Proposed Changes to New York's Material Transactions Law Expand Oversight

New York Gov. Kathy Hochul unveiled her executive budget proposal for State Fiscal Year (FY) 2025-2026 on Jan. 21, 2025, which includes amendments to the state's Disclosure of Material Transactions law. If the amendments are enacted, parties to "material transactions" will be subject to additional disclosure and reporting obligations, and the transactions to greater scrutiny, as described in more detail below.
Background
Effective Aug. 1, 2023, Article 45-A of the Public Health Law (PHL) requires "material transactions" involving "health care entities" (HCEs) to be reported to the New York State Department of Health (DOH) at least 30 days prior to closing.
An HCE includes a physician practice, group or "management services organization or similar entity providing all or substantially all of the administrative or management services under contract with one or more physician practices, provider-sponsored organization, health insurance plan, or any other kind of health care facility, organization or plan providing health care services in this state."
The law defines "material transaction" to include not only a merger, acquisition or affiliation with an HCE, but also "formation of a partnership, joint venture, accountable care organization, or management services organization for the purpose of administering contracts with health plans, third-party administrators, pharmacy benefit managers, or health care providers." Excluded from the definition are clinical affiliations of HCEs formed for the purpose of collaborating on clinical trials or graduate medical education programs and "de minimis transactions," which are transactions that result in an HCE increasing its total gross in-state revenue by less than $25 million.
Proposed Changes
The proposed budget expands upon existing notice and disclosure requirements, including, if requested, a full cost and market impact review (CMIR) and, critically, would permit DOH to delay the closing of the transaction if necessary to review such CMIR.
Prior Notice. The proposed budget extends the required notice period from 30 days to 60 days prior to the anticipated transaction closing date.
Additional Disclosure Obligations. As summarized in a prior blog post, the current law requires parties to a material transaction to notify DOH of the proposed transaction. This notice must include the names of the parties, copies of the definitive agreements and a brief description of the transaction's nature and purpose, including its anticipated impact on cost, quality, access, health equity and competition in the applicable markets, along with any commitments by the HCE to address the anticipated impact. If passed, the law would also require each party to disclose the following:
- Whether it or any controlling entity or parent company owns any other HCE and, if so, whether such HCE has, in the past three years, closed, is in the process of closing or experienced a reduction of services and the related circumstances of such closure or reduction in services.
- A statement as to whether a sale-leaseback or other real estate arrangement (e.g., mortgage, lease payments, etc.) is a component of the transaction. If applicable, copies of the agreements must be included.
DOH Preliminary Review and Post Closing Reporting. Currently, and notwithstanding existing disclosure obligations, the law does not authorize DOH to review and approve material transactions. Instead, DOH is merely tasked with submitting copies of the notice and supporting documentation to the antitrust, healthcare and charities bureaus of the Office of the New York State Attorney General (OAG) and posting certain information about the transaction on its website to allow for public comment. If enacted, the law would require DOH to conduct a preliminary review of all proposed material transactions and, importantly, allow DOH to conduct a full CMIR. If a CMIR is required, DOH would have the discretion to delay the transaction's closing for up to 180 days from the date it completes its CMIR review.
In connection with its preliminary review, DOH would be permitted to require the parties, including their parents and subsidiaries, to provide additional documentation, which would need to be submitted within 21 days of any such request. Further, in each of the five years following a transaction's closing, the parties would be required to submit an annual report to DOH summarizing the impacts of the transaction on cost, quality, access, health equity and competition using factors and metrics to be developed by DOH. In connection with such annual report, DOH may require the parties and any parent or subsidiary to provide additional documentation and information, which must be submitted within 21 days of request.
Finally, though nonpublic information and documents submitted to DOH must be kept confidential and are not subject to the state's Freedom of Information Law, DOH would be authorized to use any CMIR, post-closing report and documentation and requested materials submitted in connection therewith "as evidence" in any investigation, review or other action by DOH or the OAG, including in DOH's assessment of a party's certificate of need (CON) application.
Costs. Costs incurred by DOH for its review may be passed along to the parties and would be payable within 14 days.
Conclusion
Parties to New York healthcare transactions involving licensed facilities such as hospitals, ambulatory surgery centers and home health agencies have long been accustomed to the onerous review and approval procedures required pursuant the Public Health Law and the state's certificate of need (CON) process. Although the proposed legislation still does not include authorization for DOH to approve or disapprove physician and management services transactions, and the disclosure obligations do not rise to the level of a CON application, it is clear that the state is looking to move toward a system of more regulatory oversight.
DOH has yet to publish regulations or guidance (FAQs have been "under development" for two years) interpreting the existing law (such as what it means for revenue to be "in-state" and the definition of "health care entity"). Until then, parties to proposed material transactions should continue to use good faith efforts to comply with existing reporting instructions set forth in Section 4553 of the PHL and on the DOH website and submit specific questions to MaterialTransactionDisclosure@health.ny.gov.
Holland & Knight healthcare attorneys will continue to monitor the proposed legislation and any pending regulations as they become available.