Only two months after California’s cost and market impact review (CMIR) regime began to require notice of certain healthcare-related transactions, the Office of Health Care Affordability (OHCA) has already proposed several amendments (Amendments) to the regulations. To recap, the CMIR regulations as currently in effect require that health care entities (HCEs) notify OHCA of transactions meeting certain materiality thresholds at least ninety days prior to closing, as discussed in depth in our previous blog series.[1] Public comments to the Amendments will be accepted until June 20, 2024 and the Amendments are scheduled for discussion at an OHCA board meeting on June 26, 2024. OHCA has not yet announced when the Amendments would take effect, if passed.
What do the Amendments Change?
To summarize, the Amendments would: expand the scope of entities subject to CMIR, require an HCE submitting notice to attest it used reasonable diligence to ascertain the required information, and add the potential effect of an HCE’s “ability to meet any health care cost targets established” as a factor for OHCA to consider, among other revisions.
Notably, the Amendments:
- Broaden the scope of entities responsible for filing—In addition to HCEs that are “parties” to a material change transaction (MCT), HCEs that are “subject to” a MCT would have to file. “Being a subject of a transaction means the transaction . . . concerns a health care entity’s assets, control, responsibility, governance, or operations, in whole or in part.”[2]Further, the threshold which requires an HCE with at least $10 million in annual revenue, or that owns or controls at least $10 million of California assets, to file if it transacts with an entity meeting the $25 million revenue or assets threshold, would be expanded to apply if such HCE transacts with an entity owning or controlling any HCE meeting the $25 million threshold.[3]
- Add new definition of “annual California-derived revenue”—The phrase has been defined for certain purposes as “revenue from the provision of health care services in California.”[4]
- Require attestation of reasonable diligence—When filing the MCT notice, HCEs would need to attest that reasonable diligence was used to ascertain the information required for the notice.[5]
- Heighten standard of diligence required when disclosing other involved parties—Whereas the current regulations only ask for identification of other parties to the transaction to the extent the submitter has access to the information, the Amendments would require that the submitter “exercise reasonable diligence” to ascertain and describe that information.[6]
- Allow for withdrawal of information after denied confidentiality request—HCEs can submit a request through the portal to withdraw any information or documents provided in the notice associated with a denied confidentiality request.[7]
- Add cost-growth target factor for OHCA to consider when conducting review—The Amendments specify that OHCA can consider the transaction’s effect “on any [HCE’s] “ability to meet any health care cost target.”[8] As we summarized in another post, OHCA’s board voted in April 2024 to implement a five-year cost-growth cap plan, starting with a 3.5% cap in 2025.[9] In addition to considering a transaction’s potential impact on the HCE’s ability to meet cost targets as a factor during the CMIR, OHCA may consider this as a factor when it initially decides whether to conduct a CMIR.
- Replace certain “health care entity” language with “provider or fully integrated delivery system.”
Planning Ahead
Health care entities should continue to monitor the development of these Amendments to ensure they are in compliance with all notice requirements. We will update this blog series when OHCA finalizes the Amendments or announces any other updates to the CMIR process following its discussion at the board meeting on June 26, 2024.
FOOTNOTES
[1] See our blog series on SB 184, OHCA, and its CMIR regulations, available at:
- California Office of Health Care Affordability: Another Regulatory Hurdle for California Healthcare M&A Transactions?, published 3/3/23.
- Update from California’s Office of Health Care Affordability (OHCA): Proposed Regulations re Material Change Transactions and Pre-Transaction Review, published 8/3/23.
- Public Workshop for OHCA’s Proposed Regulations Sparks Lively Discussion Among Industry Stakeholders, published 9/7/23.
- OHCA’s Revised Regulations Following Comments from Industry Stakeholders, published 10/24/23.
- OHCA Published Near-Final Draft of Regulations Requiring Notice and Review of Material Healthcare Transactions in 2024, published 12/6/23.
- The Stage is Set: California Finalizes OHCA Regulations Requiring Notice and Review of Material Healthcare Transactions, published 1/2/24.
[2] 22 Cal. Code Regs. § 97435(b).
[3] 22 Cal. Code Regs. § 97435(b)(2)(B).
[4] 22 Cal. Code Regs. § 97435(c).
[5] 22 Cal. Code Regs. § 97438(a).
[6] 22 Cal. Code Regs. § 97438(b)(3).
[7] 22 Cal. Code Regs. § 97438(d)(4).
[8] 22 Cal. Code Regs. § 97442(b)(4).
[9] California is Capping Health Care Cost Increases – Starting at 3.5% in 2025, published 5/7/24.