As we anticipated in our earlier weblog article, the Workplace of Well being Care Affordability (OHCA) made revisions to its proposed laws 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 laws. Our August weblog article outlined the substance of the unique draft laws; this text summarizes the important takeaways concerning the revisions.
Noteworthy Takeaways and Revisions
OHCA made modest revisions to the laws, a few of which seemingly sought to deal with issues raised by commenters within the public workshop. The intention of the laws 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 choice by OHCA to conduct a value and market impression evaluate (“CMIR”). The next highlights vital modifications and unaltered parts of the foundations:
- Scope of Regulated Events and Transactions
A number of commenters on the public workshop criticized the broad scope of the laws, particularly for together with administration providers organizations (“MSOs”) within the definition of an HCE. The revised draft laws eliminated the point out of MSOs from the definition, however it’s nonetheless potential for an MSO to fall throughout the scope of the laws 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 laws use the definition below Part 127500.2 of the California Well being and Security Code, and explicitly carve out the next from the definition:
- “transactions within the regular and common course of enterprise” and
- conditions by which the HCE already immediately or not directly controls or shares widespread management with all different events to the transaction.
Below the laws, HCEs topic to the discover necessities should meet a minimum of 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 main care well being skilled scarcity space fairly 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 honest market worth is $25 million or extra.
- Distressed Hospitals and Different Distressed Belongings
OHCA seems to have been attentive to commenters who expressed concern that OHCA’s evaluate timeline may stop distressed companies and healthcare property from acquiring monetary assist. The revised draft laws ponder an expedited evaluate course of, which is offered by request if an HCE sufficiently demonstrates expedited evaluate is warranted as a result 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 providers 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 evaluate or present any significant comparability to the atypical evaluate timeframe, as additional described beneath.
- Consideration of “Materials Change Transactions” and CMIR
Typically talking, OHCA seems to have taken a lightweight contact by way of revisions to the requirements concerning which transactions will warrant a CMIR. Certainly, OHCA didn’t revise the foundations to require the consideration of potential advantages of a transaction, as requested by some commenters. Nonetheless, it did incorporate sure feedback on the factors for deciding whether or not to conduct a CMIR. Particularly, it added components associated to the transaction’s: (i) potential adverse impacts on the labor market; (ii) furthering of a pattern towards consolidation; (iii) capacity 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 providers 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 evaluate of any transaction that falls throughout the scope of OHCA’s laws, and for essentially the most half, the revised laws (aside from the restricted expedited evaluate course of highlighted above) don’t basically change the timeline framework. An HCE should present discover a minimum of 90 days previous to the transaction’s cut-off date, if anticipated to be on or after April 1, 2024. Then, inside 60 days after a whole discover, OHCA will share its resolution whether or not to conduct a CMIR. This era could prolong previous 60 days as a result of OHCA could 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 critiques the transaction. Assuming the HCE doesn’t problem the dedication about whether or not to conduct a CMIR, OHCA shall full the CMIR inside 90 days. Much like the preliminary resolution, this isn’t a tough deadline, because the 90 day interval could also be prolonged by as much as 45 days if further time is required.
If all goes in keeping with plan, and OHCA doesn’t toll its clock at any level all through the discover and evaluate course of, the CMIR might be accomplished between 60 and 105 days after the anticipated cut-off date. 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 associated fee related to probably severe delays in consummating a transaction, the reporting necessities for the laws are in depth. Entities contemplating a transaction with a goal cut-off date anyplace close to April 1, 2024 needs to be ready to deploy appreciable time and sources to fulfill the reporting necessities contemplated in OHCA’s laws, assuming this newest draft turns into finalized.
The draft laws 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 laws look like attentive to a few of the issues raised by commentors following the discharge of the preliminary draft. Nonetheless, these revisions possible 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 evaluate requirements, timelines to conduct a CMIR, and the definitions and standards which deliver many events throughout the scope of those laws. Such ambiguity may result in litigation and challenges to the laws if events really feel OHCA provides disparate ends in comparable transactions. Considerations have additionally been raised that the breadth of the laws may deter events from coming into transactions in any other case fascinating for his or her potential cost-savings, similar to these aiming to realize value-based reimbursement. Equally, there are issues that the broad scope of the laws may additionally chill transactions that don’t impression affordability, together with vendor contracting that falls exterior of the common course of enterprise, smaller non-public fairness investments, and rising expertise offers.
The revised laws have but to be finalized, so additional modifications by OHCA are potential. OHCA goals to submit the ultimate laws as part of an emergency rulemaking motion in November, following its subsequent board assembly on October 24. We’ll hold our readers posted on any developments and share our key takeaways within the coming weeks, as soon as the ultimate laws are issued. Keep tuned . . .
