California Healthcare Transactions to Undergo Additional Advance Regulatory Scrutiny as New Office of Health Care Affordability Scrutinizes Cost and Market Impact of Transaction
Published: August 24, 2022
Certain healthcare transactions closing on or after April 1, 2024 are subject to an advance notice regulatory review and analysis by a newly created Office of Health Care Affordability (“OHCA”) within the California Department of Health Care Access and Information. The OHCA will prospectively analyze the transactions by conducting a cost and market review of significant transactions and report to the public on the anticipated impacts on the healthcare market. The information submitted to the OHCA by the parties to the transaction will become public information.
These new requirements for healthcare transactions are a part of a larger budget trailer bill that strives to develop a comprehensive understanding of California healthcare cost trends and drivers of spending and also strategies for controlling costs. The trailer bill also endeavors to maintain quality and equity of healthcare.[1] In connection with these efforts, there shall be a new Health Care Affordability Board that will establish an overall healthcare cost growth target in California for changes in per capital spending. The Board will be able to set spending targets by healthcare sectors.
OHCA will monitor cost trends, including the impact of consolidation, market power, venture capital activity, profit margins and other market failures on competition, prices, access, quality and equity. If OHCA determines that the transaction is likely to have a significant effect on the California healthcare market, it will seek input from the parties and the public. Transactions that will undergo a cost and market impact review are those that the OHCA finds are likely to have a risk of a significant impact on market competition, the state’s ability to meet cost targets, or costs for purchasers and consumers.[2]
Parties to healthcare transactions must provide the notice at least 90 days in advance of closing.
This new regulatory process will be required for healthcare transactions involving healthcare payors, providers and integrated delivery systems. Healthcare providers whose transactions will be subject to the new requirement include the following:
- Physician organizations, including medical groups of 25 or more physicians, or fewer than 25 physicians if the group is a high-cost outlier;
- Clinical laboratories;
- Ambulatory surgery centers and accredited outpatient settings;
- Certain licensed and unlicensed clinics;
- Risk-bearing organizations;
- Health facilities such as hospitals; and
- Imaging centers.
The following transactions are subject to this advance review process:
- The sale, transfer, lease, exchange or other disposal of a material amount of assets to one or more entities; or
- The transfer of control, responsibility or governance of a material amount of the assets or operations of the healthcare entities to one or more entities.
The following transactions are exempt from the new requirements: those that are currently subject to review by the Department of Managed Healthcare, the Insurance Commissioner, the Attorney General and agreements where a California county is acquiring a healthcare provider to ensure continued access to services.
[1] See Department of Health Care Access and Information Fact Sheet available at: Office of Health Care Affordability Fact Sheet.
[2] Chapter 47, Senate Bill 184, Enrolled June 30, 2022, see new California Health & Safety Code Section 125706 et seq. effective January 1, 2023.
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