The Office of California Healthcare Affordability (OHCA) is set to close the public comment period on proposed regulations that will oversee certain healthcare mergers and acquisitions (M&A) in the state. With the aim of addressing gaps in the oversight of healthcare consolidation, this new law will require covered entities to send a formal notice 90 days prior to any significant change in ownership or control. The proposed regulations will have a significant impact on various aspects of the healthcare industry in California.
Identifying the Gaps:
While existing laws grant approval authority to the California Department of Insurance, the Department of Managed Health Care, and the state’s attorney general for different types of healthcare transactions, gaps exist in several crucial areas of consolidation. Public information officer Andrew DiLuccia points out these gaps, which include transactions involving for-profit hospitals and health facilities, physician organizations, health plans or insurers with other healthcare entities, and private equity involvement.
Transaction Review Process:
Implemented as part of broader legislation passed last year, the transaction review process aims at controlling healthcare costs in California. Charles Oppenheim, a partner at Hooper, Lundy & Bookman, explains that this process is designed to highlight potential transactions that could reduce competition in the marketplace. If OHCA determines that a transaction is likely to negatively impact consumers, it will conduct an extensive cost and market impact review (CMIR). The completion of this review is necessary before the involved entities can finalize the transaction. However, OHCA does not possess the authority to block transactions.
Scope of Covered Healthcare Entities:
A legal analysis conducted by Hooper, Lundy & Bookman outlines the entities that fall under the proposed regulations. They include payers, providers (such as health facilities, physician organizations, and clinical laboratories), and fully integrated delivery systems. The regulations narrow the scope to cover entities with annual revenue or California assets of at least $25 million, or those involved in a transaction with entities meeting this financial threshold. Entities located in or serving a “health professional shortage area” are also included. Additionally, the proposed regulations expand the definition of a healthcare entity to include management services organizations and affiliated or subsidiary entities that have control over, or are financially responsible for, a healthcare entity.
Uncertainties and Potential Impacts:
There are certain areas of ambiguity within the proposed regulations, such as their applicability to out-of-state entities seeking to acquire California healthcare organizations. Charles Oppenheim highlights the need for clarification and predicts that the regulations will increase business costs as healthcare organizations will require expert help to navigate the process. The OHCA’s role is to slow down transactions and provide comprehensive reviews, while the California Attorney General holds more authority to address any concerns of reduced competition or increased costs in the market.
A Broader Movement:
California is not alone in seeking to regulate healthcare consolidation. Other states like Massachusetts have also enacted legislation to bring oversight to this area. A map created by law firm Ropes & Gray demonstrates the varying levels of regulations across different states.
The proposed regulations under the OHCA showcase a significant step towards controlling healthcare costs and ensuring oversight of mergers and acquisitions in California. While uncertainties may linger, it is clear that healthcare organizations will need to adapt to this regulatory landscape, potentially affecting overall business costs and transaction timelines. As other states follow suit, the healthcare industry may witness greater scrutiny and regulation in the coming years.
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