On May 3, 2023, Governor Kathy Hochul signed a bill creating a new Article 45-A of the New York Public Health Law. The new article, titled “Disclosure of Material Transactions,” requires certain health care providers—including physician practices—to provide notice to the New York State Department of Health (DOH) before closing certain types of transactions. Article 45-A will apply to transactions closing on or after August 1, 2023.
Hospitals, skilled nursing facilities and ambulatory surgery centers have long been subject to direct DOH oversight. In comparison, New York-based physician practices have faced significantly less regulatory scrutiny. New York now joins California, Massachusetts, Washington and several other states that have taken a specific aim at regulating transactions involving physician practices.
The new notice and disclosure requirement was initially proposed as part of the 2024 New York State Executive Budget. The proposed legislation expressed concern that “large physician practices being managed by entities that are investor-backed” is a “phenomenon [that] may have a negative impact on patient care, health care costs, and ultimately access to services,” evidencing its particular focus on private equity investment in physician practices and other health care providers. The proposed legislation required disclosure to and approval by the DOH before certain transactions could proceed.
In its enacted form, Article 45-A requires “health care entities” to only disclose “material transactions” to the DOH.
Health care entities include, but are not limited to, a physician practice, 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 practice, provider-sponsored organization, health insurance plan, or any other kind of health care facility, organization or plan providing health care services.
Material transactions are any of the following types of transactions, whether they occur in a single transaction or in a series of related transactions that take place within a rolling 12-month time period:
“De minimis transactions” are excluded from the definition of material transactions. A de minimis transaction is a single transaction or a series of related transactions which result in a health care entity increasing its total gross in-state revenues by less than $25 million.
Health care entities entering material transactions must submit notice of the transaction to the DOH at least 30 days before the transaction’s closing date. The notice must include information identifying the parties involved, the transaction’s purpose and the transaction’s anticipated impact on health care access, cost, competition and health equity. In addition, the notice must include copies of the definitive agreements governing the terms of the transaction.
A health care entity’s failure to disclose material transactions may result in civil penalties of $2,000 per day.
Immediately upon receiving the notice, the DOH will submit copies and supporting documentation to the antitrust, health care and charities bureaus of the New York Attorney General’s Office. Within the 30-day period before the transaction closes, the DOH must post a summary of the transaction, describe the transaction’s anticipated impact on its website, and provide the public with an opportunity to comment.
The DOH has commenced its rulemaking process to issue regulations that should clarify some ambiguous points of the law.
William P. Keefer is a partner at Phillips Lytle LLP and leader of the firm’s Health Care Law Practice Team. He counsels hospitals, physician groups and other health care clients on a broad array of issues. He can be reached at wkeefer@phillipslytle.com or (716) 847-5488.
Louis Q. Reynolds is an attorney at Phillips Lytle LLP who focuses his practice on health care law. He can be reached at lreynolds@phillipslytle.com or (716) 504-5785.
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