As we anticipated in our earlier weblog article, the Workplace of Well being Care Affordability (OHCA) made revisions to its proposed rules following the general public workshop hosted by the California Division of Well being Care Entry and Info (HCAI) in August. On October 9, 2023, HCAI and OHCA revealed a revised draft of the rules. Our August weblog article outlined the substance of the unique draft rules; this text summarizes the important takeaways relating to the revisions.
Noteworthy Takeaways and Revisions
OHCA made modest revisions to the rules, a few of which seemingly sought to handle considerations raised by commenters within the public workshop. The intention of the rules 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 upfront of sure transactions and await a call by OHCA to conduct a value and market influence evaluate (“CMIR”). The next highlights necessary modifications and unaltered parts of the principles:
- Scope of Regulated Events and Transactions
A number of commenters on the public workshop criticized the broad scope of the rules, particularly for together with administration companies organizations (“MSOs”) within the definition of an HCE. The revised draft rules eliminated the point out of MSOs from the definition, however it’s nonetheless attainable for an MSO to fall inside the scope of the rules 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 considerations raised by some commenters that the unique definition would have appeared to implicate routine or extraordinary course transactions. Now, the revised rules use the definition beneath Part 127500.2 of the California Well being and Security Code, and explicitly carve out the next from the definition:
- “transactions within the traditional and common course of enterprise” and
- conditions wherein the HCE already instantly or not directly controls or shares widespread management with all different events to the transaction.
Underneath the rules, HCEs topic to the discover necessities should meet a minimum of one income or service space threshold. OHCA made a number of 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 quite than these HCEs serving sufferers residing in a well being skilled scarcity space.
Notably, nevertheless, OHCA retained a lot of the transactional circumstances requiring a submitting, together with transactions for which the truthful market worth is $25 million or extra.
- Distressed Hospitals and Different Distressed Property
OHCA seems to have been conscious of commenters who expressed concern that OHCA’s evaluate timeline might stop distressed companies and healthcare belongings from acquiring monetary assist. The revised draft rules ponder an expedited evaluate course of, which is on the market by request if an HCE sufficiently demonstrates expedited evaluate is warranted attributable to both (1) extreme monetary misery of a number of of the events, or (2) vital discount within the provision of important well being care companies inside a geographic space. The expedited course of won’t be out there for many transactions, because it requires the events to basically be approaching chapter or insolvency to qualify. OHCA additionally doesn’t specify the timeframe for expedited evaluate or present any significant comparability to the extraordinary evaluate timeframe, as additional described beneath.
- Consideration of “Materials Change Transactions” and CMIR
Usually talking, OHCA seems to have taken a lightweight contact when it comes to revisions to the requirements relating to which transactions will warrant a CMIR. Certainly, OHCA didn’t revise the principles to require the consideration of potential advantages of a transaction, as requested by some commenters. Nevertheless, it did incorporate sure feedback on the standards for deciding whether or not to conduct a CMIR. Particularly, it added components associated to the transaction’s: (i) potential detrimental impacts on the labor market; (ii) furthering of a development towards consolidation; (iii) skill 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 companies 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 inside the scope of OHCA’s rules, and for essentially the most half, the revised rules (other than 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 time limit, if anticipated to be on or after April 1, 2024. Then, inside 60 days after an entire discover, OHCA will share its choice whether or not to conduct a CMIR. This era might lengthen previous 60 days as a result of OHCA might 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 evaluations 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. Just like the preliminary choice, this isn’t a tough deadline, because the 90 day interval could also be prolonged by as much as 45 days if extra time is required.
If all goes in line with plan, and OHCA doesn’t toll its clock at any level all through the discover and evaluate course of, the CMIR will probably be accomplished between 60 and 105 days after the anticipated time limit. To additional complicate this calendar of occasions, in instances the place a number of events to a transaction should submit discover, the “clock” won’t start till all events have submitted efficient discover.
Other than the fee related to doubtlessly critical delays in consummating a transaction, the reporting necessities for the rules are intensive. Entities contemplating a transaction with a goal time limit wherever close to April 1, 2024 must be ready to deploy appreciable time and sources to fulfill the reporting necessities contemplated in OHCA’s rules, assuming this newest draft turns into finalized.
The draft rules require sure paperwork to be submitted with the preliminary. These embody licensed (i.e., audited, if routinely ready by the entity) monetary statements, contact info for these answerable 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.
The revisions to the draft rules seem like conscious of a number of the considerations raised by commentors following the discharge of the preliminary draft. Nonetheless, these revisions seemingly don’t fulfill all considerations (and should not fulfill the core considerations), 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 carry many events inside the scope of those rules. Such ambiguity might result in litigation and challenges to the rules if events really feel OHCA offers disparate ends in comparable transactions. Issues have additionally been raised that the breadth of the rules might deter events from coming into transactions in any other case fascinating for his or her potential cost-savings, equivalent to these aiming to attain value-based reimbursement. Equally, there are considerations that the broad scope of the rules might additionally chill transactions that don’t influence affordability, together with vendor contracting that falls outdoors of the common course of enterprise, smaller non-public fairness investments, and rising expertise offers.
The revised rules have but to be finalized, so additional modifications by OHCA are attainable. OHCA goals to submit the ultimate rules as part of an emergency rulemaking motion in November, following its subsequent board assembly on October 24. We are going to maintain our readers posted on any developments and share our key takeaways within the coming weeks, as soon as the ultimate rules are issued. Keep tuned . . .