As we previewed in our weblog article in March on the institution of California’s new Workplace of Well being Care Affordability (OHCA), OHCA has issued proposed rules obtainable on the OHCA web site, that present anticipated particulars on OHCA’s advance evaluation authority relating to sure transactions within the healthcare house.

As a reminder, beneath the healthcare omnibus invoice SB 184 signed into regulation final yr, beginning April 1, 2024, “well being care entities” shall be required to offer OHCA a minimum of 90 days’ prior written discover of an relevant “materials change transaction.” In flip, OHCA can have 60 days to resolve whether or not to both conduct a value and market impression evaluation and create a public report of its findings or grant a evaluation waiver. Most notably, relevant transactions might not proceed with out a waiver or completion of the evaluation course of.

Healthcare stakeholders have been awaiting rules from OHCA to make clear open questions relating to the regulation, notably the scope of transactions and entities beneath the purview of OHCA and its evaluation course of.

Proposed Laws

At a excessive stage, “well being care entities” topic to this regulation (outlined herein, collectively, as “Well being Care Entities”) embrace payors (together with Knox-Keene plans, licensed well being insurers, and third celebration directors), suppliers (together with hospitals, outpatient clinics, doctor teams with 25 or extra physicians, scientific laboratories, and imaging facilities) and totally built-in supply techniques. OHCA’s proposed rules make clear that administration providers organizations (“MSOs”) and pharmacy profit managers are additionally thought of Well being Care Entities throughout the that means of the statute. Moreover, the proposed rules specify that associates, subsidiaries or entities that management, govern or are topic to the management or governance of Well being Care Entities are additionally deemed to be Well being Care Entities beneath the regulation.

Past clarifying the classes of entities topic to this regulatory framework, the proposed rules present extra element relating to what constitutes a “materials change transaction” topic to OHCA’s prior evaluation course of. A Well being Care Entity should file prior written discover and proceed by the evaluation course of if each of the two parts beneath are met in reference to the proposed transaction:

1. The transaction should contain one of many following events:
   • A Well being Care Entity with annual income of a minimum of $25 million or that owns or controls California property of a minimum of $25 million;
   • A Well being Care Entity with annual income of a minimum of $10 million or that owns or controls California property of a minimum of $10 million and is concerned in a transaction with any Well being Care Entity satisfying subsection (a) above; or
   • A Well being Care Entity positioned in or serving a minimum of 50% of sufferers who reside in a well being skilled scarcity space, as outlined beneath Subchapter A of Chapter 1 of Title 42 of the Code of Federal Laws.
2. The transaction should contain one of many following circumstances:
   • The proposed truthful market worth of the transaction is $25 million or extra and the transaction considerations the availability of well being care providers;
   • The transaction is more likely to enhance annual income of any Well being Care Entity that could be a celebration to the transaction by a minimum of $10 million or 20% of annual income at regular or stabilized ranges of utilization or operation;
   • The transaction entails the sale, switch, lease, trade, possibility, encumbrance, or different disposition of 20% or extra of the property of any Well being Care Entity within the transaction;
   • The transaction entails a switch or change in management, duty, or governance of the submitter;
   • The phrases of the transaction ponder an entity negotiating or administering contracts with payors on behalf of a number of suppliers and the transaction entails an affiliation, partnership, three way partnership, accountable care group, father or mother company, administration providers group, or different group;
   • The transaction entails the formation of a brand new Well being Care Entity, affiliation, partnership, three way partnership, or father or mother company for the availability of well being providers in California that’s projected to have a minimum of $25 million in annual income at regular or stabilized ranges of utilization or operation, or have management of property associated to the availability of well being care providers valued at $25 million or extra;
   • 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 father or mother company associated to the availability of well being care providers the place any Well being Care Entity has a minimum of $10 million in annual income. For functions of this provision, a scientific affiliation does not embrace a collaboration on scientific trials or graduate medical teaching programs;
   • The transaction modifications the type of possession of a Well being Care Entity that could be a celebration to the transaction, together with however not restricted to a change from a physician-owned to personal equity-owned and publicly held to a privately held type of possession; or
   • A Well being Care Entity that could be a celebration to the transaction has consummated any transaction relating to provision of well being care providers in California with one other celebration to the transaction inside ten years previous to the present transaction.

The proposed rules additionally prolong the timeline that the evaluation course of may take for relevant transactions. Particularly, if the transaction is amended or altered, the submitter shall notify OHCA inside 5 enterprise days of such modification or alteration, and OHCA might require the submitter to re-notice any materials modifications. If OHCA decides to conduct a value and market impression evaluation, OHCA is allotted as much as 90 days to conduct such a evaluation, with one 45-day extension possibility and rights to toll the time interval if requested data has not been obtained. Pursuant to SB 184, a transaction shall not be applied till 60 days after OHCA points its remaining report.

Rulemaking Timeline

OHCA has invited the general public to submit feedback on the proposed rules throughout the month of August, with a public workshop scheduled on August 15, 2023 to debate the proposed rules and feedback. Nonetheless, OHCA has acknowledged its intention to submit an emergency rulemaking package deal with finalized rules in October of this yr.

OHCA board members are additionally scheduled to satisfy August 23, 2023, and it’s potential (and maybe possible) that the proposed rules (and feedback thereto) shall be mentioned throughout that discussion board.

Implications

The timing of the proposed rules actually come as no shock to these following SB 184’s passage and the institution of OHCA, provided that the statute left many open questions relating to the scope of the company’s evaluation course of which wanted to be clarified prematurely of the evaluation course of’ formal graduation subsequent yr. It stays to be seen whether or not any revisions or tweaks to the rules, notably the income metrics, the requirement for the submitter to explain annual revenues and supply monetary statements for the prior three years for all events to the transaction, and circumstances triggering the evaluation course of shall be significantly thought of by OHCA or applied within the remaining rules. Nonetheless, if the present textual content (or related textual content) of the proposed rules turns into finalized, OHCA will definitely stand to have the authority to evaluation (and probably delay or impede) a broad vary of healthcare transactions within the state.

As this course of performs out over the approaching weeks and months, we are going to hold our readers posted relating to developments. As a associated matter, we additionally look ahead to reviewing and analyzing any developments from OHCA relating to its mandate to develop a statewide price progress goal methodology, from which price progress targets for every year shall be set. Keep tuned…