California’s Office of Health Care Affordability (OHCA) released a set of proposed revisions to its sweeping Cost & Market Impact Review (CMIR) regulations yesterday afternoon. The proposed edits reflect a few lessons learned in OHCA’s first five months of implementing the CMIR regulations and hint at some of the potential ongoing discussions between OHCA and material change transaction notice (MCN) submitters whose notices are not yet “deemed complete” and have not been publicly posted.

What does OHCA propose to change?

• OHCA proposes to limit the use of the defined term “affiliation” to certain sections of the CMIR regulations and otherwise leaves the term “affiliate” undefined.
• OHCA proposes to broaden its net to capture more transactions, including:
  • Additions to provide that a health care entity need not be a party to the transaction – it could merely be the “subject” of the transaction.
  • An expansion of certain CMIR size thresholds such that transacting with the parent of a health care entity could trigger an obligation to file an MCN.
• OHCA proposes to switch out the term “health care entity” for “provider or fully integrated delivery system” in a few sections of the regulations.
• OHCA offers a newer, shorter definition of “annual California-derived revenue” (defined to be “revenue from the provision of health care services in California”) – but only to be used in certain sections.
• OHCA proposes the addition of a burden on submitters to exercise “reasonable diligence” to obtain the information required in an MCN.
• OHCA proposes new language to allow submitters to withdraw certain information if a request for confidential treatment has been denied.

What could be the effect?

OHCA’s proposed change to include transactions where a health care entity is merely the “subject” of a transaction could be the result of its review of its first MCN “deemed complete,” which involves a skilled nursing facility. Consider a transaction in which the parties include a facility operator and a landlord, but not the facility itself. However, this change introduces a new host of questions on what it means to be the “subject” of a transaction. OHCA attempts to clarify by adding that “[b]eing the subject of a transaction means the transaction … concerns a health care entity’s assets, control, responsibility, governance, or operations, in whole or in part.” But what does it mean to “concern” another entity’s assets, control, responsibility, governance or operations? Does the transaction document merely need to reference a health care entity in passing? Or must the health care entity be the central focus and driving purpose of the transaction?

What do these changes hint about current MCNs?

To date, OHCA has only posted one “deemed complete” MCN. However, some of OHCA’s proposed edits suggest ongoing conversations with other potential submitters, including questions on what to do if an entity is not able to obtain all of the information listed in § 97438, and how far an entity must go to obtain these materials.

Other nonpublic discussions with submitters likely involve confidentiality. Notably, OHCA has proposed language that would allow a submitter to request to withdraw information if OHCA denies a requested confidentiality designation. However, OHCA has not clarified whether or how such request would be granted, whether OHCA would retain a copy of the withdrawn information, and what such withdrawal would mean for the submitter’s MCN and reaching “deemed complete” status. In any case, submitters may reasonably assume that such information could still be disclosed to the California Attorney General’s office, as discussed in § 97438(d)(4).

What happens next?

Recall that OHCA’s authorizing statute permits OHCA to adopt effectuating regulations on an emergency basis until Jan. 1, 2027 – so expect changes to happen quickly.

• OHCA will discuss the proposed revisions at the Health Care Affordability Board’s next meeting, on Wednesday, May 22.
• OHCA will accept public comments until May 30.
• After public comment, OHCA must submit the proposed regulations to California’s Office of Administrative Law (OAL).[1]

[1] Be aware that the regulations released by the OAL may vary slightly from the regulations submitted by OHCA, as seen this past winter, when the final CMIR regulations became effective on Dec. 18, 2023.

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