New York State Department of Health Releases FAQs Regarding PHL 45-A, the Material Transactions Law

Roughly two years in the making, the New York State Department of Health (NYS DOH) has issued long-awaited guidance on its material transactions law.

Notably, the guidance provides clarity on how to calculate the “de minimis” exception to the material transaction law requirement—including an indication that “related” transactions only need to have a single party in common, which is an important consideration for providers and investors pursuing a “roll-up” strategy.

N.Y. Pub. Health Law Article 45-A, “Disclosure of Material Transactions,” took effect on August 1, 2023, and requires “health care entities” involved in a “material transaction” to provide written notice to the NYSDOH at least 30 days prior the proposed closing of a transaction. As our colleagues wrote at the time, the legislation grew out of concerns with the “proliferation of large physician practices being managed by entities that are investor-backed” (e.g., private equity).

These concerns have only increased in the past two years; more than a dozen states including New York have enacted health care transaction notice requirements. Currently, several state legislatures are attempting to either amend existing requirements or create new ones. New York is one state that is potentially amending its existing notice requirement. As we noted in March, proposed legislative changes to the New York law would include an extension of the notice deadline to 60 days; a statement as to whether any party to the transaction owns any other health care entity that within the past three years has closed operations, is in the process of closing operations, or has experienced a substantial reduction in services; and a statement as to whether a sale-leaseback agreement, mortgage or lease, or other payments associated with real estate are a component of the proposed transaction.

We discuss the existing New York law, and the recent guidance, below. The guidance is brief; if you have additional questions in this area, please reach out to the authors.

Who is required to report material transactions?

The first topic addressed in the NYS DOH’s FAQs is “[w]hich entities are required to report Material Transactions under PHL Article 45-A?” As described in PHL 45-A and the FAQs, PHL45-A applies to both in-state and out-of-state “health care entities.” Both Section 4550(2) and Q1-Q2 of the FAQs clarify that “health care entities” subject to the reporting requirements include, but are not limited to:

• Physician practices or groups;
• Management services organizations or similar entities providing all or substantially all the administrative or management services that are under contract with at least one physician practice;
• Provider-sponsored organizations;
• Health insurance plans;
• Health care facilities, organizations, or plans providing health care services in New York;
• Dental practices;
• Clinical laboratories;
• Pharmacies (including wholesale pharmacies and secondary wholesalers);
• Independent practice associations (IPAs); and
• Accountable care organizations (ACOs).

Notably, the NYS DOH FAQs do not specify any other healthcare professions under the list of “health care entities,” including applied behavior analysts, chiropractors, clinical social workers, occupational therapists or physical therapists. There have been open questions whether such professions are captured under this law or whether a management services organization that provides administrative services to such professions are considered “health care entities” and subject to the law. The NYS DOH did not list such professions in the FAQ but included a disclaimer that the professions listed are not exhaustive but illustrative of the types of entities covered under the law.

What constitutes a material transaction?

Both Section 4550(4)(a) and Q3 of the FAQs state that a “material transaction” means any of the following—occurring during a single transaction or in a series of related transactions in a rolling twelve-month time period—that result in a “health care entity” increasing its total gross-in-state revenues by $25 million or more:

• 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;
• An affiliation agreement or contract formed between a health care entity and another person; or
• The 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 as prescribed by the commissioner by regulation.

Exemptions

Both Section 4550(4)(b) and Q4-Q6 of the FAQs state that a material transaction does not include

• Clinical affiliations of health care entities formed for the purpose of collaborating on clinical trials or graduate medical education programs;
• Transactions already subject to review under certain provisions; and
• De minimis transactions, meaning a 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.

De Minimis Exemption:

Likely in response to questions from industry stakeholders, the FAQs clarify—with relevant examples—the de minimis transaction exemption and how the $25 million threshold is calculated on an annual basis.

Calculating de minimis transaction exception for a single transaction:

The guidance indicates that the state will consider the de minimis exception in one of two ways depending upon the transaction structure. 

• If the transaction in question is an acquisition where the acquiring entity will remain an ongoing concern, the guidance indicates that the parties must assess whether the entity or entities being acquired had $25 million or more in gross in-state revenue in the prior 12-month period from the anticipated closing date (“lookback period”).
• If the transaction is a merger that results in a new corporate entity, the guidance indicates that the parties must assess whether the whether their total combined gross in-state revenues from the 12-month lookback period is greater than or equal to $25 million.

Calculating de minimis exception for a series of related transactions:

The guidance indicates that the state considers a series of related transactions to be those where the acquiring party remains the same regardless of the identity of the selling or acquired party. Therefore, the guidance instructs the parties to assess the revenue associated with each of the acquirer’s transactions that took place, or will take place, during the 12-month lookback period to determine if the total added combined gross in-state revenue calculated across all of the transactions is greater than or equal to $25 million or more.

CON Exemption:

If elements of a transaction are subject to separate review/approval processes—including but not limited to certificate of need (CON) laws—the parties to the proposed transaction must report the non-CON portions of the transaction, if a good faith estimation of the total in-state gross revenues of the transaction less the total in-state gross revenues of those elements subject to CON review/approval is calculated to be more than $25 million. 

Impact assessments

Expanding on the directive in § 4552(1)(f) to determine the material transaction’s impact on cost, quality, access, health equity and competition in the impacted markets, Q7 of the FAQs state that the parties should provide a good faith assessment of the impact of the proposed material transaction, including but not limited to whether:

• Services will be eliminated, reduced, added, or expanded;
• Contracts with certain insurance carriers will be added or eliminated, including whether Medicaid participation will be impacted;
• Locations will open or close, or expand or reduce service availability;
• Healthcare staffing changes are expected;
• Contracted commercial payor rate increases are anticipated;
• Changes in the share of services provided to historically underserved populations are anticipated; and
• The parties expect any increase in market consolidation.

More to Know

Additional requirements not covered in the FAQs, including the submission of names, addresses, copies of definitive agreements, location of services and revenue, closing date, and nature and purpose may be found in Section 4552.

The NYS DOH encourages stakeholders, counsel and the public to review its Material Transactions webpage, which includes a link to summaries of reported transactions. Question 8 of the FAQs notes that interested parties may comment on a proposed material transaction by emailing comments to MaterialTransactionDisclosure@health.ny.gov. (Additional questions not covered by the FAQs may be emailed to the same address).

The Epstein Becker Green team is tracking these developments; for further questions, please reach out to the authors. Our state map of transaction notice requirements may be found here and we will provide insights on other individual state initiatives in the future.

Epstein Becker Green Attorney Ann W. Parks contributed to the preparation of this post.