California's Office of Health Care Affordability (OHCA) has officially approved amendments ("Amendments") to the cost and market impact review (CMIR) regulations, effective August 22, 2024. Most significantly, these Amendments expand the scope of health care entities (HCEs) subject to a CMIR, among other notable changes discussed below.
By way of background, since the CMIR regulations and notice requirement came into effect on April 1, 2024, HCEs have been required to notify OHCA of certain material transactions at least 90 days prior to closing and await a waiver or completion of a cost and market impact review to be able to close the transaction. In May 2024, OHCA proposed revisions to the CMIR regulations and subsequently proposed additional tweaks in July 2024. After a public comment period, OHCA approved the revisions in their entirety last week.
As previewed in our prior blog post, the now-finalized Amendments:
- Broaden the scope of entities responsible for filing—In addition to HCEs that are "parties" to a material change transaction ("MCT"), HCEs that are "subject to" a MCT now have to file. Further, the threshold which requires an HCE with at least $10 million in annual revenue, or that owns or controls at least $10 million of California assets, to file if it transacts with an entity meeting the $25 million revenue or assets threshold, is expanded to apply if such HCE transacts with an entity owning or controlling any HCE meeting the $25 million threshold.
- Clarify meaning of "annual California-derived revenue"—The phrase, which is used in connection with the regulations' materiality thresholds, has been defined as "revenue from the provision of health care services in California."
- Require attestation of reasonable diligence in filing notice—When filing the MCT notice, HCEs need to attest that reasonable diligence was used to ascertain the information required for the notice.
- Heighten standard of diligence required when disclosing other involved parties—Whereas the original regulations only asked for identification of other parties to the transaction to the extent the submitter has access to the information, the Amendments require that the submitter "exercise reasonable diligence" to ascertain and describe such information.
- Allow for withdrawal of information after denied confidentiality request—HCEs can submit a request through the portal to withdraw any information or documents provided in the notice associated with a denied confidentiality request.
- Add cost-growth target factor for OHCA to consider when conducting review—The Amendments specify that OHCA can consider the transaction's effect "on any [HCE's] "ability to meet any health care cost target." As we summarized in another blog post, OHCA's board voted in April 2024 to implement a five-year cost-growth cap plan, starting with a 3.5% cap in 2025. In addition to considering a transaction's potential impact on the HCE's ability to meet cost targets as a factor during the CMIR, OHCA may consider this as a factor when it initially decides whether to conduct a CMIR.
OHCA's revisions less than a year into the CMIR program highlight how it is important to stay apprised of evolving regulatory filing requirements, particularly given the impacts on scope and filing requirements. We will continue to diligently monitor these developments and publish updates as applicable. For further information and insights on OHCA and developments related to the CMIR program, please see our blog series.1
Footnote
1 See our blog series on SB 184, OHCA, and its CMIR regulations, available at:
- California Office of Health Care Affordability: Another Regulatory Hurdle for California Healthcare M&A Transactions?, published 3/10/23.
- Update from California's Office of Health Care Affordability (OHCA): Proposed Regulations re Material Change Transactions and Pre-Transaction Review, published 8/3/23.
- Public Workshop for OHCA's Proposed Regulations Sparks Lively Discussion Among Industry Stakeholders, published 9/7/23.
- OHCA's Revised Regulations Following Comments from Industry Stakeholders, published 10/24/23.
- OHCA Published Near-Final Draft of Regulations Requiring Notice and Review of Material Healthcare Transactions in 2024, published 12/6/23.
- The Stage is Set: California Finalizes OHCA Regulations Requiring Notice and Review of Material Healthcare Transactions, published 1/2/24.
- OHCA Proposes Amendments to its Cost and Market Impact Review Program, published 6/13/24.
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