Beneath we define what you should know from the not too long ago proposed rules if you’re a well being care entity evaluating a transaction in California that’s anticipated to shut on or after April 1, 2024.

For the reason that institution of the Workplace of Well being Care Affordability (OHCA), well being care entities considering mergers, acquisitions, and different transactions in California have been anxiously ready for OHCA to concern rules clarifying its authority to overview and examine sure California well being care offers. SB 184, which was handed by the California legislature on June 20, 2022, requires well being care entities to supply a 90 day written discover to OHCA of any proposed merger, acquisition, company affiliation, or different transaction that may end in a fabric change to the possession, operations, or governance construction of a well being care entity. A abstract of the invoice is linked right here.

The brand new legislation applies to transactions involving payors, suppliers, absolutely built-in supply methods, pharmacy profit managers, administration service organizations, and any associates, subsidiaries, or different entities that management, govern, or are financially liable for the well being care entity.

Entities topic to the statute should submit a Materials Change Discover (MCN) for transactions closing on or after April 1, 2024. Throughout a public workshop held by the Division of Well being Care Entry and Info (HCAI) on August 15, 2023, OHCA acknowledged that it expects entities to start submitting MCNs as early as January 1, 2024 if a transaction is ready to shut on or after April 1, 2024. If OHCA determines that the transaction may threaten market competitors or well being care affordability, then OHCA will conduct a price and market impression overview (CMIR), which may delay the cut-off date or threaten the transaction as a complete.

OHCA printed draft emergency rules on July 28, 2023 which make clear the MCN and CMIR processes. HCAI accepted oral feedback to the proposed rules throughout its public workshop and is accepting written feedback submitted by 5:00 PM on August 31, 2023. Remaining guidelines are anticipated in November 2023.

What are the MCN submitting thresholds? A Two-Step Inquiry.

There’s a two-step inquiry that should happen when figuring out whether or not a transaction requires an MCN. Step one is to judge who should file the MCN. The draft rules present that the next events should file an MCN:

1. A well being care entity with annual income of at the least $25 million or that owns or controls California belongings of at the least $25 million;
2. A well being care entity with annual income of: (i) at the least $10 million or that owns or controls California belongings of at the least $10 million; and (ii) is concerned in a transaction with any well being care entity with annual income or controlling belongings of at the least $25 million; or
3. A well being care entity situated in or serving at the least fifty % of sufferers who reside in a well being skilled scarcity space.

If any social gathering to the transaction satisfies one of many necessities above, then the events should decide whether or not the circumstances of the transaction qualify as a “materials change.” The draft rules present that an MCN have to be filed if the transaction consists of any of the next:

1. The proposed honest market worth of the transaction is $25 million or extra, and the transaction considerations the provisions of well being care companies;
2. The transaction is prone to enhance annual income of any well being care entity that could be a social gathering to the transaction by at the least $10 million or twenty % of annual income at regular or stabilized ranges of utilization or operation;
3. The transaction entails the sale, switch, lease, alternate, choice, encumbrance, or different disposition of twenty % or extra of the belongings of any well being care entity that could be a social gathering to the transaction;
4. The transaction entails a switch or change in management, duty, or governance of the submitting entity;
5. The phrases of the transaction ponder an entity negotiating or administering contracts with payers on behalf of a number of suppliers and the transaction entails an affiliation, partnership, three way partnership, accountable care group, guardian company, administration companies group, or different group;
6. The transaction entails the formation of a brand new well being care entity, affiliation, partnership, three way partnership, or guardian company for the supply of well being companies in California that’s projected to have at the least $25 million in annual income at regular or stabilized ranges of utilization or operation, or have management of belongings associated to the supply of well being care companies valued at $25 million or extra;
7. The transaction entails a well being care entity becoming a member of, merging, or affiliating with one other well being care entity, affiliation, partnership, three way partnership, or guardian company associated to the supply of well being care companies the place any well being care entity has at the least $10 million in annual income;
8. The transaction modifications the type of possession of a well being care entity that could be a social gathering to the transaction; or
9. A well being care entity that could be a social gathering to the transaction has consummated any transaction concerning provision of well being care companies in California with one other social gathering to the transaction inside ten years previous to the present transaction.

The draft rules additional make clear the which means of a change in management, duty or governance, and exempt sure forms of company restructuring from the scope of a fabric change.

The MCN and CMIR Course of

Events should file an MCN on OHCA’s web site, by way of an OHCA portal. The draft rules embody an outline of the knowledge that have to be included within the MCN, which incorporates monetary details about the events concerned within the transaction, the aim and meant targets of the transaction, the impression of the transaction on the general public, and an outline of actions the events have taken to mitigate probably hostile impacts of the transaction on the general public. The proposed rules additionally present a course of for the events to request confidential remedy of paperwork supplied as a part of the MCN. As soon as an entire MCN is filed, OHCA may have 60 days to resolve whether or not to conduct a CMIR, or waive the CMIR course of. 

If OHCA conducts a CMIR, OHCA may have ninety days to concern its preliminary CMIR Report of Findings. This overview interval could also be tolled if OHCA requires extra info to finish its overview. In issuing its preliminary CMIR report, OHCA will think about sure elements regarding the well being care entities’ enterprise and relative market place, together with the impact of the transaction on entry and availability of well being care companies locally, the aggressive impacts of the transaction, and different elements that OHCA determines are within the public curiosity. A transaction might shut sixty days after OHCA points a Remaining Report of Findings.

What Stays Unclear

The draft rules present some readability on the forms of transactions that can be topic to the MCN and CMIR overview course of, together with events’ rights to contest or enchantment sure OHCA findings. Whereas the draft rules embody some timing obligations for this overview course of, it’s unclear how lengthy the OHCA overview course of will take for a given transaction, and the enterprise impression of this overview course of. Relying on the depth of overview, transactions requiring an MCN and CMIR may probably face virtually a yr delay in closing. Furthermore, it isn’t clear how OHCA will interpret the impression of sure forms of transactions in a group, whether or not CMIR experiences would require substantial modifications to the construction of sure transactions, or how typically OHCA will refer transactions to the Lawyer Normal for additional overview. 

What to Do Now?

Assuming the Proposed Laws are finalized with out vital modifications, and grow to be efficient for transactions beginning in 2024, events considering coated transactions ought to think about timing implications, in addition to put together for the extra scrutiny which isn’t presently utilized to well being care transactions in California. 

Foley is right here that can assist you deal with the quick and long-term impacts within the wake of regulatory modifications. We now have the sources that can assist you navigate these and different vital authorized issues associated to enterprise operations and industry-specific points. Please attain out to the authors, your Foley relationship companion, or to our Well being Care Follow Group with any questions.