On May 3, New York Governor Kathy Hochul signed a law that follows a recent trend in other states that increases scrutiny of deals between physician practices and other practices and management entities.
Effective Aug. 1, new Article 45-A of the New York State Public Health Law requires notice of “material transactions” between “health care entities” be provided to the state’s health department at least 30 days before the transaction’s closing date.
This new law provides increased visibility into New York health-care transactions that fall below the federal Hart-Scott-Rodino threshold for mandatory pre-transaction reporting.
The statute includes physician practices and management service organizations as health-care entities, but excludes insurers and pharmacy benefit managers. A material transaction is defined as any of the following that occur during a single transaction or in a “series of related transactions” within a rolling 12-month period:
- A merger
- An acquisition of one or more health-care entities, including the assignment, sale, or other conveyance of assets, voting securities, membership or partnership interests or the transfer of control, such as contracting for services commonly provided through a management or administrative services agreement between a practice and an MSO
- An affiliation agreement or contract formed between a health-care entity and another person
- 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, pharmacy benefit managers, or health-care providers
- The disclosure requirement also doesn’t apply to any transaction that is already subject to Department of Health review under the DOH’s certificate of need process.
Further, the law carves out certain transactions deemed de minimis. A transaction or a “series of related transactions” is de minimis and is not required to be reported to the DOH if it doesn’t produce an increase in one of the parties’ “total gross in-state revenues” by at least $25 million. The statute is unclear about what constitutes a “related transaction” and how the $25 million will be measured.
In a change to an earlier bill version, the law doesn’t authorize the DOH to approve or disapprove any material transaction. Instead, the DOH must immediately forward any notice it receives to the attorney general’s antitrust, health care, and charities bureaus. The notice of a material transaction to the DOH must include:
- Copies of any definitive agreements that contain the terms of the material transaction
- Identification of all locations where health-care services are currently provided by each party and the revenue generated in those locations
- Any plans to reduce or eliminate services and/or participation in specific plan networks
- A brief description of the nature and purpose of the proposed material transaction, including 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 any commitments by the health-care entity to address anticipated impacts.
On its website, the DOH must post a summary of the transaction, an explanation of who will likely be impacted, information about any services provided by the parties, commitments by the parties to continue to offer those services, information concerning any services that will be reduced or eliminated, and instructions for the submission of comments to the DOH on the transaction.
Failure to notify the DOH of a material transaction within the 30-day timeframe is subject to a civil penalty of up to $2,000 per day.
The new material transaction disclosure law manifests growing wariness in New York executive branch of deal activity by private equity-backed physician practices. The original bill voiced concerns over the effect that the proliferation of large, investor-backed physician practices have on the quality of patient care, health-care costs, and access to services.
Unsurprisingly, there was no mention of the potential benefits of private equity’s involvement in health care, including access to capital to fund novel treatments, improve infrastructure, and rehabilitate crumbling physical plants.
While the legislature chose not to include the governor’s legislative purpose and intent language in the final bill, the original version suggests increased antitrust enforcement activity aimed at private equity health-care transactions is a distinct possibility.
The DOH will issue regulations that should clarify the law’s more ambiguous elements. Given the law’s August 1 effective date, it’s possible the DOH will issue subregulatory guidance to implement the law while rulemaking runs its course. Health-care providers and companies should continue to monitor the developments in DOH regulations and guidance in the coming months.
Scott R. Simpson, counsel in Nixon Peabody’s health-care practice, represents providers, health-care companies, and private equity companies.
Justin D. Pfeiffer, counsel in Nixon Peabody’s health-care practice, assists providers with regulatory compliance and transactional matters.
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