California Workplace of Well being Care Affordability: One other Regulatory Hurdle for California Healthcare M&A Transactions?

California has a brand new regulatory overview course of that might have implications for healthcare mergers and acquisitions and comparable transactions within the state. By means 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 the direction of healthcare price progress targets and containment. Whereas the objective of the legislation seems to be clear – monitoring and managing the prices of healthcare in California – healthcare trade stakeholders searching for to hold out relevant transactions will now have to be conscious of OHCA’s regulatory overview authority.

Whereas a lot latest 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 concerning the proposed laws), it was SB 184 and never AB 2080 that was handed prematurely of the September 2022 legislative recess. Because of the legislation, starting in April 2024, OHCA can have advance overview authority over mergers, acquisitions, company affiliations and different transactions that lead to materials adjustments of property management or governance of “well being care entities.” For functions of this legislation, “well being care entities” embrace payors (together with Knox-Keene plans, licensed well being insurers, publicly-funded healthcare applications comparable to Medicare and Medi-Cal, and third social gathering directors), suppliers (together with healthcare amenities comparable to hospitals, outpatient clinics, doctor teams with 25 or extra physicians, scientific laboratories, and imaging facilities) and absolutely built-in supply methods.

Topic to sure exceptions, healthcare entities will likely be required to offer OHCA no less than 90 days’ prior written discover of an relevant settlement or transaction. Usually talking, such an settlement or transaction would come with (i) the sale, switch, lease, alternate, 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 resolve to conduct a value and market influence overview and create a public report or grant a overview waiver. Transactions usually are not permitted to proceed with out a waiver or completion of the overview course of. If OHCA opts to overview, it should have the facility to research and subpoena healthcare entities and different related market gamers to submit information and paperwork. There isn’t a particular minimal or most timeframe for OHCA to finish its overview, however importantly, the transaction might not be accomplished till 60 days following the issuance of a closing report from OHCA.

As previewed above, not all healthcare transactions and entities will likely be topic to this advance overview course of. Certainly, transactions throughout the scope of present market oversight obligations of the Division of Managed Well being Care (DMHC), the Legal professional Basic 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. Finally, heath care trade gamers contemplating getting into into transactions throughout the regulatory scope of OHCA might want to consider this advance overview course of, which may actually 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 overview course of, amongst different issues. Moreover, trade stakeholders might want to think about in addressing confidentiality issues related to a transaction below OHCA overview, as info submitted to OHCA by the transaction events may grow to be public file. OHCA typically has an obligation to maintain confidential all nonpublic info not required as part of the discover to OHCA or from the events as part of the overview course of, however there are particular exceptions (specifically, info disclosed to the Legal professional Basic, and knowledge in a preliminary report or closing report if made within the public curiosity, after offering the relevant social gathering with a possibility to object).

OHCA’s eight-member board was formally appointed on February 28, 2023, and is anticipated to often meet within the coming months and challenge emergency laws below the brand new regulatory framework this yr, which ought to flesh out additional particulars concerning the transactions topic to overview, the discover and overview course of, and submitting charges, amongst different issues. Furthermore, the board is anticipated to develop a statewide price progress goal methodology, from which price progress targets for every year will likely be set. As such exercise commences and laws are issued within the coming months, we are going to analyze their potential influence on trade stakeholders.

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