Practical Considerations of New NJ/NY Health Care Transaction Requirements
Recently, the Health Law Observer highlighted both implemented and proposed changes in requirements applicable to certain health care transactions in New Jersey and New York, respectively. Given the impact in both jurisdictions (presuming that the proposal in New York becomes law, in some form), the parties to a covered transaction would be well-advised to consider the practical implications of their proposed deal and to develop strategies to predict and avoid pitfalls, in addition to assuring compliance with legal requirements.
The below list, while not exhaustive, highlights a few key matters that parties may wish to consider before agreeing to terms:
Both the implemented New Jersey requirements and the proposed New York State Department of Health (“NYSDOH”) approval process provide for a measure of pre-closing notice of the impending transaction, which could cause unease among the workforce.
For instance, in New Jersey, N.J. Stat. Ann. § 34:11-4.15 1. a. (which is a part of what I will term “NJ Section 34”) requires the soon-to-be former employer to post, in a conspicuous location, its employees’ rights pursuant to NJ Section 34. Similarly, the New York proposal (the “NY Proposal”) at Sections 4550-4557 provides, inter alia, that the NYSDOH will post a public notice of a request for approval of a “Material Transaction” and allow an opportunity for public comment.
Disclosure of a pending transaction can potentially create concern among the workforce at affected facilities and result in attrition among employees. The parties to a proposed transaction should consider the potential impacts of employee departures and whether the surviving entity will have sufficient staffing levels for operations should there be losses in the workforce. To mitigate potential attrition, the parties should consider how best to present the transaction to the workforce (discussed further below) even before notice of a transaction is issued.
Oftentimes, repurposing facilities or shifting services to different locations are major considerations in health care transactions. However, the developments in both New Jersey and New York require the transaction parties to consider the impacts of changes in locations of services or repurposing of facilities.
Pursuant to NJ Section 34, all covered employees are to be offered continued employment after the statutory “transition period,” provided that such employees demonstrate sufficient performance during the transition period. Accordingly, an acquiring entity that contemplates repurposing facilities or relocating services after closing a transaction should develop a strategy for providing continued employment in compliance with NJ Section 34. This may require proposed post-closing plans to be modified in some fashion.
In New York, applications for the NYSDOH’s review and approval of Material Transactions require the parties to disclose the locations where health care services are provided by both parties to the transaction, as well as any intentions to reduce services. These items implicate the NYSDOH’s review of the Material Transaction in that the NYSDOH is required to consider whether the potential positive impacts of the Material Transaction outweigh potential negative impacts, including effects on access to services. A Material Transaction that contemplates post-closing reductions or relocations of services may face increased scrutiny by the NYSDOH.
Parties to a transaction often accrue tremendous benefits following a deal closing, whether through improved service offerings, synergistic savings, or revitalized facilities; however, regulators, employees, and patients are often more skeptical as to potential outcomes. For this reason, the parties should evaluate their respective messaging concerning the deal on various fronts. For example, in New York the parties should prepare to present the NYSDOH with information and data concerning the various positive outcomes that can result from the transaction, specifically including avenues through which patient costs may be reduced and access to services, “Health Equity,” and health outcomes will be enhanced. Moreover, in both New Jersey and New York the parties to a transaction should consider how best to position the transaction when presenting it to employees. Open communication can prove to be a valuable tool in limiting employee concerns and attrition during the pendency of a transaction and after closing. Lastly, the parties should coordinate to determine the timing and substance of the notice to affected patients.
While the evolving environment of health care transactions in both New York and New Jersey generates much (well-deserved) focus concerning legal compliance requirements, parties and counsel alike should be mindful of the practical considerations that arise as a consequence of actions taken to fulfill new statutory and regulatory requirements. Although the items discussed above are only a snapshot of the numerous considerations that go into creating a plan to execute a deal, they constitute a few of the most material issues that parties should evaluate and address during the deal lifecycle.
 Please note that this blog entry contains general commentary on considerations relating to legal developments in New Jersey and New York, and is not intended to constitute particularized legal advice regarding any subject matter, including, but not limited to, necessary steps to close a transaction in New Jersey or New York which may include, by way of example, WARN Act notices, Attorney General Reviews and/or Approvals, and other common regulatory requirements in transactions.