California has a brand new regulatory evaluation course of that would have implications for healthcare mergers and acquisitions and comparable transactions within the state. By the use of background, after almost two years of negotiations with state legislators, Governor Gavin Newsom signed into legislation healthcare omnibus invoice SB 184 on June 30, 2022, which created the brand new Workplace of Well being Care Affordability (OHCA). With this new legislation and state company, California joins a number of different states, together with Massachusetts, New Jersey, Oregon, Washington and Nevada in implementing oversight and funding measures geared in direction of healthcare value development targets and containment. Whereas the aim of the legislation seems to be clear – monitoring and managing the prices of healthcare in California – healthcare business stakeholders searching for to hold out relevant transactions will now must be aware of OHCA’s regulatory evaluation authority.
Whereas a lot current focus has been made on a considerably similarly-focused legislation, the “Healthcare Consolidation and Contracting Equity Act of 2022” or “AB 2080” (see our healthcare legislation weblog evaluation earlier in 2022 relating to the proposed laws), it was SB 184 and never AB 2080 that was handed prematurely of the September 2022 legislative recess. On account of the legislation, starting in April 2024, OHCA can have advance evaluation authority over mergers, acquisitions, company affiliations and different transactions that lead to materials modifications of property management or governance of “well being care entities.” For functions of this legislation, “well being care entities” embody payors (together with Knox-Keene plans, licensed well being insurers, publicly-funded healthcare packages reminiscent of Medicare and Medi-Cal, and third celebration directors), suppliers (together with healthcare amenities reminiscent of hospitals, outpatient clinics, doctor teams with 25 or extra physicians, scientific laboratories, and imaging facilities) and totally built-in supply programs.
Topic to sure exceptions, healthcare entities will likely be required to supply OHCA not less than 90 days’ prior written discover of an relevant settlement or transaction. Typically talking, such an settlement or transaction would come with (i) the sale, switch, lease, change, choice, encumbrance, conveyance or disposal of a fabric quantity of a healthcare entity’s property to a number of entities and (ii) the switch of management, duty, or governance of a fabric quantity of the property or operations of the healthcare entity to a number of entities. Subsequently, OHCA can have 60 days inside receipt to determine to conduct a value and market impression evaluation and create a public report or grant a evaluation waiver. Transactions aren’t permitted to proceed with no waiver or completion of the evaluation course of. If OHCA opts to evaluation, it would have the ability to analyze and subpoena healthcare entities and different related market gamers to submit information and paperwork. There isn’t any particular minimal or most timeframe for OHCA to finish its evaluation, however importantly, the transaction will not be accomplished till 60 days following the issuance of a last report from OHCA.
As previewed above, not all healthcare transactions and entities will likely be topic to this advance evaluation course of. Certainly, transactions inside the scope of present market oversight obligations of the Division of Managed Well being Care (DMHC), the Lawyer Common and the Division of Insurance coverage are explicitly exempt from this course of. Additionally exempt are sure transactions from state counties buying entities within the pursuit of elevated healthcare entry. In the end, heath care business gamers contemplating getting into into transactions inside the regulatory scope of OHCA might want to bear in mind this advance evaluation course of, which may definitely have an effect on the timing of transactions, the property and entities included in such transactions, and the authorized prices of complying with and taking part within the regulatory evaluation course of, amongst different issues. Moreover, business stakeholders might want to think about in addressing confidentiality issues related to a transaction beneath OHCA evaluation, as data submitted to OHCA by the transaction events may grow to be public file. OHCA typically has an obligation to maintain confidential all nonpublic data not required as part of the discover to OHCA or from the events as part of the evaluation course of, however there are specific exceptions (specifically, data disclosed to the Lawyer Common, and knowledge in a preliminary report or last report if made within the public curiosity, after offering the relevant celebration with a possibility to object).
OHCA’s eight-member board was formally appointed on February 28, 2023, and is anticipated to commonly meet within the coming months and difficulty emergency rules beneath the brand new regulatory framework this 12 months, which ought to flesh out additional particulars relating to the transactions topic to evaluation, the discover and evaluation course of, and submitting charges, amongst different issues. Furthermore, the board is anticipated to develop a statewide value development goal methodology, from which value development targets for every year will likely be set. As such exercise commences and rules are issued within the coming months, we’ll analyze their potential impression on business stakeholders.
