The proposed FY 2024 New York State Executive Budget announced by Governor Kathy Hochul on February 1, 2023, includes a new requirement to seek approval from the New York Department of Health (DOH) for acquisitions and certain other transactions involving “health care entities.” The legislative purpose section of the New York bill cites a “proliferation of large physician practices being managed by entities that are investor-backed,” which allegedly “may have a negative impact on patient care, health care costs, and ultimately access to services.” If passed, the bill would have a significant impact on physician practices, private equity sponsors and other investor-backed entities, and could also have a major impact on others operating or investing in the healthcare sector in New York.

Covered Transactions

The bill would give DOH authority to review and approve “material transactions” involving any “health care entity.” The bill provides that “health care entity” shall include “but not be limited to” physician practices and management services organizations (MSOs) that provide comprehensive management services to physician practices. DOH would have authority to issue regulations to include other types of entities within the definition.

The bill’s definition of “material transaction” broadly includes:

• a merger with a health care entity;
• acquisition of one or more health care entities (including by sale of assets, sale of equity, or “the transfer of control”);
• an “affiliation or contract formed between a health care entity and another person;” and
• 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 health care providers.”

The bill permits DOH to establish a dollar threshold for determining materiality.

DOH Review Process

The bill would require a covered health care entity to submit an application to DOH at least 30 days in advance of any such material transaction. The application would be subject to public disclosure and must include, among other things:

• copies of any definitive agreements;
• identification of all service locations of each party and the revenue generated from such locations;
• any plans to reduce or eliminate services or participation in specific plan networks; and
• the anticipated impact on cost, quality, access, health equity, and competition, which “may be supported by data and a formal market impact analysis” and any commitments to address anticipated impacts.

DOH would be required to issue a public notice of the transaction and accept public comments. The bill outlines several factors that DOH may consider in reviewing the application, including:

• the net impact on patient costs, access to services, health equity, and health outcomes;
• potential anticompetitive effects;
• the financial condition of the parties;
• the character and competence of the parties or their officers and directors;
• sources of funding or assets for the transaction; and
• the fairness of any exchange of consideration.

If DOH does not take any action within 30 days after the filing, then the transaction would be deemed approved. However, DOH may notify the parties during the 30-day period that it is withholding approval in order to conduct a “thorough examination,” which can include requesting additional information. The bill does not prescribe a deadline for DOH to make a final decision if it withholds approval, meaning the parties could face indefinite delays.

The bill would also give DOH authority to require undertakings as a condition of approval. Required undertaking can include, among other things, community investments, competition protections, and contributions to state-controlled funds.

Discussion

The New York bill is similar to legislation recently passed in other states. Last summer, California Governor Gavin Newsom signed SB 184 into law, which established a new Office of Health Care Affordability (OHCA) and will require hospitals, ambulatory surgery centers, clinics, imaging centers, certain physician practices, and others to notify OHCA at least 90 days prior to closing and undergo a review process beginning in 2024. Washington and Oregon have also passed similar laws in recent years.

For a copy of the proposed FY2024 New York State Executive Budget, please click here.