In early 2025, New York Governor Kathy Hochul introduced a significant legislative proposal within the FY 2026 Executive Budget. This legislation, which establishes a "Cost Market Impact Review" (CMIR) process for major healthcare transactions, aims to evaluate their effects on cost, quality, access, health equity, and competition. The proposal has sparked discussions in both the healthcare and private equity sectors, presenting a unique opportunity for strategic planning and collaboration. The CMIR process signifies a broader regulatory shift towards transparency and accountability in healthcare transactions, introducing extended pre-closing notice periods, new reporting obligations, and potential delays due to comprehensive reviews by the New York Department of Health (DOH).

Understanding the Regulatory Changes and Their Scope

The proposed legislation introduces several key changes that will impact healthcare entities engaging in significant transactions. These changes include extended pre-closing notice periods, new annual reporting requirements, and the potential for lengthy delays as the DOH conducts thorough reviews. The legislation also introduces ambiguity regarding critical terms such as "healthcare entity," "material transaction," and "de minimis exception." While healthcare entities currently encompass a broad range of organizations, including physician practices, health systems, insurers, and management services, the law applies specifically to transactions increasing in-state revenues by $25 million or more. However, the definition of "in-state revenues" remains unclear, leaving room for interpretation.

The proposed legislation empowers the DOH to request extensive documentation during its preliminary review and potential CMIR. While these measures aim to protect patients and communities by promoting competition and health equity, they may add layers of complexity and delay to transactions. Private equity sponsors and healthcare systems accustomed to streamlined processes may face challenges adapting to these new requirements. Nevertheless, this regulatory shift also presents an opportunity for stakeholders to align transactions with state goals of improving healthcare outcomes and equity while ensuring compliance.

Strategic Planning and Collaboration in Response to Heightened Scrutiny

Private equity firms, hospital systems, and other stakeholders must adopt proactive strategies to address these regulatory changes. With increased focus on transparency, due diligence will evolve beyond evaluating financial viability and operational synergies. Stakeholders must now incorporate a detailed assessment of a transaction’s impact on access, quality, and equity, as perceived by regulators. Tailoring transaction structures to align with New York’s healthcare priorities can mitigate regulatory risk and position the transaction as a partnership with the state in achieving shared healthcare goals. For instance, emphasizing commitments to underserved communities, bolstering access to primary care, or investing in workforce development can enhance the transaction narrative.

For private equity firms, the legislation underscores the importance of long-term planning in healthcare investments. Engaging legal and regulatory experts early is crucial for navigating compliance complexities. Firms should be prepared to articulate how their transactions contribute to innovation and sustainability in healthcare delivery. Healthcare systems, meanwhile, face challenges balancing transaction timelines with regulatory compliance but can demonstrate leadership in addressing cost and quality challenges. Proactively engaging with state regulators can shape CMIR outcomes favorably. Ultimately, while the CMIR process may extend transaction timelines, it opens opportunities for stakeholders to differentiate themselves by addressing New York’s objectives and integrating advanced data analytics or innovative care models.