions. In a welcome development for many healthcare providers and investors, the proposed legislation was scaled back significantly.

The new law requires any “healthcare entity” that will be involved in a “material transaction” closing on or after August 1, 2023, to notify the New York State Department of Health (DOH) of the anticipated material transaction at least 30 days prior to the closing and provide certain additional information. Healthcare entities are defined to include physician practices, groups, or management service organizations (MSOs) providing all or substantially all administrative or management services to one or more physician practices, provider-sponsored organizations, health insurance plans, or other entities providing healthcare services. Healthcare entities who fail to provide the required notice 30 days prior to the closing of a material transaction could be fined up to $2,000 per day.

To be a “material transaction,” the transaction or a series of related transactions must result in a healthcare entity’s “increasing its total gross in-state revenues” by at least $25 million. Regardless of whether this threshold is exceeded, material transactions do not include collaborations related to clinical trials or graduate medical education programs and transactions already subject to review under the Public Health Law, and thus such transactions are not subject to the notice requirement. The statute otherwise broadly defines “material transaction,” which, pending narrowing in any regulations, includes any “affiliation or contract formed between a health care entity and another person.” Material transactions also include a merger with a healthcare entity; an acquisition of one or more healthcare entities, including a sale of assets, voting securities, or transfer of control; or the formation of a partnership, joint venture, accountable care organization, parent organization, or MSO for the purpose of administering contracts with health plans, third-party administrators, pharmaceutical benefit managers, or healthcare providers.

The notice must include (a) the names and current addresses of the parties to the material transaction; (b) copies of any definitive agreements, including pre- and post-closing conditions; (c) identification of all locations in New York where healthcare services are currently provided by each party and the amount of associated revenues; (d) any plans to reduce or eliminate services and/or participation in specific plan networks; (e) the closing date; (f) a brief description of the nature and purpose of the proposed material transaction, including: (i) 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 (ii) any commitments by the healthcare entity to address anticipated impacts.

Upon receiving the notice, DOH is required to submit the notice and supporting documentation to the New York Attorney General’s bureaus of antitrust, health care, and charities. During the 30 days between delivery of the notice and the closing, the Department of Heath must post on its website (a) a summary of the proposed transaction; (b) an explanation of the group or individuals likely to be impacted by the transaction; (c) 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; and (d) details about how to submit comments, in a format that is easy to find and easy to read. Beyond the information published on the website, the information submitted to the Department is not subject to disclosure or requests pursuant to the New York Freedom of Information Law.

The adoption of the New York law follows a trend in states such as California, Connecticut, Massachusetts, Nevada, Oregon, and Washington imposing requirements for notice and, in some cases, approval of certain healthcare transactions. As discussed in a recent Goodwin client alert, other states such as Maine are currently considering adopting requirements for notice and/or approval of healthcare transactions.