In the end, the associated fee and market impression assessment (CMIR) rules promulgated by the California Workplace of Well being Care Affordability (OHCA) have been authorized by the California Workplace of Administrative Legislation (OAL). The ultimate rules, which can be found to view right here, had been submitted by OHCA on December 8, 2023 and authorized by OAL on December 18, 2023. As we’ve got highlighted in our sequence of posts[1] all year long, these rules, together with the associated statutory provisions in SB 184, set forth the framework for OHCA’s authority to obtain advance discover of and assessment a big scope of healthcare transactions within the coming months of 2024, reflecting a dramatic change to California’s healthcare regulatory panorama. To refresh and replace our readers concerning the CMIR rules, this text will present an summary of the important thing parts and sensible concerns concerning this new reporting regime, whereas additionally commenting on the important thing last tweaks to (and omissions from) the rules.

1. Who’s topic to the CMIR course of?

Well being Care Entities

Underneath SB 184, “well being care entities”, which embrace (i) payers, (ii) suppliers and (iii) absolutely built-in supply programs[2], are doubtlessly topic to OHCA’s CMIR authority. The statute, along with clarifications underneath the rules, defines “payers” to incorporate fully-licensed Knox-Keene well being care service plans, licensed well being insurers, third celebration directors, publicly funded well being care packages, and pharmacy profit managers, and some other entity that pays for or arranges for the acquisition of well being care providers on behalf of staff, dependents or retirees. “Suppliers” embrace doctor organizations (together with medical teams comprised of 25 or extra physicians, medical foundations, restricted Knox-Keene plans, and danger bearing organizations), well being services (together with hospitals, SNFs and different nursing services, intermediate care services and hospices), outpatient clinics (together with ASCs and specialty clinics), scientific laboratories and imaging facilities.

Over the course of the yr, in numerous drafts of the rules, OHCA thought-about deeming administration providers organizations (MSOs) as well being care entities topic to the CMIR course of. Notably, MSOs are not included as a well being care entity within the last rules, however the rules do embrace dad and mom, associates or subsidiaries of a payer that act in California on behalf of a payer and (i) management, govern or are financially accountable for the payer, (ii) are topic to the management, governance or monetary management of the payer, or (iii) within the case of a subsidiary, are a subsidiary performing on behalf of one other subsidiary.

The ultimate rules additionally specify that doctor organizations with lower than 25 physicians may very well be thought-about a well being care entity if they’re decided to be a excessive price outlier (i.e., whose prices for a similar providers are considerably greater in comparison with the statewide common).

Which well being care entities are topic to CMIR?

Whereas well being care entities are broadly outlined underneath the statute and last rules, solely well being care entities assembly not less than one of many thresholds set forth under are required to inform OHCA underneath the CMIR course of:

1. Well being care entities with not less than $25 million in CA-derived annual income or that personal or management not less than $25 million of California property;
2. Well being care entities with not less than $10 million in CA-derived annual income or not less than $10 million of California property and are concerned in a transaction with a $25 million well being care entity; or
3. Well being care entities positioned in a designated major care well being skilled scarcity space in California, as outlined in Half 5 of Subchapter A of Chapter 1 of Title 42 of the Code of Federal Laws (commencing with part 5.1), obtainable at https://information.hrsa.gov/.

Whereas a lot consideration has been paid to the financial thresholds set forth above as OHCA labored to finalize the rules, you will need to emphasize that the final threshold concerning designated major care well being skilled scarcity areas shouldn’t be ignored in assessing the applicability of the CMIR course of to events, as such areas embrace important geographic parts of the state, each city and rural.

2. What varieties of transactions are inside scope of OHCA’s purview?

Materials Change Transactions

Transactions should be thought-about “materials change transactions” to be inside the scope of the CMIR course of. Underneath the statute and last rules, all kinds of transactions are thought-about materials change transactions, together with these involving:

