In the end, the associated fee and market influence evaluation (CMIR) laws promulgated by the California Workplace of Well being Care Affordability (OHCA) have been accredited by the California Workplace of Administrative Regulation (OAL). The ultimate laws, which can be found to view right here, have been submitted by OHCA on December 8, 2023 and accredited by OAL on December 18, 2023. As we have now highlighted in our sequence of posts[1] all year long, these laws, together with the associated statutory provisions in SB 184, set forth the framework for OHCA’s authority to obtain advance discover of and evaluation 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 laws, this text will present an summary of the important thing elements and sensible concerns concerning this new reporting regime, whereas additionally commenting on the important thing ultimate tweaks to (and omissions from) the laws.
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) totally built-in supply methods[2], are probably topic to OHCA’s CMIR authority. The statute, along with clarifications underneath the laws, defines “payers” to incorporate fully-licensed Knox-Keene well being care service plans, licensed well being insurers, third occasion directors, publicly funded well being care packages, and pharmacy profit managers, and another entity that pays for or arranges for the acquisition of well being care providers on behalf of workers, dependents or retirees. “Suppliers” embrace doctor organizations (together with medical teams comprised of 25 or extra physicians, medical foundations, restricted Knox-Keene plans, and threat bearing organizations), well being amenities (together with hospitals, SNFs and different nursing amenities, intermediate care amenities 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 laws, 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 ultimate laws, however the laws do embrace mother and father, 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 appearing on behalf of one other subsidiary.
The ultimate laws 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 ultimate laws, solely well being care entities assembly a minimum of one of many thresholds set forth beneath are required to inform OHCA underneath the CMIR course of:
- Well being care entities with a minimum of $25 million in CA-derived annual income or that personal or management a minimum of $25 million of California belongings;
- Well being care entities with a minimum of $10 million in CA-derived annual income or a minimum of $10 million of California belongings and are concerned in a transaction with a $25 million well being care entity; or
- Well being care entities situated 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 Rules (commencing with part 5.1), accessible at https://knowledge.hrsa.gov/.
Whereas a lot consideration has been paid to the financial thresholds set forth above as OHCA labored to finalize the laws, it is very important 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 sorts of transactions are inside scope of OHCA’s purview?
Materials Change Transactions
Transactions have to be thought-about “materials change transactions” to be inside the scope of the CMIR course of. Underneath the statute and ultimate laws, all kinds of transactions are thought-about materials change transactions, together with these involving:
- A transaction worth of a minimum of $25 million and provision of well being care providers, that are outlined to incorporate not simply scientific providers, however associated gear and expertise providers;
- A rise in a well being care entity’s annual California income by a minimum of $10 million or 20% at regular or stabilized ranges of utilization or operation;
- Switch or different disposition of 25% or extra of the belongings of the submitting occasion;
- A submitting occasion’s switch of management, duty, or governance, outlined to incorporate 25% or larger possession/management adjustments in addition to vesting of great voting rights (e.g., veto rights, supermajority rights) even when possession/management switch is lower than 25%;
- An entity contracting with payers on behalf of consolidated or mixed suppliers and is extra possible than to not enhance annual California income by a minimum of $10 million or 20% of any suppliers within the transaction;
- The formation of a new entity for the supply of well being care providers projected to have a minimum of $25 million in annual California income or belongings;
- A sequence of associated transactions occurring over the previous 10 years for a similar or associated providers involving the similar well being care entities or entities affiliated with the identical entities; or
- 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 similar or associated well being care providers.
Exceptions
Regardless of the broad applicability of the CMIR framework, the statute and ultimate laws do comprise sure exceptions. Certainly, the ultimate laws specify that the next should not thought-about materials change transactions: (i) transactions within the regular and common course of the well being care entity (i.e., these which are typical within the day-to-day operations of the well being care entity); (ii) conditions by which the well being care entity instantly, 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, corresponding to a company restructuring; and (iii) affiliations that contain collaboration on scientific trials, graduate medical education schemes, 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 evaluation of the Division of Managed Well being Care (DMHC) for price influence or market consolidation, (ii) involving insurers the place such agreements or transactions are topic to the evaluation 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 evaluation of the Lawyer Basic. Nonetheless, the statutes and laws 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 could be exempt. It’s doable OHCA might difficulty additional steering on such or related reality patterns. Furthermore, SB 184 permits the Lawyer Basic, the DMHC and the DOI to refer transactions underneath their respective purview to OHCA for a CMIR.
