The California Office of Healthcare Affordability (OHCA) released updated regulations this month pertaining to the healthcare transaction notice requirements that will apply to transactions that close on or after April 1, 2024. The revised healthcare notice requirements incorporate several public comments that were submitted earlier this year.

Background

On June 30, 2022, the Health Care Quality and Affordability Act (SB 184) was signed into law in California. The new law established OHCA and set forth that OHCA would be tasked with overseeing and containing healthcare spending in California. As part of that responsibility, OHCA would review certain proposed healthcare transactions in the state.

Earlier this year, OHCA published proposed regulations to govern the review of proposed healthcare transactions that close on or after April 1, 2024. Beginning on April 1, 2024, a “health care entity” (defined below) is required to provide written notice to OHCA at least 90 days prior to entering into a covered agreement or transaction. Within 60 days, OHCA will advise the entity whether OHCA will conduct a cost and market impact review (CMIR) or provide a written waiver. OHCA must conduct a CMIR if the proposed transaction is “likely to have a risk of a significant impact on market competition, the state’s ability to meet cost targets, or costs for purchasers and consumers.”

OHCA may not block a transaction, but the review could take longer than the 90-day notice period and should be factored into a transaction’s closing timeline. If OHCA conducts a CMIR, the transaction may not close until 60 days after OHCA issues its final report. In addition, OHCA will make all materials submitted during the review publicly available unless the submitter files a request for confidentiality that is granted by OHCA.

Revised Regulations

The revised regulations make several key changes to the new notice requirements including:

• “Health Care Entity” Definition: The definition of “health care entity” includes any payer, provider, or fully integrated delivery system that would include physician organizations, hospitals, hospital outpatient departments, and ambulatory surgery centers. The updated regulations revise the definition of a health care entity to remove management services organizations (MSOs). However, the definition includes “an organization that acts as an agent of a provider(s) in contracting with payers, negotiating for rates, or developing networks.” Therefore, some MSOs may still be subject to the notice requirements if they act in this capacity.
• “Material Change Transaction” Definition: Only certain transactions are subject to the notice requirements. The revised regulations remove certain transactions from the notice requirements, including transactions that occur in the ordinary course of business and certain corporate restructuring transactions.
• Material Change Transaction Criteria: Under the revised regulations, the entities that are required to file a written notice of the transaction with OHCA include:
  • Health care entities that have at least $25 million in revenue and control or own at least $25 million worth of California assets;
  • Health care entities that have a least $10 million in revenue and control or own at least $10 million worth of California assets and are involved in a transaction with a health care entity that meets either of the $25 million thresholds described above; and
  • Health care entities that are “located in a designated mental health or primary care health professional shortage area.”
• Material Change Thresholds: The updated regulations change some of the material change threshold notice triggering amounts, including revising the transaction amount from 20% to “25% or more of the total California assets of any health care entity in the transaction.” This revision raises the threshold amount and limits it to California assets instead of assets in general. The revised regulations also increase the threshold for transfer of control from 10% to “25% or more of the voting power of the members of the governing body of a health care entity.” If the transaction is a series of related transactions, the transactions will be treated as one transaction for purposes of meeting the thresholds described above. If those thresholds are met, the series of related transactions will be subject to the notice requirements.
• Expedited Review: The updated regulations add a new section setting forth guidelines for requesting an expedited review. The submitter will file the notice and the request for expedited review to OHCA at the same time. The request should include a description and documentation explaining why an expedited review is necessary and a date by which the submitter is requesting that the review be completed. Reasons for submitting an expedited review include severe financial distress or “any significant reduction in the provision of critical health care services within a geographic region or regions.” OHCA has discretion to deny a submitter’s expedited review request.

These revised regulations provide clarity on what types of entities and transactions are required to comply with these notice requirements. The updated rules also provide for a new expedited review, but because OHCA may not grant the request, entities should continue to calculate enough lead time into their closing timeline to complete the notice process.

For a copy of the regulations, please click here.