1. A transaction worth of not less than $25 million and provision of well being care providers, that are outlined to incorporate not simply scientific providers, however associated gear and know-how providers;
2. A rise in a well being care entity’s annual California income by not less than $10 million or 20% at regular or stabilized ranges of utilization or operation;
3. Switch or different disposition of 25% or extra of the property of the submitting celebration;
4. A submitting celebration’s switch of management, accountability, or governance, outlined to incorporate 25% or better possession/management adjustments in addition to vesting of serious voting rights (e.g., veto rights, supermajority rights) even when possession/management switch is lower than 25%;
5. An entity contracting with payers on behalf of consolidated or mixed suppliers and is extra doubtless than to not improve annual California income by not less than $10 million or 20% of any suppliers within the transaction;
6. The formation of a new entity for the availability of well being care providers projected to have not less than $25 million in annual California income or property;
7. A sequence of associated transactions occurring over the previous 10 years for a similar or associated providers involving the identical well being care entities or entities affiliated with the identical entities; or
8. The acquisition of a well being care entity by one other entity and the buying entity has consummated the same transaction inside the final 10 years, with a well being care entity that gives the identical or associated well being care providers.

Exceptions

Regardless of the broad applicability of the CMIR framework, the statute and last rules do include sure exceptions. Certainly, the ultimate rules specify that the next should not thought-about materials change transactions: (i) transactions within the typical and common course of the well being care entity (i.e., these which might be typical within the day-to-day operations of the well being care entity); (ii) conditions through which the well being care entity immediately, or not directly via a number of intermediaries, already controls, is managed by, or is underneath frequent management with, all different events to the transaction, reminiscent of a company restructuring; and (iii) affiliations that contain collaboration on scientific trials, graduate medical teaching programs, well being professions coaching packages, well being sciences coaching packages, or different instructional and analysis packages.

Likewise, the textual content of SB 184 exempts from the CMIR course of agreements or transactions (i) involving Knox-Keene well being care service plans, the place such agreements or transactions are topic to the assessment of the Division of Managed Well being Care (DMHC) for price impression or market consolidation, (ii) involving insurers the place such agreements or transactions are topic to the assessment of the Division of Insurance coverage (DOI); (iii) the place a county is buying, buying or taking management of an entity to make sure continued entry in that county; and (iv) involving nonprofit firms the place such agreements or transactions are topic to the assessment of the Legal professional Normal. Nonetheless, the statutes and rules don’t present additional specification concerning the precise scope of those exemptions, and thus it’s unclear, for instance, whether or not the inclusion of a Knox-Keene licensee, licensed insurer or nonprofit company in a bigger underlying transaction would exempt a whole transaction from the CMIR course of, or if solely the portion of the transaction involving such entity can be exempt. It’s attainable OHCA might challenge additional steering on such or related reality patterns. Furthermore, SB 184 permits the Legal professional Normal, the DMHC and the DOI to refer transactions underneath their respective purview to OHCA for a CMIR.

3. What does the discover and assessment course of entail?

Timeline and Overview Requirements

Well being care entities assembly the thresholds recognized above that search to shut a fabric change transaction on or after April 1, 2024 might want to present OHCA with an entire discover of the transaction not less than 90 days previous to the closing of the transaction.

As soon as filed, OHCA should notify the submitter inside 45 days if it determines {that a} CMIR is not going to be carried out. OHCA should notify the submitter inside 60 days of the submitting if OHCA intends to conduct a CMIR. Observe that the 45 / 60 day timeline is tolled whereas OHCA awaits further info from the events or if the transaction is underneath assessment by one other authorities company. The submitting events might attraction OHCA’s determination to conduct a CMIR inside 10 days of OHCA’s willpower, and OHCA will then have 5 days to resolve to uphold the unique willpower or grant a waiver of the CMIR.

In deciding whether or not to conduct a CMIR, OHCA weighs sure components as specified within the last rules, together with whether or not the transaction:

1. Might lead to damaging impression on availability or accessibility of well being care providers, together with the filer’s potential to supply culturally competent care;
2. Might lead to damaging impression on prices for payers, purchasers, or customers;
3. Might reduce competitors or create monopoly in geographic service areas impacted by the transaction;
4. Might reduce competitors for well being care entities to rent staff or might negatively impression the labor market;
5. Negatively impacts a basic acute care or specialty hospital;
6. Might negatively impression the standard of care;
7. Is a part of a sequence of comparable transactions that additional a pattern towards consolidation;
8. Might entrench or prolong a dominant market place of any well being care entity within the transaction; or
9. Is between a California entity and an out-of-state entity and might negatively impression affordability of or restrict entry to well being care providers in California.

