New York recently joined a growing number of states enacting legislation that increases oversight of certain healthcare transactions. Article 45-A of the 2024 Executive Budget is titled "Disclosure of Material Transactions" and requires notice to the New York State Department of Health (DOH), both prior to and post-closing of a material health care transaction. Deviating from earlier drafts, Article 45-A does not require DOH approval of the material transaction. However, the pre-transaction and post-closing notice regulations will require a similar analysis from parties engaging in healthcare transactions. Failures to comply with the notice requirements are subject to a civil penalty of up to $2,000 per day. That penalty can increase to up to $5,000 per day for subsequent violations committed within 12 months of the first violation. A very severe violation that "directly results in serious physical harm to any patient" can increase the penalty to up to $10,000 per day.
One of the biggest issues facing parties is the definition of a "material transaction" subject to the notice requirements. A "material transaction" is defined broadly and includes mergers, acquisitions, affiliations, and the formation of partnerships, joint ventures, accountable care organizations, and management services organizations. Transactions not covered by the regulation and therefore not requiring oversight include clinical affiliations of healthcare entities formed during clinical trial collaboration or graduate medical programs and transactions that are subject to the Certificate of Need or insurance entity approval process.
The regulations also establish a "de minimis" floor of total in-state revenue of $25 million in order for the transaction to be considered material and thus subject to the notice requirement. This de minimis floor also applies to transactions involving management services organizations and other entities that provide substantial administrative services to physician practices, provider-sponsored organizations, health insurance plans, and other healthcare facilities. Transactions below this threshold are not subject to the notice requirements. However, there is some ambiguity concerning the de minimis floor, in that the definition does not provide clear guidance on some issues, including the period of time in which the in-state revenue needs to be calculated or even exactly what constitutes "in-state" revenue for the purpose of establishing the floor threshold.
In order to comply with the new requirements, a written pre-closing notice must be submitted to DOH at least 30 days prior to the closing of the proposed transaction. The notice must include basic information on the parties, as well as copies of agreements governing the material transaction. Additionally, the pre-closing notice must include all locations where each party provides services and any plans to reduce or eliminate services or participation in a specific plan network. Parties must also notify DOH following the closing of a transaction, although the statute does not specify a deadline by which this notification is required to be submitted to DOH.
Under 45-A, DOH is required to immediately submit electronic copies of pre-closing notice materials they receive from parties to the attorney general's Antitrust, Health Care, and Charities Bureaus. Additionally, during the 30-day pre-closing period, DOH will publish information to the public, including a summary of the proposed transaction, groups and individuals impacted, and information concerning the services the parties involved provide. The public will have the opportunity to submit comments during this period.
In preparation for compliance with 45-A, parties should anticipate longer transaction timelines to incorporate the pre-closing notice requirement and should bear in mind that simultaneous sign and closing arrangements may no longer be an option for deals that are considered material transactions. Although DOH does not have the power to approve or prevent these transactions, the new level of public scrutiny introduced through the quasi-public comment period created under the notice requirement should also be taken into consideration by parties. Additionally, parties should consider any equity impacts of access to healthcare under the new regulations.
If you have further questions about the material transaction notice process or need assistance interpreting state regulations, please feel free to contact the authors of this alert or your Venable relationship attorney.