Transactions subject to the new reporting requirements

The new reporting requirements are codified in Article 45-A[1] to the New York Public Health Code, and obligate “health care entities” involved in a “material transaction” to provide information and documentation to NY DOH about each transaction. As noted, the new reporting requirements take effect starting on August 1, 2023.

• Health care entities. “Health care entities” subject to the new reporting requirements are defined to include physician practice groups, provider-sponsored organization, MSOs or similar entities that contract with physician practices to provide all or substantially all of the administrative or management services for the practice, health insurance plans (unless licensed to do business in New York), and “any other kind of health care facility, organization[,] or plan providing health care services in this state[.]”[2]

• Material transactions. Subject to revenue-based materiality thresholds and certain other exclusions, “material transactions” are defined to mean any of the following transactions (whether they occur during a single transaction or take place as a series of related transactions within a rolling twelve month period):

  • 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 (and the law presumes there has been a change in control where 10% of a health care entity’s direct or indirect ownership changes hands);[3]

  • an affiliation agreement or contract formed between a health care entity and another person[4]; or

  • the formation of a partnership, joint venture, accountable care organization, parent organization, or MSO for the purpose of administering contracts with health plans, third-party administrators, pharmacy benefit managers, or health care providers as prescribed by the commissioner in regulation.[5]

• Materiality thresholds. A transaction or series of transactions is considered material for purposes of triggering the new reporting requirements only if it will result in a health care entity increasing its total gross in-state revenues by at least $25 million.[6]

• Other exclusions. Certain other transactions are also excluded from the new reporting requirements — including transactions that are otherwise already subject to DOH review.[7]

Scope of health care entity reporting obligations for material transactions

Health care entities involved in material transactions that trigger reporting under the new requirements must, as noted, provide written notice of the transaction to DOH at least 30 days prior to closing. The entity must then notify DOH when the transaction closes.[8] The new law also delineates certain additional requirements and processes associated with the new reporting regime.

• Supporting documentation. The initial notice regarding the transaction must be accompanied with the following supporting documentation: (a) the names of the parties to the transaction; (b) “[c]opies of any definitive agreements governing the terms of the material transaction, including pre- and post-closing conditions”; (c) the locations where the parties to the transaction currently provide health care services in New York and the revenue generated from those locations; (d) “[a]ny plans to reduce or eliminate services and/or participation in specific plan networks” in connection with the transaction; (e) the proposed closing date; and (f) a brief description of the transaction that discusses its “anticipated impact” on “cost, quality, access, health equity,[9] and competition” and “any commitments to address anticipated impacts.”[10]

• Non-DOH regulatory review. Immediately upon receipt of the initial notice and supporting documentation, DOH will forward the information “to the antitrust, health care[,] and charities bureaus of the office of the New York attorney general.”[11]

• Public comment on transaction summary. In the 30-day period before the transaction closes, DOH will publish a summary of the proposed transaction that includes a description of the groups or individuals likely to be affected by the transaction and information about services that the health care entity currently provides, commitments by the health care entity to continue such services and any services that will be reduced or eliminated. NY DOH will then solicit public comments on the summary.[12]

• Penalties for non-compliance with reporting requirements. Health care entities that fail to report will generally face civil penalties of at least $2,000 per day.[13]

The legislature has also delegated to NY DOH the task of establishing more detailed reporting requirements and specifying the form and manner for reporting and for public comment.

Key considerations

The legislature appears to have had particular interest in targeting MSOs that manage administrative functions for physician practices. That said, the scope of the new reporting requirements is very broad, such that numerous other health care transactions are likely to be swept into the scope of the new law.

With the passage of this statute, material health care transactions notably face several additional risks/costs: public and private perception, heightened potential for regulatory scrutiny, increased administrative burdens, and possible delayed closings/reduced transaction flexibility.

• First, DOH will publicly release summary details about a transaction prior to it closing. DOH announcements could attract news coverage and raise questions from patients that health care entities must be ready to answer.

• Second, DOH will collect, among other things, “[c]opies of any definitive agreements governing the terms of the material transaction, including pre- and post-closing conditions”[14] and this will be transmitted to the Attorney General.[15] Health care entities should be prepared for the possibility of greater regulatory scrutiny of transaction terms, especially if a transaction touches particular policy concerns of DOH, such as broad non-compete agreements or arrangements that could implicate the corporate practice doctrine.

• Third, there are administrative burdens associated with providing mandated information, including the requirement to provide a discussion of the transaction’s “anticipated impact” on “cost, quality, access, health equity, and competition” and “any commitments to address anticipated impacts.”[16] It is an open question for now as to what will happen if the regulators are not satisfied with these descriptions but there is no corresponding clear violation of any applicable New York State law.

• Fourth, parties must be prepared to report at least thirty days prior to a transaction closing.[17] In some cases where a transaction is on a very fast track, this requirement could delay a closing (although not typically, unless the State intervenes as the result of the mandated disclosure).

New York’s new reporting requirements follow similar pre-closing reporting requirements[18] adopted by Massachusetts,[19] Connecticut,[20] Washington,[21] Oregon,[22] and California.[23] Other states are also considering and may enact similar legislation.

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Hogan Lovells will continue to monitor DOH’s implementation of this new law, and will update clients upon DOH’s release of regulations or other relevant guidance. We will also continue to monitor developments in other states requiring reporting of health care transactions.