In the end, the price and market impression evaluate (CMIR) rules promulgated by the California Workplace of Well being Care Affordability (OHCA) have been accepted by the California Workplace of Administrative Regulation (OAL). The ultimate rules, which can be found to view right here, have been submitted by OHCA on December 8, 2023 and accepted by OAL on December 18, 2023. As we have now highlighted in our collection 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 evaluate 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 relating to the CMIR rules, this text will present an summary of the important thing parts and sensible concerns relating to this new reporting regime, whereas additionally commenting on the important thing ultimate tweaks to (and omissions from) the rules.

1. Who’s topic to the CMIR course of?

Well being Care Entities

Below SB 184, “well being care entities”, which embrace (i) payers, (ii) suppliers and (iii) totally built-in supply programs[2], are probably topic to OHCA’s CMIR authority. The statute, along with clarifications below 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 applications, and pharmacy profit managers, and every other 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 danger 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), medical laboratories and imaging facilities.

Over the course of the 12 months, in numerous drafts of the rules, OHCA thought of 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 rules, however the rules 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 answerable 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 rules additionally specify that doctor organizations with lower than 25 physicians might be thought of 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 larger in comparison with the statewide common).

Which well being care entities are topic to CMIR?

Whereas well being care entities are broadly outlined below the statute and ultimate rules, solely well being care entities assembly at the least one of many thresholds set forth under are required to inform OHCA below the CMIR course of:

1. Well being care entities with at the least $25 million in CA-derived annual income or that personal or management at the least $25 million of California property;
2. Well being care entities with at the least $10 million in CA-derived annual income or at the least $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 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), obtainable 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 rules, you will need to emphasize that the final threshold relating to 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 vital geographic parts of the state, each city and rural.

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

Materials Change Transactions

Transactions have to be thought of “materials change transactions” to be throughout the scope of the CMIR course of. Below the statute and ultimate rules, all kinds of transactions are thought of materials change transactions, together with these involving:

1. A transaction worth of at the least $25 million and provision of well being care providers, that are outlined to incorporate not simply medical providers, however associated tools and know-how providers;
2. A rise in a well being care entity’s annual California income by at the least $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, duty, or governance, outlined to incorporate 25% or better possession/management modifications in addition to vesting of great 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 at the least $10 million or 20% of any suppliers within the transaction;
6. The formation of a new entity for the supply of well being care providers projected to have at the least $25 million in annual California income or property;
7. A collection 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
8. The acquisition of a well being care entity by one other entity and the buying entity has consummated an identical transaction throughout 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 rules do comprise sure exceptions. Certainly, the ultimate rules specify that the next will not be thought of materials change transactions: (i) transactions within the normal 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 wherein the well being care entity instantly, or not directly via a number of intermediaries, already controls, is managed by, or is below widespread management with, all different events to the transaction, corresponding to a company restructuring; and (iii) affiliations that contain collaboration on medical trials, graduate medical teaching programs, well being professions coaching applications, well being sciences coaching applications, or different academic and analysis applications.

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 evaluate 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 evaluate 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 companies the place such agreements or transactions are topic to the evaluate of the Lawyer Normal. Nonetheless, the statutes and rules don’t present additional specification relating to 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 complete transaction from the CMIR course of, or if solely the portion of the transaction involving such entity could be exempt. It’s attainable OHCA could concern additional steerage on such or related truth patterns. Furthermore, SB 184 permits the Lawyer Normal, the DMHC and the DOI to refer transactions below their respective purview to OHCA for a CMIR.

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

Timeline and Assessment 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 a whole discover of the transaction at the least 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 won’t be performed. OHCA should notify the submitter inside 60 days of the submitting if OHCA intends to conduct a CMIR. Be aware that the 45 / 60 day timeline is tolled whereas OHCA awaits extra data from the events or if the transaction is below evaluate by one other authorities company. The submitting events could enchantment OHCA’s choice 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 elements as specified within the ultimate rules, together with whether or not the transaction:

1. Could end in detrimental impression on availability or accessibility of well being care providers, together with the filer’s potential to supply culturally competent care;
2. Could end in detrimental impression on prices for payers, purchasers, or customers;
3. Could reduce competitors or create monopoly in geographic service areas impacted by the transaction;
4. Could reduce competitors for well being care entities to rent employees or could negatively impression the labor market;
5. Negatively impacts a common acute care or specialty hospital;
6. Could negatively impression the standard of care;
7. Is a part of a collection of comparable transactions that additional a development towards consolidation;
8. Could 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 could 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 evaluate inside 90 days of its willpower, which interval may be prolonged for one extra 30 day interval and tolled whereas OHCA awaits extra data from the events or if the transaction is below evaluate by one other authorities company. Upon completion of the CMIR, OHCA will concern 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 concern a ultimate report inside 15 days of the shut of the remark interval. Events could 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 below the CMIR course of.

The ultimate rules embrace a restricted course of for expedited evaluate 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 evaluate, both that (i) one of many events to the transaction is present process extreme monetary misery (i.e., a grave danger of instant enterprise failure) and the transaction is critical to make sure continued well being care entry within the related markets, or (i) there’s a substantial chance of a big discount within the provision of important well being care providers inside a number of geographic areas.

What are well being care entities required to offer 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 modifications;
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 reveals);
5. HSR filings associated to the transaction;
6. Documentation adequate to indicate 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.

Info included within the discover is handled as a public file until the submitter requests confidentiality for such data 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 ultimate rules and SB 184 marks a big overhaul to California’s healthcare regulatory panorama, and most events trying to consummate transactions within the California healthcare house in 2024 might want to have 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 shouldn’t be attainable or probably may slip previous April 1, 2024, events needs to be rigorously reviewing the transaction parts along side the rules to find out whether or not discover of a fabric change transaction shall be wanted. And if such discover is required, events could also be sensible to start the method of gathering and making ready data and documentation wanted to submit a whole 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 must also be ready from an operational perspective that transactions could face substantial delays within the potential to shut, given the potential timeline within the CMIR rules, and it’s definitely attainable that OHCA may expertise backlogs which exacerbate the regulatory timeline.

Then again, 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 reduction, and different equitable treatments a courtroom deems applicable for enforcement of any of the necessities of the regulation. That being mentioned, whether or not OHCA decides to focus its CMIR function in direction of sure kinds of transactions over others and/or be extra prepared 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 collection 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 offer these medical providers.”