If OHCA decides to conduct a CMIR, it’s required to finish the assessment inside 90 days of its willpower, which interval may be prolonged for one further 30 day interval and tolled whereas OHCA awaits further info from the events or if the transaction is underneath assessment by one other authorities company. Upon completion of the CMIR, OHCA will challenge a preliminary report of its findings and the events to the transaction and the general public could have the chance to submit written feedback inside 10 days of the preliminary report. OHCA will challenge a last report inside 15 days of the shut of the remark interval. Events might not shut the transaction till 60 days following the issuance of the ultimate report.

In sum, there’s a potential for a 9 month timeline from the preliminary discover to OHCA to finish the CMIR course of for relevant well being care entities, not together with any preparation time to submit the submitting or tolling of the timeline underneath the CMIR course of.

The ultimate rules embrace a restricted course of for expedited assessment of a discover of fabric change transaction. The submitter should display, with an in depth clarification and any underlying documentation substantiating the necessity for expedited assessment, both that (i) one of many events to the transaction is present process extreme monetary misery (i.e., a grave danger of rapid enterprise failure) and the transaction is important to make sure continued well being care entry within the related markets, or (i) there’s a substantial probability of a major discount within the provision of crucial well being care providers inside a number of geographic areas.

What are well being care entities required to supply and disclose?

Events topic to the CMIR course of might want to file via OHCA’s on-line portal. Submitting supplies embrace a broad vary of data and disclosure supplies, together with, amongst different issues:

1. Identification and outline of events concerned within the transaction, together with itemizing of Tax IDs and California well being care licenses of events;
2. Description of transaction, present providers, anticipated post-transaction impacts on providers, post-transaction organizational and operational adjustments;
3. Description of sure prior M&A exercise involving sure events to the transaction within the final 10 years;
4. Definitive transaction agreements (with accompanying appendices and displays);
5. HSR filings associated to the transaction;
6. Documentation ample to point out valuation of transaction;
7. Pre-closing and post-closing organizational charts;
8. Licensed monetary statements for prior 3 years; and
9. Organizational and governing paperwork of events.

Data included within the discover is handled as a public report until the submitter requests confidentiality for such info and OHCA accepts such designation. Marked-confidential variations of definitive transaction agreements, compensation paperwork, contract charges, and transaction valuation documentation are deemed confidential and nonpublic.

4. Sensible takeaways for stakeholders

It’s secure to say that the CMIR course of detailed in OHCA’s last rules and SB 184 marks a major overhaul to California’s healthcare regulatory panorama, and most events seeking to consummate transactions within the California healthcare house in 2024 might want to take into consideration and doubtlessly navigate this new regulatory course of.

For events wishing to keep away from going via the CMIR course of, it might be advisable to try to shut transactions upfront of the April 1, 2024 date.

For transactions the place such a closing timeline just isn’t attainable or doubtlessly may slip previous April 1, 2024, events must be rigorously reviewing the transaction parts along side the rules to find out whether or not discover of a fabric change transaction can be wanted. And if such discover is required, events could also be sensible to start the method of gathering and making ready info and documentation wanted to submit an entire discover of fabric change transaction, together with accessing the necessity to search confidentially for sure supplies.

Furthermore, definitive transaction agreements involving transactions closing on or close to April 1, 2024 ought to ponder applicable closing situations and/or contingencies within the occasion the transaction fails to shut previous to April 1.

Events also needs to be ready from an operational perspective that transactions might face substantial delays within the potential to shut, given the potential timeline within the CMIR rules, and it’s actually attainable that OHCA may expertise backlogs which exacerbate the regulatory timeline.

However, it stays to be seen how aggressive OHCA can be in subjecting all in scope events and transactions to the CMIR course of. SB 184 does entitle OHCA to particular efficiency, injunctive aid, and different equitable treatments a courtroom deems applicable for enforcement of any of the necessities of the legislation. That being mentioned, whether or not OHCA decides to focus its CMIR position in the direction of sure varieties of transactions over others and/or be extra prepared to grant waivers for sure transactions are a number of of the important thing enforcement-related questions that would have solutions or extra readability within the coming months.

FOOTNOTES

[1] See hyperlinks to Sheppard Mullin’s weblog sequence re SB 184 and OHCA:

[2] A completely built-in supply programs is outlined as a “system that features a doctor group, well being facility or well being system, and a nonprofit well being care service plan that gives well being care providers to enrollees in a particular geographic area of the state via an affiliate hospital system and an unique contract between the nonprofit well being care service plan and a single doctor group in every geographic area to supply these medical providers.”