New York Department of Health Issues Guidance Clarifying the Scope of its Health Care Transaction Law

This month, nearly two years after the passage of New York’s health care transaction law, N.Y. Pub. Health Law § 4550 et seq. (described in our previous Alert), the New York State Department of Health (“DOH”) released guidance clarifying its reporting requirements. Published in the form of Frequently Asked Questions (“FAQs”), this FAQ page is the first-of-its-kind guidance promulgated by DOH in connection with the state’s health care transaction law.¹ DOH states that its FAQs provide responses to “common questions” it has received to date from both health care entities and their legal representatives regarding the applicability of reporting requirements. As described below, the FAQs provide further clarity regarding various topics, including the types of health care entities required to file, and how to determine whether a transaction meets the law’s “de minimis” revenue exception.

Notably, this guidance comes in the midst of proposed revisions by Governor Hochul, introduced as part of her State Fiscal Year 2025-26 executive budget, to strengthen DOH’s oversight of health care transactions.² To date, only nine transactions have been reported to DOH since New York’s health care transaction law notice requirement became effective in August 2023.³ The New York legislature is currently considering proposed legislation as part of state budget negotiations,⁴ which would expand New York’s current law from notice-only to a notice to and review of transactions by DOH.

The proposed legislation would also provide DOH with authority to initiate 180-day “cost and market impact reviews” and to conduct annual reviews of transactions for five years post-closing. These legislative changes would align New York’s health care transaction law more closely with those in other states, such as Oregon and Massachusetts. We are closely monitoring updates regarding this proposed legislation, which is part of a nationwide trend of states across the country seeking to introduce new legislation to increase oversight over health care transactions. See HealthTrax Map.

FAQs: Key Takeaways

1. Health Care Entities Subject to Review

Covered Entities. Currently, PHL § 4550(2) defines “health care entities” subject to review to include physician practices, management services organizations (“MSOs”), provider-sponsored organizations, health insurance plans, and “any other kind of health care facility, organization or plan providing health care services in New York.” This broad definition led to a number of questions regarding the types of entities that would be subject to review. The FAQs clarify that DOH has advised that the following, non-exhaustive list of entities are considered “health care entities”:

1. Dental practices;⁵
2. Clinical laboratories;
3. Pharmacies;
4. Wholesale pharmacies;
5. Independent practice associations; and
6. Accountable care organizations.

Out-of-State Entities. The FAQs emphasize that the applicability of New York’s health care transaction law “does not turn on whether or not an entity is physically located in or domiciled in [New York]”; transactions involving out-of-state entities may be subject to the law’s notice requirements if entities involved in the transaction meet relevant thresholds for in-state revenue.⁶

2. Material Transactions Subject to Review

The FAQs offer two main points of clarification with respect to “material transactions” subject to review:

• Under PHL § 4550(4)(a), “material transactions” subject to review include mergers and acquisitions involving health care entities, affiliation agreements or contracts formed with a health care entity, and the formation of an entity for the purpose of administering contracts with health plans, third-party administrators, pharmacy benefit managers or health care providers. The FAQs clarify that an “acquisition” of a health care entity includes contracting for services provided through a management or administrative services agreement between a practice and an MSO.
• While PHL § 4550(4)(b) provides that “material transactions” shall not include “any transaction” already subject to DOH’s Certificate of Need (“CON”) process for Article 28 (e.g., hospitals and nursing homes) or certain insurance-entity approval processes, the FAQs caution that transactions subject to such review may not be fully exempt from notice requirements under the law. The FAQs encourage parties to assess proposed transactions to identify any discrete portions of the transaction that are not covered under the CON or insurance-entity approval processes. If discrete portions of a transaction are identified that independently exceed the “de minimis” exception (as described below), such portions must be reported to DOH as a “material transaction.”

3. Calculating the $25 Million “De Minimis” Threshold Exception

A health care transaction must meet certain materiality thresholds to constitute a “material transaction” subject to review by DOH. Specifically, PHL § 4550(4)(b) exempts “de minimis” transactions, which are defined as a transaction or series of related transactions “which result in a health care entity increasing its total gross in-state revenues by less than twenty-five million dollars.” The statute does not provide further clarity regarding calculation of such threshold, which has led to many questions regarding proper interpretation of the term. The FAQs provide details regarding how entities should assess whether they meet such thresholds:

• The calculation of “gross in-state revenue” should be based on an annual revenue of the entity(ies) involved, using a 12-month lookback period from the anticipated closing date.
• The calculation of the threshold varies based on the form of the transaction:
  • Acquisition: Assess whether the acquired entity produced at least $25 million of gross in-state revenue in the prior 12-month period.
  • Merger: Assess whether the total combined gross in-state revenue of the merged entities in the prior 12-month period is at least $25 million.
  • Series of related transactions: Assess whether the sum of the gross in-state revenue associated with each related transaction in the past 12 months is at least $25 million.

Notably, neither the statute nor the FAQs define the term “gross in-state revenue” or describe what constitutes a “series of related transactions.” As such, a number of questions remain with respect to calculating the “de minimis” threshold.

4. Assessing Impacts of the Transaction

Under PHL § 4552(f), notices of material transactions must include information regarding the “the anticipated impact” of the transaction on quality, access, health equity, and competition. These themes are the focus of health care transaction laws and pending legislation nationwide, and cover both health care and antitrust-specific concerns. The FAQs provide further guidance regarding the types of factors that parties should consider in reporting on “the anticipated impact” of a transaction, directing parties to undertake a “good faith assessment” of the transaction’s impact on the following circumstances:

1. Types/availability of services (e.g., reductions, expansion);
2. Insurance contracts (including impact on Medicaid participation);
3. Service locations;
4. Health care staffing (i.e., additions or cuts);
5. Contracted commercial payor rate increases;
6. Share of services provided to historically underserved populations; and
7. Any increase in market consolidation.

DOH has not yet released a notice or similar application form, but has stated that a Material Transactions Form is “under development and will be posted shortly.”⁷