3. What does the discover and evaluation course of entail?
Timeline and Assessment Requirements
Well being care entities assembly the thresholds recognized above that search to shut a cloth change transaction on or after April 1, 2024 might want to present OHCA with an entire discover of the transaction a minimum of 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. Notice that the 45 / 60 day timeline is tolled whereas OHCA awaits further info from the events or if the transaction is underneath evaluation by one other authorities company. The submitting events might enchantment OHCA’s resolution 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 ultimate laws, together with whether or not the transaction:
- Might lead to damaging influence on availability or accessibility of well being care providers, together with the filer’s capability to supply culturally competent care;
- Might lead to damaging influence on prices for payers, purchasers, or customers;
- Might reduce competitors or create monopoly in geographic service areas impacted by the transaction;
- Might reduce competitors for well being care entities to rent staff or might negatively influence the labor market;
- Negatively impacts a basic acute care or specialty hospital;
- Might negatively influence the standard of care;
- Is a part of a sequence of comparable transactions that additional a pattern towards consolidation;
- Might entrench or lengthen a dominant market place of any well being care entity within the transaction; or
- Is between a California entity and an out-of-state entity and might negatively influence 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 evaluation inside 90 days of its willpower, which interval could be prolonged for one further 30 day interval and tolled whereas OHCA awaits further info from the events or if the transaction is underneath evaluation by one other authorities company. Upon completion of the CMIR, OHCA will difficulty a preliminary report of its findings and the events to the transaction and the general public can have the chance to submit written feedback inside 10 days of the preliminary report. OHCA will difficulty a ultimate 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 laws embrace a restricted course of for expedited evaluation of a discover of fabric change transaction. The submitter should display, with an in depth rationalization and any underlying documentation substantiating the necessity for expedited evaluation, both that (i) one of many events to the transaction is present process extreme monetary misery (i.e., a grave threat 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 chance of a major discount within the provision of important 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 knowledge and disclosure supplies, together with, amongst different issues:
- Identification and outline of events concerned within the transaction, together with itemizing of Tax IDs and California well being care licenses of events;
- Description of transaction, present providers, anticipated post-transaction impacts on providers, post-transaction organizational and operational adjustments;
- Description of sure prior M&A exercise involving sure events to the transaction within the final 10 years;
- Definitive transaction agreements (with accompanying appendices and displays);
- HSR filings associated to the transaction;
- Documentation enough to point out valuation of transaction;
- Pre-closing and post-closing organizational charts;
- Licensed monetary statements for prior 3 years; and
- Organizational and governing paperwork of events.
Data included within the discover is handled as a public document except 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 protected to say that the CMIR course of detailed in OHCA’s ultimate laws and SB 184 marks a major overhaul to California’s healthcare regulatory panorama, and most events trying to consummate transactions within the California healthcare area in 2024 might want to bear in mind and probably navigate this new regulatory course of.
For events wishing to keep away from going via the CMIR course of, it could be advisable to try to shut transactions upfront of the April 1, 2024 date.
For transactions the place such a closing timeline isn’t doable or probably may slip previous April 1, 2024, events must be rigorously reviewing the transaction elements at the side of the laws to find out whether or not discover of a cloth change transaction shall be wanted. And if such discover is required, events could also be sensible to start the method of accumulating and getting 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 circumstances 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 capability to shut, given the potential timeline within the CMIR laws, and it’s definitely doable that OHCA may expertise backlogs which exacerbate the regulatory timeline.
Alternatively, it stays to be seen how aggressive OHCA shall 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 court docket deems applicable for enforcement of any of the necessities of the regulation. That being stated, whether or not OHCA decides to focus its CMIR position in the direction of sure sorts of transactions over others and/or be extra keen to grant waivers for sure transactions are just a few of the important thing enforcement-related questions that might 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 totally built-in supply methods 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.”
