Overview
We recently discussed increasing state regulation of healthcare mergers and acquisitions in the face of the current Administration’s clear policy of federal deregulation. We noted that 15 states had implemented oversight laws for healthcare transactions. The stated purpose of these laws is to address two key issues: (1) to ensure that healthcare providers remain in control of the practice of medicine without interference or influence by corporate owners/investors (the “corporate practice of medicine” prohibition); and (2) to ensure that the quality, accessibility, and cost of healthcare services will not be negatively affected by corporate transactions, with a specific focus on private equity investments which were the subject of scathing federal agency reports under the prior Biden administration.
Since August 2023, New York has had a state oversight law in effect (Public Health Law Article 45-A) which requires healthcare entities involved in material transactions to provide written notice and information to the New York State Department of Health (DOH) at least 30 days prior to the closing of a covered transaction. These filings are subject to review by both DOH and the New York Attorney General. We provided a detailed review of the law here and here. Since the law took effect, there have been only a handful of transactions published on DOH’s website.
Just last week, DOH issued guidance on when and how the law applies, which we summarize in this article. While not rising to the level of law or regulation, we believe that following this guidance will mitigate the risk of a transaction being challenged (and perhaps voided), which could have a dire impact for all parties involved.
Legislative Background and Looming Amendments
The guidance comes at a time when Governor Hochul’s 2026 executive budget and, more recently, the New York Senate’s companion budget bill (but not the Assembly’s) include proposed changes to PHL Article 45-A. The proposed changes would give DOH more “teeth” in reviewing transactions. Instead of a simple notice and disclosure as required by the current law, DOH would conduct a preliminary review of all material transactions. DOH would have discretion to conduct a “full cost and market impact review” and “discretion to require parties to delay the proposed transaction closing until such cost and market impact review is completed,” provided that such closing is not delayed more than 180 days from when DOH completes its preliminary review. While an even more stringent “prior approval” concept was included in early draft versions of PHL Article 45-A, that concept was dropped before the law’s enactment in 2023. However, if the legislature does enact the proposals in the 2026 budget as drafted, the impact and risks associated with a full DOH review will make the recently released guidance even more important.
The Guidance: “Who” and “What” Transactions are Covered / The $25M De Minimis Threshold
The new guidance confirms much of what is already understood about PHL Article 45-A but provides clarity on “who” and “what” transactions are covered. For example, the guidance removes any doubt about whether PHL Article 45-A applies to dental practices, clinical laboratories, pharmacies, independent practice associations (IPAs) and Accountable Care Organizations (ACOs). It does. The guidance does not specifically address non-physician provider types such as nurse practitioners, or physical, occupational, or speech language therapists. The guidance does, however, reiterate that the law applies to “any other kind of healthcare facility, organization, or plan that provides health care services in New York.”
The guidance appears to clarify that a material transaction includes, among other things, “an acquisition of one or more health care entities, including the assignment, sale, or other conveyance of assets, voting securities, membership or partnership interests or the transfer of control, such as contracting for services commonly provided through a management or administrative services agreement between a practice and an MSO.” This appears to clarify that the law applies to a healthcare entity contracting for “services commonly provided” by a management services organization, as this implicates a “transfer of control.” The statute’s language is not as express as the guidance might suggest in this regard.
The guidance also clarifies that any discrete portions of a transaction that are not already subject to review under a DOH certificate of need (CON) or an insurance-entity approval process are reportable under PHL Article 45-A so long as any such discrete portion independently exceeds the “de minimis” revenue threshold. The de minimis rule exempts transactions that would result in a healthcare entity increasing its total gross in-state revenues by less than $25 million. The guidance clarifies that “the $25 million threshold must be assessed on an annual basis, based on a 12-month lookback period” measured from the anticipated closing date. Further, for a series of related transactions, the parties must assess the revenue associated with each related transaction that took place, or will take place, during the 12-month lookback period. The guidance provides several examples applying the de minimis revenue rule.
The Guidance: How Parties Might Assess a Transaction’s Impact
Finally, the guidance provides examples of how parties might assess and provide notice to DOH (as required under current law) regarding the transaction’s impact on cost, quality, access, health equity, and competition in the affected markets. For example, parties may assess and report on whether services offered and/or contracts with payors will be modified, changes in the share of services provided to historically underserved populations, and any expected increase in market consolidation.
Conclusion
As we have noted, the recent trend in reduced federal oversight regarding the role of private investments in healthcare providers and antitrust scrutiny of healthcare mergers and acquisitions is contrary to the trend at the state level. Indeed, New York’s PHL Article 45-A is clear evidence of the trend of new state laws providing additional oversight of healthcare entity operations, formation, and M&A activity with particular focus on physician practices, groups, and management services organizations. Stakeholders should stay informed on developments in New York and beyond, as this trend at the state level adds an additional layer of complexity to many transactions that were previously subject to little or no government oversight. We will continue to monitor additional guidance and developments surrounding New York’s PHL Article 45-A.
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