NY Department of Health Provides Guidance Regarding Material Transactions Law
New York and several other states enacted legislation that requires review of certain transactions, especially those concerning health care entities. Stevens & Lee previously discussed the New York law (Material Transactions Law) when it was enacted in 2023.
Under the Material Transactions Law, certain health care entities involved in a transaction that increases gross, in-state revenue to at least $25 million must provide written notice of the transaction to the New York State Department of Health (NYSDOH) at least 30 days prior to closing. In response to a multitude of questions related to the Material Transactions Law requirements and statutory interpretation, NYSDOH provided guidance to health care entities that may need to report a transaction in the form of Frequently Asked Questions.
NYSDOH provided a list of entities considered “health care entities” including:
- Physician groups and practices
- Dental practices
- Clinical laboratories
- Pharmacies
- Independent practice associations
- Accountable care organizations
Interestingly, NYSDOH also considers health insurance plans and management services organizations that provide all or substantially all of the administrative or management services pursuant to a contract with a physician practice to also be “health care entities.” This likely includes arrangements between physician practices and management services organizations favored by private equity and other strategic investors.
NYSDOH also clarified that the Material Transactions Law could apply to a health care entity located outside of New York state if the proposed transaction(s) meets the $25 million threshold of increased gross revenue in New York state. The $25 million increase can result either from a single transaction or a series of transactions occurring throughout a 12-month period. NYSDOH acknowledged that certain transactions are exempt from the Material Transactions Law reporting requirements, including:
- Clinical affiliations whose purposes are clinical trials or graduate medical education
- Any portion of a transaction subject to New York’s Certificate of Need requirements (NYSDOH notes that any portion of a transaction that (a) is not subject to Certificate of Need requirements and (b) meets the $25 million threshold, still needs to be reported)
- Transactions that do not meet the $25 million resulting revenue threshold
NYSDOH provided further clarity as to the means through which a health care entity could potentially increase its gross in-state revenue by $25 million for purposes of the Material Transactions Law. For example, if Company B acquires Company A and Company B is the surviving entity, and Company A produced at least $25 million in gross in-state revenue during the previous 12 months, then Company B’s revenue would increase by at least $25 million as a result of the transaction and, therefore, the transaction must be reported. Similarly, if Company A and Company B merge and form a new entity, both Company A and Company B should review their gross in-state revenue for the past 12 months to determine if their combined gross revenue would exceed $25 million and determine reporting requirements accordingly.
When determining the impact on cost, quality, access, health equity and competition for reporting purposes, NYSDOH recommends that health care entities consider, among others, the following factors:
- Elimination, reduction, addition or expansion of services
- Addition or elimination of contracts with insurance carriers
- Effects on existing locations, such as opening or closing facilities, or expansion or reduction of services
- Health care staffing changes
- Commercial payor rate changes
- Changes in services provided to historically underserved populations
- Market consolidation implications
More information outside of the FAQ is available at the New York Department of Health Material Transactions Website and in the Material Transactions Law itself.
