Navigating New York State's Expanded Regulatory Landscape: Implications for Health Care Transactions

Health care transactions in the United States are under unprecedented levels of regulatory scrutiny at both the federal and state levels. Regulatory authorities are increasingly focused on how these transactions affect access to care, quality of care, and pricing. There is a particular emphasis on private equity investments, aiming to ensure that the health care market remains competitive and fair.

A significant development occurred in New York State’s health care regulatory environment on August 1, 2023, with the enactment of Article 45-A of the Public Health Law (PHL).ⁱ This new law mandates health care entities involved in “material transactions” to notify the New York State Department of Health at least 30 days before closing a transaction. As New York State health care providers navigate this new requirement, it is critical to understand the broader context of both state and federal oversight, which is essential to ensure compliance and minimize risk.

Key Provisions of Article 45-A

Article 45-A was introduced in response to growing concerns over health care consolidation and its potential impact on competition, access, and quality of care. The law defines a “material transaction” as any merger, acquisition, or similar arrangement that increases a health care entity’s total gross in-state revenues by $25 million or more within a 12-month period. The law is applicable to a wide range of health care entities, including:

• Physician practices and groups
• Management services organizations (MSOs) providing administrative or management services to physician practices
• Health insurance plans
• Any other health care facility, organization, or plan providing health care services in New York State

Transactions already subject to existing Certificate of Need (CON) or insurance-entity approval processes under New York State law are exempt.

Reporting and Compliance Requirements

Health care entities must submit a detailed notice to the New York State Department of Health at least 30 days prior to closing a material transaction. The notice must include:

• A summary of the transaction
• Names of the parties involved, including parent organizations
• An executive summary detailing the nature and purpose of the transaction
• An analysis of the impact on services, including potential changes to cost, quality, access, health equity, and competition

The New York State Department of Health is required to publish details of these transactions on its website for public notice and comment. Failure to comply with these reporting requirements can result in significant civil penalties, with each day of noncompliance constituting a separate violation.

Broader Regulatory Trends

New York State’s Article 45-A is part of a broader trend in state-level regulatory oversight of health care transactions, driven by concerns over consolidation and its impact on competition, cost, and access to care. Many states, including California,ⁱⁱ Massachusetts,ⁱⁱⁱ Connecticut,^iv and Illinois,^v have also enacted or proposed legislation to enhance scrutiny of health care mergers and acquisitions, particularly those involving private equity and MSOs.

This increased oversight adds additional complexity and risk to health care transactions. Review periods may extend beyond traditional timeframes, and disclosures now often require detailed financial projections and impact analyses, potentially leading to operational audits.

At the federal level, regulatory scrutiny has also intensified. On March 5, 2024, the Department of Justice’s (DOJ) Antitrust Division, the Federal Trade Commission (FTC), and the Department of Health and Human Services (HHS) launched a public inquiry into the increasing influence of private equity and other corporations in the health care sector. This inquiry seeks public input on transactions involving health systems, private payors, private equity funds, and other alternative asset managers, particularly those not triggering reporting requirements under the Hart-Scott-Rodino Antitrust Improvements Act.^vi

As a part of this initiative, the FTC hosted a workshop titled “Private Capital, Public Impact: An FTC Workshop on Private Equity in Health Care.” The workshop focused on the FTC’s significant concerns regarding the “roll-up” strategy often used by private equity firms, where firms acquire multiple health care providers within a specific region. The FTC’s heightened attention to this issue was underscored by a lawsuit filed in September 2023 against a private equity–backed Texas anesthesia services provider, although the lawsuit against the private equity firm was dismissed in May 2024 due to insufficient evidence of antitrust violation.^vii 

In response to the FTC’s public inquiry, a coalition of 11 state attorneys general submitted a comment letter on June 6, 2024, advocating for more comprehensive disclosure of organizational structures and quality of care metrics from entities involved in health care transactions. The letter strongly urged for increased transparency and oversight in health care deals. 

Additionally, federal legislative committees, including the US Senate’s Homeland Security and Governmental Affairs Committee and the Senate’s Committee on Health, Education, Labor & Pensions, have increased their scrutiny of private equity’s role in health care. These committees have conducted independent investigations into how private equity investments affect patient care and health system operations.

Strategic Considerations for Health Care Entities

Given the expanding regulatory landscape, health care entities interested in engaging in transactions should proactively take steps to ensure compliance and mitigate potential risks:

1. Early Planning and Legal Consultation: Engage legal counsel early in the transaction process to navigate new regulatory requirements effectively.
2. Enhanced Disclosure Preparation: Prepare for more extensive disclosure obligations, including impact analyses that go beyond basic transaction terms.
3. Anticipate Longer Review Periods: Adjust transaction timelines to account for potentially extended review periods and increased scrutiny.
4. Monitor State-Level Developments: Stay informed of regulatory changes in New York State and other states, as these developments can influence transaction strategy and execution.

Conclusion

The enactment of Article 45-A highlights the heightened oversight aimed at how health care transactions are regulated in New York State. As regulatory bodies continue to expand their oversight of mergers and acquisitions in the health care sector, entities must remain vigilant in their compliance efforts. Successfully navigating this complex and evolving regulatory landscape requires careful planning and a thorough understanding of federal and state requirements.

For further guidance on how these changes may impact your organization, please contact the attorneys on Barclay Damon’s Health & Human Services Providers Team. We are committed to helping you successfully manage these complex regulatory challenges.

If you have any questions regarding the content of this alert, please contact Jamie Dughi Hogenkamp, counsel, at jdughi@barclaydamon.com; Tricia Lu, associate, at tlu@barclaydamon.com; or another member of the firm’s Health & Human Services Providers Team.
                                                                                                  
ⁱN.Y. Pub. Health Law Art. 45-A.
ⁱⁱCal. Health & Saf. Code § 127500-127507.6.
ⁱⁱⁱMass. Gen. Laws Ch. 6D § 13.
^ivConn. Gen. Stat. § 19a-486i.
^v740 Ill. Comp. Stat. Ann. § 10/7.2a.
^vii15 U.S.C. § 18a
  Memorandum Opinion and Order, Federal Trade Commission v. U.S. Anesthesia Partners, Inc. et al., 4:23-cv-03560 (S.D. Tex. May 13, 2024), available at https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-challenges-private-equity-firms-scheme-suppress-competition-anesthesiology-practices-across.