On May 3, 2023, New York joined Connecticut, Delaware, Massachusetts, Nevada, New Jersey, Oregon, Rhode Island, Washington, and California in enacting legislation that increases oversight over certain health care transactions. Governor Kathy Hochul signed the Fiscal Year 2024 New York State Executive Budget (FY 24 Executive Budget) into law which enacted the final version of Article 45-A of the New York Public Health Law (PHL) titled “Disclosure of Material Transactions.”
Final Article 45-A
As enacted, Article 45-A contains a few notable differences from the version that was initially proposed in the FY 24 Executive Budget and covered in our previous blog post. Among the differences, Article 45-A requires notice to the New York State Department of Health (DOH) in advance of a material transaction and another notice to DOH following the closing. Article 45-A does not require DOH’s approval of the material transaction. Elimination of the pre-closing approval requirement is significant in that it takes away the uncertainty that parties would have faced if they were subject to DOH’s approval. Nevertheless, the pre-closing and post-closing notice requirements still raise many of the same issues as the initially proposed law. As such, parties engaging in health care transactions subject to Article 45-A now have additional considerations to grapple with when engaging in transactions in New York.
Material Transactions Subject to Article 45-A
PHL § 4551’s definition of “material transaction” is identical to the definition that was initially proposed in the FY 24 Executive Budget. A transaction will be considered material if any of the below occur, whether in a single transaction or through a series of related transactions, that meet or exceed certain thresholds (to be specified in future DOH regulations):
- a merger with a health care entity;
- an acquisition of one or more health care entities, including, but not limited to, the assignment, sale, or other conveyance of assets, voting securities, membership, or partnership interest or the transfer of control (which is presumed if any person, directly or indirectly, owns, controls, or holds with the power to vote, 10% or more of the voting securities of a health care entity);
- an affiliation or contract formed between a health care entity and another person; or
- the formation of a partnership, joint venture, accountable care organization, parent organization, or management service organization for the purpose of administering contracts with health plans, third-party administrators, pharmacy benefit managers, or health care providers.
Under the enacted law, the following transactions still are not included in the definition of “material transaction” and do not require notice: (1) clinical affiliations of health care entities that are formed for clinical trial collaboration or graduate medical education programs; or (2) transactions subject to the Certificate of Need or the insurance entity approval processes. Notably, the law as enacted includes an additional category of excluded transactions defined as “de minimis” transactions, which do not require notice. A “de minimis transaction” is a transaction or a series of related transactions that result in a health care entity increasing its total gross in-state revenues by less than twenty-five million dollars.
With respect to the thresholds that cause a transaction to fall within the definition of “material transaction,” PHL § 4550 states only “…factors including but not limited to changes in revenues.” Though the definition sheds light on the types of transactions that could be material, it does not provide insight as to what, beyond revenues, materiality factors could comprise. The “de minimis transaction” definition is also vague in that it does not provide clear guidance on factors such as the period of time during which the increase in total gross in-state revenues should be calculated (e.g., a specified time following closing, on an annual basis, etc.) or how “in-state revenues” are determined.
Pre-Closing Notification Requirements
DOH is tasked with adopting a process for disclosure and notice of “material transactions” and regulations defining the supporting documentation that parties are required to submit. A written pre-closing notice must be submitted to DOH at least 30 days prior to the closing of the proposed transaction, and such notice must include:
- the names of the parties to the transaction and their current addresses;
- copies of any definitive agreements governing the terms of the material transaction, including pre- and post-closing conditions;
- identification of all locations where each party provides health care services and the revenue generated in the state from such locations;
- any plans to reduce or eliminate services and/or participation in specific plan networks;
- the closing date of the transaction;
- a brief description of the nature and purpose of the proposed transaction;
- the anticipated impact of the material transaction on cost, quality, access, health equity, and competition in the markets the transaction will impact, which may be supported by data and a formal market impact analysis; and
- any commitments by the health care entity to address anticipated impacts.
Upon receipt of the above notice materials, DOH is required to immediately submit electronic copies of them to the Attorney General’s Antitrust, Health Care, and Charities Bureaus. In the proposed law, the Attorney General did not automatically receive copies of the notice. Rather, the DOH was permitted, but not required, to notify the Attorney General if the DOH’s analysis of the proposed material transaction raised concerns of unfair competition or anti-competitive behavior. The enacted law signifies a joint effort between DOH and the Attorney General to oversee these transactions and promote a public consciousness of their occurrence.
Public Notice of Transaction on DOH Website
In addition to the disclosure to the Attorney General, during the 30-day pre-closing period, DOH will publish the following information on its website related to the proposed transaction:
- a summary of the proposed transaction;
- an explanation of the groups or individuals impacted by the transaction;
- information regarding the services currently provided by the health care entity and any commitments such entity has made to continue such services; and
- details on how to submit comments regarding the proposed transaction.
Though DOH is not empowered to approve or disapprove the transaction, the public postings of the transaction summaries on DOH’s website, as well as the ability to submit comments, could enable the general public to form and voice its opinions on the transaction. If this were to occur, the Attorney General could lean into the public attitude toward the transaction especially if there are concerns that parties have or may engage in unfair competition or anti-competitive behaviors. This could prompt the Attorney General to undertake further investigation into these health care entities.
Post-Closing Notification to the Department of Health
In addition to the 30-day advance notice, parties must notify the Department of Health following the closing of the transaction. DOH will determine the form of the post-closing through regulations it will develop. The statute does not specify the deadline that health care entities must provide post-closing notification to DOH.
Consequences for Non-Compliance
Health care entities that fail to notify DOH of a material transaction will be subject to civil penalty for each day in which a violation still occurs. The penalties were initially set at $10,000 fine per day. The enacted law incorporates the violations and penalties provisions of N.Y. Pub. Health Law § 12. Rather than a fine of $10,000 per day, the parties will be liable for a daily civil penalty of up to $2,000 per day. The amount of the civil penalty can increase up to $5,000 per day for subsequent violations if those violations occur within 12 months of the first violation and the violation constitutes “a serious threat to the health and safety of an individual or individuals.” Finally, the penalty could increase to $10,000 per day if the violation “directly results in serious physical harm to any patient or patients.”
As emphasized in our previous post, the Article 45-A notice requirements offer useful considerations that the parties should be thinking about when developing transaction structures, analyses, and agreements. Parties should plan for lengthier transaction timelines, to account for the pre-closing notice requirement, and understand that simultaneous sign and close may no longer be an option for material transactions. Parties should also bear in mind that the information about their transactions, agreements and related documentation will become visible to the public. Finally, given the law’s emphasis on increasing health care equity, parties should consider factors that impact cost and availability of health care services when undertaking a potential transaction.