To address the NYS Department of Health’s concern over the lack of State regulation over physician practices, management service organizations and other “health care entities,” in the FY 2024 New York State Executive Budget, Governor Kathy Hochul proposed the addition of Article 45-A to the New York Public Health Law. Article 45-A would authorize the Department of Health (the “Department”) to review and approve material transactions of health care entities in which a change of control occurs. The stated goal of this proposed legislation is to increase access to health services and combat health care cost inflation and the lack of oversight of ambulatory care facilities not currently subject to the high level of oversight and scrutiny of hospitals and diagnostic treatment centers under 2014 New York Laws PBH – Public Health Article 28 .
- Health Care Entity: includes physician practices, management services organizations and similar entities, and health insurance plans. The definition provided in the legislation also includes “any other kind of health care facility, organization or plan providing health care services” in New York but specifically excludes Pharmacy Benefit Managers.2
- Material Transactions: include merger(s) with health care entities, an acquisition of a health care entity (including an assignment, sale or other transfer or conveyance), a contract between a health care entity, and the formation of a partnership, joint venture or management services organization for the purposes of administering contracts. The definition excludes health care entities formed for the purpose of engaging in clinical trials and other graduate medical programs.
Under the proposed legislation, if adopted, a health care entity would be prohibited from engaging in any “material transaction” without first obtaining the approval of the Department. Health care entities wishing to engage in covered transactions would first be required to submit a notice and an application requesting the approval of such transaction(s) at least 30 days before the desired date of closing of such covered transaction. If passed, the Department would be charged with adopting regulations and criteria applicable to the review such applications.
Under the proposed legislation, at a minimum, the criteria would include the following factors:
- Whether the proposed transaction’s positive impact would outweigh the potential negative impact based on: (i) patient costs, (2) access to services, (3) health equity, and (4) patient health outcomes;
- Whether the likelihood of the post-transaction healthcare entity(ies) could have anticompetitive effects that outweigh the benefits of the transaction; positive factors considered include increasing or maintaining services to underserved populations; the converse is true on the negative factor side in assessing the transaction;
- The financial condition of the parties to the transactions both prior to and after giving effect to a proposed transaction;
- The character and competence of the parties to the transaction, including any officers and directors of the health care entity; and
- Source of funds for the transaction (also going to the financial viability of the post-closing entity).
After submission of necessary documentation as well as an application to the Department, the Department would notify the parties to the transaction of its decision as to the transaction or request more information in order to further assess its determination. The proposed law requires that this determination be made within 30 days of the parties’ receipt of the application. If the Department does not take any action with respect to the application within 30 days, then as proposed, the transaction would be deemed approved. However, the Department may extend that period if it requires additional time and information in which to make its determination, as noted above.
Review Process and Required Documentation
Along with the application, health care entities would be required to submit the following documentation in the form and manner prescribed by the Department in its regulations:
- The names and address of the parties to the requested transactions;
- Documents governing the transaction(s);
- The location where each party provides its respective health care services and revenue generated within New York State;
- Any plans to reduce or eliminate healthcare services in specific health plan networks;
- The desired closing date of the proposed transaction;
- A brief description of the proposed transaction’s nature and purpose;
- A statement by the parties’ as to the expected impact of the proposed transaction on the combined entity’s cost, quality, access, health equity and competition in impacted markets (this can be supported by data and a formal impact analysis); and
- A non-refundable application fee in an amount to be established by the Department.
If throughout the review process the Department requests more documentation from a party to the proposed transaction, the health care entity would be required to promptly reply. A party cannot refuse to provide documentation on the grounds of privilege or confidentiality. Additionally, before making a final determination on the proposed transaction, the Department would be permitted to request public hearings on that proposed transaction. The legislation also grants the Department the authority to require certain undertakings, such as investments in the communities that would be affected by the proposed transactions, as a condition of approval of a proposed transaction.
As proposed, noncompliance with these proposed laws and regulations would result in the Department imposing a civil penalty of up to $10,000 dollars per day of non-compliance with the proposed requirements. All fees and fines paid to the Department would be deposited into the NY State health care transformation fund. The Department may also refer the transaction to the NYS Attorney General, who may apply for an injunction or restraining order for an alleged violation of the proposed Article in the Supreme Court of the judicial district in which the alleged violation occurred.
If passed, this law would apply to transactions closing on or after April 1, 2024.
Analysis and Takeaways
Entities such as management services organizations that have previously enjoyed freely entering into business relationships without regulatory scrutiny will no longer enjoy that luxury. This will increase costs and delay transaction times. We advise parties who are looking to enter into transactions potentially covered by these laws complete such transactions prior to the effective date of April 1, 2024.
1- The author, Barry A. Posner, thanks Lorena Niyazov for her contributions to this Article.
2- The current proposed legislation does not address whether certain entities, such as pharmacies, will be included in this definition. Further clarification of the definition will likely be made in the final version of the law and/or regulations, if enacted.