New York recently enacted new legislation that will amend Article 45-A of the New York Public Health Law, entitled “Disclosure of Material Transactions”. Although the legislation, as enacted, contains no description of legislative intent, the budget bill language originally proposed referenced concerns with the “proliferation of large physician practices being managed by entities that are investor-backed” (e.g., private equity platforms) and which are otherwise unregulated by the state outside of the licensure of the individual practitioners.
Effective August 1, 2023, the new legislation requires thirty (30) days advance notice to the New York State Department of Health (“Department”) of any “material transactions” involving “health care entities” that provide administrative or management services for physician practices, provider-sponsored organizations, health insurance plans, “or any other kind of health care facility, organization, or plan providing health care services. . . .”
The legislation defines a “material transaction” broadly, covering all mergers, acquisitions (including of assets), affiliation agreements or other contracts, or formation of partnerships, joint ventures, accountable care organizations, or management services organizations. The legislation gives the Department the authority to define by regulation the information and supporting documentation it will require in connection with organizations and individuals providing this notice. N.Y. Pub. Health L. §§ 4550 – 4552.
Per the legislation, notice must be received by the Department at least thirty (30) days prior to closing of the transaction, following which the Department will transmit the notice and supporting documentation to the antitrust, health care, and charities bureaus of the New York State Office of the Attorney General. The Department also will post a summary of the proposed transaction on its website along with an invitation for public comment. Notice must also be provided to the Department regarding the closing of the transaction. Non-compliance with these requirements can result in penalties of $2,000 per day, which can be increased to penalties of $5,000 per day for subsequent violations that present “a serious threat to the health and safety of an individual or individuals.” N.Y. Pub. Health L. § 12.
The legislation, as originally proposed, would have had much more far-reaching and perhaps unpredictable implications for the delivery of health care services by physician practices in New York. For instance, an earlier draft of the legislation:
- would have provided the Department with the authority to review and approve material transactions regarding “impact on cost, quality, access, health equity and competition in the health care service market.” Proposed Article 45-A, § 4552.
- stated that its purpose was to address what was perceived as the “negative impact on patient care, health care costs, and ultimately access to services” that potentially would result from investor involvement in physician practices.
- expressed concerns about the shifting of ambulatory care volumes away from community hospitals and their ambulatory care networks and other safety net providers, undermining their financial viability, as well as the allegedly significant contributions to health care cost inflation of such arrangements. Part M, Section 5, FY New York State 2024 Executive Budget.
The newly enacted legislation, which does not require any such approvals, is part of a growing trend of similar legislation being passed on a state-by-state basis around the country. So far, six (6) other states have passed or had previously enacted similar laws that move beyond certification or reporting for hospitals or other non-profit entity mergers to entities such as physician practices.[1] In addition to New York, Oregon also includes administrative service or managed care organizations within the scope of its requirements.[2] More states are on the cusp of enacting similar legislative changes. For example, Illinois’s legislature recently passed HB-2222, which is awaiting signature by Governor Pritzker. North Carolina has a pending bill,[3] while bills in Maine[4] and Washington[5] were presented during the most recent legislative sessions, although they ultimately failed.
Unlike other states, because New York’s law was enacted as part of the New York State budget process, very little information is available regarding the ultimate intent of the legislature in passing this bill. One possibility, however, is that the Department and the Attorney General’s Office may be collecting information regarding physician practice transactions and arrangements with management and administrative services organizations in order to assess whether and how to implement a certificate of need or other advance approval requirement at some time in the future.
For more information, or advice regarding how to comply with the new notice requirements in New York or other similarly situated states, please contact Arthur J. Fried, Gary W. Herschman, and/or Randall H. Lee.
[1] California (Cal. Health & Safety Code §§ 127500 et seq) (effective April 1, 2024); Connecticut (Conn. Gen. Stat. § 19a-486i) (in effect); Massachusetts (Mass. Gen. Laws Ch. 6D § 13) (in effect); Minnesota (HF 402) (Effective January 1, 2024); Nevada (NRS § 598A.370) (in effect); Oregon (Oregon Revised Statute §§ 415.500 et seq.; Oregon Admin. Rules 409-070-0000 -0085) (in effect); Washington (Wash. Rev. Code Ann. § 19.390.030) (in effect).
[2] Oregon Revised Statute §§ 415.500 et seq.; Oregon Admin. Rules 409-070-0000 -0085.
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