The New York State Assembly introduced a bill titled Disclosure of Material Changes to Veterinary Clinics, which would require veterinary clinics to notify and submit documentation to the state Attorney General's (AG) office prior to consummating certain transactions and permit the AG to altogether prohibit acquisitions of veterinary clinics that are against the public interest. Bearing a certain resemblance to the state's existing healthcare Material Transaction Law (NY PHL Article 45‑A), which went into effect on Aug. 1, 2023, Assembly Bill (AB) 9042 would add a new Article 26‑D to the Agriculture and Markets Law, creating a layer of oversight in veterinary industry transactions that is both new and familiar.
The new law would require acquiring entities of "veterinary clinics" – defined to include veterinary providers, practices and groups, as well as management services organizations (MSOs) providing all or substantially all of the administrative or management services under contract with such clinics – to submit written notice and supporting documentation to the Department of Agriculture and Markets (the Department) of any transaction involving "material change" no later than 14 days after the transaction has been agreed to (signing) and prior to consummation (closing). The Department must immediately share the submission with the antitrust, healthcare and charities bureaus of the AG's office for purposes of determining whether the material change is against the public interest.
A "material change" means 1) the sale, transfer, lease or other encumbrance of a material amount – defined as $200,000 – of a veterinary clinic's assets or operations, 2) a merger, acquisition (including a change in control), or a contracting affiliation with another vet clinic or provider organization, or 3) a capital distribution or similar reduction of a veterinary clinic's equity capital by a material amount or the incursion of an obligation that commits the veterinary clinic to make a capital distribution or similar reduction of equity by a material amount.
The list of documentation to be submitted – all of which is excluded from disclosure under the state's Freedom of Information Law – is broad and comprises, among other things (including any additional items to be defined by regulation), all governance documents, transaction documents and ancillary agreements (including employment agreements, debt instruments and stock restrictions) necessary to consummate the transaction, financial documents (e.g., audited financial statements, asset valuation data and fair market value analyses), organizational charts, a list of ongoing litigation and information about other investments in healthcare entities that have closed or experienced a reduction in services over the past three years.
Unlike PHL Article 45‑A, which fundamentally is a disclosure and transparency law that requires certain "health care entities" engaging in "material transactions" to give written notice to the Department of Health (DOH) at least 30 days prior to closing, AB 9042 empowers the AG to block a veterinary clinic transaction deemed to be "against the public interest," which means, in the opinion of the AG, the transaction has one of the following impacts:
- reduced competition or increased costs for veterinary care
- unfair methods of competition or deceptive acts or practices in or affecting veterinary care commerce
- reduced quality of care, including below standard of care or care that is not in the best interests of patients
- reduced access to or availability of veterinary care or
- reduced access to care in a rural, low-income or disadvantaged community
Making Determinations
The AG can nevertheless permit such a transaction to proceed if it determines there is "no feasible alternative to prevent a veterinary clinic's closure or greater loss of health services."
A determination that the transaction is against the public interest must be made, and the parties to the transaction must be notified by the AG, within 90 days after it receives the submission from the Department. If the parties do not voluntarily terminate the transaction after receiving the notice, the AG may commence an action to enjoin the transaction. If the AG does not make a determination within the 90-day period, the parties may proceed with the transaction.
AB 9042 would create a veterinary‑specific, preclosing notification framework similar to the Material Transaction Law, but that is where the similarities end. With a low-dollar trigger and substantive AG public‑interest review that could block deals, AB 9042 is decidedly more sweeping. Though a long way from being signed into law, if the bill advances and subsequently passes, proposed veterinary clinic acquirers and MSO partners will need to be prepared with robust diligence files (organizational charts, valuations, related‑party disclosures, real estate and financing arrangements, etc.) and build the 90‑day AG review period into their closing timelines.
Holland & Knight attorneys will continue to monitor further developments on AB 9042 and any other legislation impacting the veterinary industry.
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