On May 3, 2023, New York Governor Kathy Hochul signed into law an amendment (the “Amendment”) to the New York Public Health Law, effective on or about August 1, 2023, that will require certain Healthcare Entities to provide the New York State Department of Health (“NYSDOH”) with written notice and supporting documentation of certain “Material Transactions” at least 30 days before closing. Copies of the written notice will be provided by the NYSDOH to various bureaus of the Office of the New York Attorney General, and a summary of the proposed transaction will be posted on the NYSDOH website for public comment. The Amendment was enacted as a measure in response to private equity investment in health care and to address a perceived lack of oversight and regulation of private investment in Healthcare Entities.
As originally proposed, the legislation, which was announced February 1, 2023, gave the NYSDOH broad authority to both review and approve Material Transactions, and allowed NYSDOH to define Material Transactions, which was discussed at length in a previous Health Law Observer blog post. The enacted Amendment removes the NYSDOH’s authority to approve transactions and further excludes certain transactions from its review.
Under the enacted Amendment, the law now defines “Material Transactions” as any of the following:
- 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 interests, or the transfer of control;
- An affiliation agreement or contract formed between a Healthcare Entity and another person; or
- 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 as prescribed by the commissioner of health of the State of New York by regulation.
The law excludes the following types of transactions from its review:
- “De minimis” transactions (i.e., those transactions that result in a Healthcare Entity increasing its total, gross in-state revenues by less than $25 million);
- Clinical affiliations of Healthcare Entities formed with the intent to facilitate collaboration between the entities (e.g. collaboration on clinical trials); and
- Transactions already subject to the Certificate of Need (“CON”) process or an insurance entity approval process under the New York Public Health or Insurance Laws.
- Includes: hospitals, diagnostic and treatment centers, and ambulatory surgery centers under Article 28; emergency medical services under Article 30; home care under Article 36; hospices under Article 40; health maintenance organizations under Article 44; and continuing care retirement communities and assisted living under Articles 46, 46-A, and 46-B of the New York Public Health Law.
While the NYSDOH will promulgate regulations to further govern the notice and review process, the Amendment specifies that all written notices must contain all of the following information:
- Name and address of the parties to the transaction;
- Copies of the definitive agreements governing the terms and conditions of the Material Transaction, including pre- and post-closing conditions;
- Locations impacted by the transaction(s);
- Plans to reduce or eliminate services and/or health plan participation;
- Anticipated closing date; and
- Description of the purpose of the transaction, including anticipated impacts on cost, quality, and access in impacted markets.
Healthcare Entities undertaking Material Transactions should keep this newly enacted Amendment in mind before finalizing a Material Transaction, as the NYSDOH may impose a civil penalty of $2,000 for each day that a Material Transaction is not compliant with the Amendment’s requirements. The penalty may be increased up to $5,000 for subsequent violations that pose serious threats to the health and safety of individuals. A more comprehensive discussion of considerations for Healthcare Entities considering a Material Transaction was the subject of a previous Health Law Observer’s blog post.
While the enacted Amendment contains only part of what Governor Hochul initially proposed, its passage indicates New York State legislators’ willingness to join a growing list of states in their efforts to enact new review processes of Material Transactions and to impose disclosure requirements on entities that were not previously captured under New York’s regulatory regime. By requiring the public posting of transaction summaries and other transaction information online and inviting public comment, the new law will cause increased scrutiny of proposed health care transactions, especially those not previously reported under any other state regulatory regime.
 The Amendment defines “Healthcare Entities” to include a physician practice, group or management services organization or similar entity providing all or substantially of the administrative or management services under contract with one or more physician practices, provider-sponsored organization, health insurance plan or any other kind of health care facility, organization or plan providing health care services in New York, excluding authorized or licensed New York insurers and pharmacy benefit managers.