New York State Enacts Filing Requirement for Physician Practice Management and Physician Practice Transactions

The Filing Requirement, Generally

The legislation will require healthcare entities to submit to DOH written notice, with supporting documentation, at least 30 days prior to closing a material transaction. Under the legislation, a healthcare entity includes but is not limited to the following:

• A physician practice
• A physician group
• An MSO or similar entity providing all or substantially all of the administrative or management services under contract with a physician practice, provider-sponsored organization, health insurance plan, or any other kind of healthcare facility, organization or plan providing healthcare services in New York State
• A provider-sponsored organization, health insurance plan, or any other kind of healthcare facility, organization or plan providing healthcare services in New York State.

The following entities are excluded from the definition of a healthcare entity and do not need to submit filings for transactions with a non-healthcare entity:

• An insurer authorized to do business in New York
• A pharmacy benefit manager (PBM) registered or licensed in New York State.

Under the legislation, a material transaction includes any of the following, occurring during a single transaction or in a series of related transactions within a rolling 12-month period:

• A merger with a healthcare entity
• An acquisition of one or more healthcare 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 (direct or indirect ownership, control or power to vote 10% or more of the voting securities of the healthcare entity)
• An affiliation agreement or contract formed between a healthcare entity and another person
• The formation of a partnership, joint venture, accountable care organization (ACO), parent organization or MSO for the purpose of administering contracts with health plans, third-party administrators, PBMs or healthcare providers.

The following transactions are excluded from the definition of a material transaction:

• Transactions that are already subject to review under the following articles of the New York Public Health Law:
  • Article 28 (Hospitals, including Diagnostic and Treatment Centers/Ambulatory Surgery Centers)
  • Article 30 (Emergency Medical Services)
  • Article 36 (Home Care Services)
  • Article 40 (Hospices)
  • Article 44 (Health Maintenance Organizations)
  • Article 46 (Continuing Care Retirement Communities)
  • Article 46-A (Fee-for-Service Continuing Care Retirement Communities Demonstration Program)
  • Article 46-B (Assisted Living)
• Transactions or series of related transactions that result in a healthcare entity increasing its total gross in-state revenues by less than $25 million
• Clinical affiliations of healthcare entities formed to collaborate on clinical trials or graduate medical education programs.

The filing requirement will become effective 90 days following enactment of the legislation. Failure to submit the notice will result in civil penalties of up to $5,000 per day.

The Required Filings

At least 30 days prior to closing a material transaction, a healthcare entity must submit the following to DOH:

• The names of the parties to the material transaction and their current addresses
• Copies of any definitive agreements governing the terms of the material transaction, including pre- and post-closing conditions
• Identification of all locations where healthcare services are currently provided by each party and the revenue generated in the state from such locations
• Any plans to reduce or eliminate services and/or participation in specific plan networks
• The closing date of the proposed material transaction
• A brief description of the nature and purpose of the proposed material transaction, including the following:
  • The material transaction’s anticipated impact on cost, quality, access, health equity and competition in the affected markets, which may be supported by data and a formal market impact analysis
  • Any commitments by the healthcare entity to address anticipated impacts.

The supporting documentation submitted to DOH will not be subject to disclosure under the New York Freedom of Information Law (FOIL). The legislation does not protect the information submitted in the notice from public disclosure under FOIL, however.

The Review

Immediately upon receipt of the filing, DOH will share the filing with the antitrust, healthcare and charities bureaus of the New York Attorney General’s office. DOH will post the following 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 healthcare entity, commitments by the healthcare entity to continue such services, and any services that will be reduced or eliminated
• Details about how to submit comments.

Analysis and Takeaways

In a material deviation from Governor Hochul’s initial proposal, the enacted legislation does not require healthcare entities to obtain DOH approval prior to consummating a material transaction. It is possible that DOH or another New York governmental agency could try to intervene if it believed the transaction would violate antitrust or other laws. Since the enacted legislation does not create a specific pathway for this type of action, however, such intervention would need to be based on separate legal authority.

The legislation likely will have several material effects on New York physician practice management and physician practice transactions. A few key considerations include the following:

• Resource and Timing Considerations. The 30-day pre-closing notice will create an additional filing burden and timing consideration for physician practices and MSOs engaging in material transactions in New York State. Healthcare entities will now need to develop analyses relating to the transaction’s anticipated impact on cost, quality, access, health equity and competition in the impacted markets. Some healthcare entities may choose to engage consultants to assist with these analyses.
• Transparency. The legislation will also result in the disclosure of historically confidential information to both state regulators and the public prior to consummation of a transaction. This disclosure will give competitors some level of insight into physician practice management growth strategy and may result in further regulatory scrutiny of transactions.
• DOH Guidance. The notice requirement becomes effective on August 1, 2023, so any healthcare entities involved in a transaction occurring on August 1, 2023, will be required to submit the filing by July 2, 2023. DOH will need to quickly release guidance for the application process to ensure that healthcare entities can complete the filing in a timely manner to close on August 1, 2023. DOH’s guidance may also address ambiguities in the text of the legislation, such as the following:
  • What is meant by a “plan,” for purposes of explaining in the filing any intentions to reduce or eliminate participation in specific plan networks
  • Whether a “brief description” of various transaction impacts will be acceptable, or whether more significant or expert analyses will be required
• De Minimis Exception. The exception for transactions resulting in a healthcare entity increasing its total gross in-state revenues by less than $25 million leaves room for interpretation. The legislation does not specify what type(s) of revenues should be included in the calculation (e.g., purchase price revenue, annual revenue) or how those revenues should be calculated. It is also unclear how the exception would apply to a sponsor-to-sponsor parent level transaction that does not result in any new physician practice revenue in New York.

Healthcare entities should monitor DOH guidance in the coming days, weeks and months, to understand how and when the filing requirement will be operationalized. Parties to transactions with anticipated closings after August 1, 2023, should begin preparing information and documentation as set forth in the legislation based on a reasonable legal interpretation for prompt submission once the application guidance is released.