Group medical practices in Connecticut and New York that are contemplating acquisitions, mergers or other significant transactions with third parties should pay close attention to new legal developments in these states. Regulatory authorities in both jurisdictions have recently taken steps to track these transactions more closely and appear to be adapting to consolidation across the health care landscape by monitoring group practice activities in ways that in the past were mainly reserved for licensed facilities instead of groups of individually licensed practitioners.

Read on for a more detailed look at the Connecticut and New York initiatives and how they might impact your practice in each of the respective states.

Connecticut Reminds Physician Groups to Consider CON Law

In Connecticut, large group practices (fewer than eight  full time equivalent physicians would not be a large group)[1] are required to file a certificate of need (CON) in connection with  “[a] transfer of ownership to any entity other than a (A) physician, or (B) group of two or more physicians, legally organized in a partnership, professional corporation or limited liability company formed to render professional services and not employed by or an affiliate of any hospital, medical foundation, insurance company or other similar entity” (CGS §19a-638(a)(3)).  

Last week, the Office of Health Strategy (OHS) took the unusual step of sending a letter to physician practices in the state reminding them that a “transfer of ownership[2]” involving a large group practice requires a CON, unless the practice meets one of the statutory exceptions. Although the 2023 legislative session in Connecticut did not result in a change of law in this area, the OHS letter states that it “has been watching the national trend of independent physician group practices merging with other practices or being acquired by larger entities such as private equity groups.” Concerned that group practices contemplating a transfer of ownership, merger or acquisition may violate the state’s CON law, the letter directs them to file a CON determination if they are unsure if they need to submit a CON application, and warns them that they face civil penalties of up to $1,000/day for each day of noncompliance with the CON law.

While OHS notes in the letter that it has not seen any merger or acquisition transactions come through the CON process, it has initiated its own investigation  into a transaction involving a large group practice this past March. In that inquiry, OHS sent a letter to Starling Physicians, PLLC, questioning why it had not filed an application for a CON or a CON determination in connection with a transaction with VillageMD, an affiliate of Walgreens (Docket No. 23-32628-INQ). Starling responded that it transferred ownership of the group practice to a single physician, meeting the exception under CGS §19a-638(a)(3)(A), and that it had transferred its non-clinical assets to a business support company. For these reasons, it argued that no CON was required. As of the date of this blog, the OHS’ website does not indicate any further developments in this inquiry.

Group practices in Connecticut considering transactions that might trigger CON review in Connecticut should also be aware that, effective October 1, 2023, the Connecticut CON law is amended (PA 23-171) to give OHS the authority to issue a cease and desist order if it has received information and has a reasonable belief that any person, health care facility or institution has violated or is violating the CON law (or any other statutes, or regulations or orders, of the Health Systems Planning Unit, the body that administers the Connecticut CON program (HSPU)).

Under the new law, OHS must first provide notice to the alleged violator which must include, among other things, a statement that the alleged violator may request a hearing not later than 10 business days after receipt of the notice. If the alleged violator fails to make a timely request for a hearing, OHS must issue a cease and desist order. If, following a hearing, HSPU determines that a violation has occurred, it must issue a cease and desist order that is considered a final decision subject to appeal to the Superior Court. Such cease and desist order may be enforced by the Attorney General.

New York Enacts Law Requiring Notification of Certain Transactions Involving Health Care Entities

In bordering New York, a new law that becomes effective August 1, 2023 requires “health care entities” to  notify the state Department of Health (DOH) at least 30 days prior to the effective date of certain “material transactions” involving health care entities (Article 45-A of the Public Health Law). The new law requires notification only. There is no provision allowing DOH to approve or reject a material transaction.

The new law defines the term “health care entity” broadly, as it includes not only a physician practice, but also a group or management services organization, or similar entity providing all or substantially all of the administrative or management services under contract with one or more physician practices, provider-sponsored organization, health insurance plan, or any other kind of health care facility, organization or plan providing health care services in New York.[3]

“Material transactions” are events that occur during a single transaction or in a series of related transactions that take place within a rolling 12-month time period and “meet or exceed thresholds, for factors including but not limited to changes in revenue.” A “material transaction” is broadly defined to include, but is not limited to: a merger with a health care entity; an acquisition of one or more health care entities; an affiliation agreement formed between a health care entity and another person; or the formation of a management services organization for the purpose of administering contracts with health care providers.[4] We note that the verbiage used to describe MSOs and their relationship to health care entities in the New York law is almost identical to a similar provision in Massachusetts, where for the past decade providers and provider organizations have had to submit notices to the Massachusetts Health Policy Commission not fewer than 60 days before the proposed effective date of any proposed “material change.” (M.G.L. c.6D, §13 and 958 CMR 7.00).

Key provisions of the new law include the following:

• A health care entity must submit to DOH written notice, with supporting documentation, at least 30 days before the closing date of a material transaction. Immediately upon submission to DOH, DOH must submit electronic copies of the notice with supporting documentation to the antitrust, health care and charities bureaus of the New York attorney general.
• The required elements of the notice to DOH are extensive, including the names of the parties to the material transaction; copies of any definitive agreements governing the terms of the material transaction; any plans to reduce or eliminate services and/or participation in specific plan networks; and a description of the nature and purpose of the proposed material transaction. This latter requirement includes information concerning the anticipated impact of the material transaction on cost, quality, access, health equity and competition in the impacted markets.
• During the 30-day period prior to the closing date of the material transaction, DOH must post on its website a summary of the proposed transaction; an explanation of the groups or individuals likely to be impacted by the transaction; information about services currently provided by the health care entity, commitments by the health care entity to continue such services and any services that will be reduced or eliminated; and details about how to submit comments, in a format that is easy to find and easy to read.
• A health care entity that is a party to a material transaction must also notify DOH upon closing of the transaction.
• There are civil penalties for failing to comply with the new notification requirements.

A Final Word

These recent developments in Connecticut and New York make clear that experienced counsel and other advisors should be consulted early in the transaction planning process to achieve the parties’ business and patient care goals while also ensuring that any applicable notifications to state agencies are made within the statutory time limits.

[1] The full definition of “large group practice” can be found at CGS §19a-630(9).

[2] The definition of “transfer of ownership” can be found at CGS §19a-630(16).

[3] The full definition of “health care entity” can be found at N.Y. Public Health Law, §4550(2) (2023).

[4] The full definition of “material transaction” can be found at N.Y. Public Health Law, §4550(4) (2023).

[View source.]