As we anticipated in our earlier weblog article, the Workplace of Well being Care Affordability (OHCA) made revisions to its proposed rules following the general public workshop hosted by the California Division of Well being Care Entry and Data (HCAI) in August. On October 9, 2023, HCAI and OHCA printed a revised draft of the rules. Our August weblog article outlined the substance of the unique draft rules; this text summarizes the important takeaways relating to the revisions.

Noteworthy Takeaways and Revisions

OHCA made modest revisions to the rules, a few of which seemingly sought to handle issues raised by commenters within the public workshop. The goal of the rules stays considerably the identical, which is to require sure “well being care entities” (“HCEs”), that are outlined primarily to incorporate suppliers and payors, to submit an in depth discover prematurely of sure transactions and await a call by OHCA to conduct a price and market influence assessment (“CMIR”). The next highlights necessary modifications and unaltered parts of the principles:

• Scope of Regulated Events and Transactions

A number of commenters on the public workshop criticized the broad scope of the rules, particularly for together with administration companies organizations (“MSOs”) within the definition of an HCE. The revised draft rules eliminated the point out of MSOs from the definition, however it’s nonetheless potential for an MSO to fall throughout the scope of the rules if the MSO independently meets the revised definition of an HCE.

OHCA additionally revised the definition of a “materials change transaction,” maybe in response to issues raised by some commenters that the unique definition would have appeared to implicate routine or atypical course transactions. Now, the revised rules use the definition below Part 127500.2 of the California Well being and Security Code, and explicitly carve out the next from the definition:

1. “transactions within the ordinary and common course of enterprise” and
2. conditions wherein the HCE already instantly or not directly controls or shares frequent management with all different events to the transaction.

Below the rules, HCEs topic to the discover necessities should meet at the least one income or service space threshold. OHCA made just a few tweaks to the proposed thresholds, together with to restrict the well being skilled scarcity space threshold to solely HCEs situated in a designated psychological well being or major care well being skilled scarcity space relatively than these HCEs serving sufferers residing in a well being skilled scarcity space.

Notably, nonetheless, OHCA retained many of the transactional circumstances requiring a submitting, together with transactions for which the truthful market worth is $25 million or extra.

• Distressed Hospitals and Different Distressed Property

OHCA seems to have been conscious of commenters who expressed concern that OHCA’s assessment timeline might stop distressed companies and healthcare property from acquiring monetary assist. The revised draft rules ponder an expedited assessment course of, which is on the market by request if an HCE sufficiently demonstrates expedited assessment is warranted because of both (1) extreme monetary misery of a number of of the events, or (2) important discount within the provision of important well being care companies inside a geographic space. The expedited course of is not going to be out there for many transactions, because it requires the events to primarily be approaching chapter or insolvency to qualify. OHCA additionally doesn’t specify the timeframe for expedited assessment or present any significant comparability to the atypical assessment timeframe, as additional described beneath.

• Consideration of “Materials Change Transactions” and CMIR

Typically talking, OHCA seems to have taken a light-weight contact when it comes to revisions to the requirements relating to which transactions will warrant a CMIR. Certainly, OHCA didn’t revise the principles to require the consideration of potential advantages of a transaction, as requested by some commenters. Nevertheless, it did incorporate sure feedback on the factors for deciding whether or not to conduct a CMIR. Particularly, it added elements associated to the transaction’s: (i) potential destructive impacts on the labor market; (ii) furthering of a pattern towards consolidation; (iii) skill to generate a dominant market place; and (iv) if between an HCE in California and an out of state entity, the impact on affordability, high quality, or entry to companies or to the monetary stability of the California HCE.

• Timing Issues, Reporting Necessities and Charges

There are a number of elements to the timeline for assessment of any transaction that falls throughout the scope of OHCA’s rules, and for probably the most half, the revised rules (other than the restricted expedited assessment course of highlighted above) don’t essentially change the timeline framework. An HCE should present discover at the least 90 days previous to the transaction’s deadline, if anticipated to be on or after April 1, 2024. Then, inside 60 days after a whole discover, OHCA will share its determination whether or not to conduct a CMIR. This era might lengthen previous 60 days as a result of OHCA might toll the time interval throughout any time it waits on an HCE for info it has requested, or whereas one other state or federal company opinions the transaction. Assuming the HCE doesn’t problem the willpower about whether or not to conduct a CMIR, OHCA shall full the CMIR inside 90 days. Much like the preliminary determination, this isn’t a tough deadline, because the 90 day interval could also be prolonged by as much as 45 days if extra time is required.

If all goes in accordance with plan, and OHCA doesn’t toll its clock at any level all through the discover and assessment course of, the CMIR can be accomplished between 60 and 105 days after the anticipated deadline. To additional complicate this calendar of occasions, in circumstances the place a number of events to a transaction should submit discover, the “clock” is not going to start till all events have submitted efficient discover.

Apart from the fee related to doubtlessly severe delays in consummating a transaction, the reporting necessities for the rules are in depth. Entities contemplating a transaction with a goal deadline wherever close to April 1, 2024 needs to be ready to deploy appreciable time and assets to satisfy the reporting necessities contemplated in OHCA’s rules, assuming this newest draft turns into finalized.

The draft rules require sure paperwork to be submitted with the preliminary. These embrace licensed (i.e., audited, if routinely ready by the entity) monetary statements, contact info for these chargeable for the transaction, company organizational paperwork, agreements associated to the transaction, and any professional forma post-transaction steadiness sheet for any surviving entity. The revised draft additionally requires documentation associated to the valuation of the transaction and documentation that identifies the variety of sufferers or enrollees per zip code within the final yr to this listing.

Trying Forward

The revisions to the draft rules look like conscious of a few of the issues raised by commentors following the discharge of the preliminary draft. Nonetheless, these revisions seemingly don’t fulfill all issues (and should not fulfill the core issues), notably given that there’s nonetheless a substantial quantity of ambiguity associated to OHCA’s assessment requirements, timelines to conduct a CMIR, and the definitions and standards which carry many events throughout the scope of those rules. Such ambiguity might result in litigation and challenges to the rules if events really feel OHCA offers disparate leads to related transactions. Considerations have additionally been raised that the breadth of the rules might deter events from coming into transactions in any other case fascinating for his or her potential cost-savings, comparable to these aiming to realize value-based reimbursement. Equally, there are issues that the broad scope of the rules might additionally chill transactions that don’t influence affordability, together with vendor contracting that falls outdoors of the common course of enterprise, smaller personal fairness investments, and rising expertise offers.

The revised rules have but to be finalized, so additional modifications by OHCA are potential. OHCA goals to submit the ultimate rules as part of an emergency rulemaking motion in November, following its subsequent board assembly on October 24. We’ll maintain our readers posted on any developments and share our key takeaways within the coming weeks, as soon as the ultimate rules are issued. Keep tuned . . .