New York to Implement Mandatory Reporting of Healthcare Transactions; Other States Weigh Similar Legislation

As 2023 legislative sessions wind down, many states are considering bills that would require pre-close review or approval of healthcare transactions by a state agency or attorney general’s office, including one that passed May 3, 2023, in New York. The other states considering similar legislation are Illinois (session ends May 19), Minnesota (May 22) and North Carolina (Aug. 31); Maine likely will take up its proposed legislation in a special legislative session later this spring.

Although the details vary, these laws would join a growing list of statutes already in place that require pre-close notification of qualifying transactions involving large healthcare entities but also smaller physician and dental groups (or individual providers), management services organizations, pharmacy, medical equipment and health technology companies, and potentially other entities that are adjacent to traditional healthcare services.

Because these laws often require observation of waiting periods prior to close and disclosure of significant amounts of information, not to mention steep penalties for failing to file, it is critical that providers and other healthcare companies become familiar with these obligations as far in advance of a transaction as possible.

New York’s New Law

On May 3, 2023, Gov. Kathy Hochul signed into law an omnibus spending bill (starting at page 137) that, among other things, requires healthcare entities to notify the New York State Department of Health (DOH) of qualifying transactions at least 30 days before closing. The new law has an effective date of Aug. 1, 2023.

The requirement implicates “material transactions,” which include:

• A merger with a healthcare entity.
• An acquisition of one or more healthcare entities.
• An affiliation or contract between a healthcare entity and another person.
• The formation of a partnership, joint venture, accountable care organization, parent organization or management services organization to administer contracts with health plans, third-party administrators, pharmacy benefit managers or healthcare providers.

A “healthcare entity” covers physician practices, physician groups and management services organizations or similar organizations providing all or substantially all administrative or management services under contract with other healthcare entities, but not New York-licensed insurers or pharmacy benefit managers. It is unclear whether nonphysician provider organizations (such as those with dentists, nurse practitioners and the like) qualify as healthcare entities.

The law has a de minimis exception for a transaction or a series of transactions that increases a healthcare entity’s in-state revenues by less than $25 million. There are other exclusions for clinical affiliations between healthcare entities for the purpose of collaboration and transactions already subject to review under certain other New York state statutes.

The bill outlines some detail about the notice and review process but also directs the DOH to issue regulations to further clarify, leaving some uncertainty as to the process (including, for example, the amount of the filing fee). The legislation specifies that a healthcare entity that is party to a reportable transaction must file written notice to DOH at least 30 days before closing. The submitted materials must include:

• The transacting parties’ names and addresses.
• Copies of the deal documents.
• Locations affected by the transaction.
• Any plans to reduce or eliminate services or participation in plan networks.
• Closing date.
• A transaction description, including the anticipated effect on cost, quality, access, health equity and competition, as well as any commitments to address those effects.

Failure to comply with the notice requirement may result in daily fines ranging from $2,000 to $10,000 for as long as the violation continues.

After receiving the notice, the DOH will post a summary of the transaction on its website and open a public comment period. It also will forward the notice to the New York Attorney General’s Office.

During the review process, the DOH will consider several factors to decide whether to block the transaction, approve it outright or approve it with conditions. Key among the factors guiding this review are the impact of the transaction on patient costs, access to services, health equity and health outcomes, as well as the balance of the deal’s pro-competitive justifications and potential anti-competitive effects. If the DOH takes no action within 30 days of receiving the notice, the transaction is approved by default.

Bills Pending in Illinois, Minnesota, Maine and North Carolina

Similar legislation is under consideration in Illinois, Minnesota, Maine and North Carolina. McGuireWoods will provide more details on these bills in future legal alerts as they move forward, but for now, the key points from each are as follows.

• Illinois is considering legislation, HB 2222, that would require healthcare entities to notify the state attorney general of certain healthcare transactions 30 days before closing. The notice requirement would apply to healthcare facilities and provider organizations. In March, the Illinois House of Representatives passed HB 2222. The Illinois Senate is considering the bill and has until May 19 to pass it and reconcile any differences with HB 2222. HB 2222 specifies that, if enacted, it would take effect Jan. 1, 2024.

• Minnesota is considering legislation, HF 402, that would require healthcare entities to notify the state attorney general and health commissioner of certain healthcare transactions 90 days before closing. The law would apply to transactions where the healthcare entity involved has annual revenues of more than $40 million or the healthcare entity being created through the transaction is projected to have annual revenues of more than $40 million. The bill has gone through the Minnesota House and is being heard on the House floor. The Minnesota Senate has a companion bill, SF 1681, with a similar purpose but varying detail. If HF 402 passes the Minnesota House, then the Minnesota Senate will need to take action before the legislative session ends on May 22. If passed, HF 402 would take effect immediately upon enactment.

• Maine is considering legislation, HB 894, that would require healthcare entities to notify the state attorney general of certain transactions, including mergers, acquisitions and change-of-control transactions, among others. The law would apply to providers, provider organizations and healthcare facilities. The bill did not pass the regular legislative session, which ended in March. But the bill is not dead because Gov. Janet Mills called a special legislative session to finish work on hundreds of bills sidelined during the regular session. The special session adjourns on June 21. As a nonemergency law, the legislation, if passed, would take effect on June 29, 2023.

• North Carolina is considering legislation, SB 16 and HB 737, that would require hospitals and their affiliates to notify the state attorney general of transactions 90 days before closing. As proposed, the bills are broad and would cover a wide array of hospital-related transactions. The bills have seen little action since being introduced. The legislative session ends Aug. 31. If enacted, the legislation would take effect Dec. 1, 2023.

McGuireWoods Is Monitoring the Evolving Regulatory Landscape

Between bills already passed and those pending, four of the 10 most populous states in the U.S. have or soon may have pre-close notification regimes for healthcare transactions. McGuireWoods has advised clients in the context of numerous transactions with connections to states with existing notification laws and review requirements, including Washington, Oregon, Massachusetts, Nevada and Connecticut, and has successfully navigated the filing process where required. McGuireWoods has written about the requirements in those states before and has covered California’s new notice law, which takes effect April 1, 2024. As more and more states enhance scrutiny over healthcare transactions, careful monitoring of this evolving regulatory landscape is recommended. If you have any questions, please reach out to the authors or your McGuireWoods contact.