The California Office of Healthcare Affordability’s (OHCA) cost and market impact review (CMIR) regulations were recently approved and will drastically change California’s healthcare regulatory system. Under the California Healthcare Transactions Law, healthcare entities are required to inform OHCA of “material change transactions” that are expected to close on or after April 1. The new law aims to provide oversight of healthcare consolidation.
Who is required to file with OHCA under these new regulations? That depends on three questions, according to Jordan Grushkin, who spoke on a webinar last week about the regulations and is the senior associate of the National Health Care Team and leader of firmwide OHCA initiatives at Sheppard Mullin. If the answer is “yes” to all of these questions, then an organization’s transaction falls under OHCA’s new regulations, according to Grushkin:
- “Is your company a ‘healthcare entity?’”
The healthcare entities that are potentially included in the CMIR process fall into three buckets: providers, payers and fully integrated delivery systems. The provider category includes physician groups with at least 25 doctors, hospitals, outpatient clinics, clinical labs, imaging centers, restricted Knox-Keene plans, risk-bearing organizations and medical foundations.
Payer organizations include fully licensed Knox-Keene plans, California Department of Insurance licensees, third-party administrators and pharmacy benefit managers. The payer category also includes “entities that act in California on behalf of a payer, and either govern or control the health care entity or are governed/controlled by the health care entity,” according to Grushkin’s presentation.
Fully integrated delivery systems include a physician organization, a health facility or health system and a nonprofit healthcare service plan.
- “Has a monetary or [health professional shortage area] threshold been met?”
Healthcare entities have to hit “one of three thresholds” in order to be subject to the review process under OHCA, Grushkin said. Healthcare entities applicable for the review process include those that have at least $25 million in California-derived annual revenue or with $25 million in California assets; those that have at least $10 million in California-derived annual revenue or with $10 million in California assets and are part of a transaction with a $25 million healthcare organization; those in a designated primary care health professional shortage area in California.
“Certainly the takeaway here is that all three thresholds should certainly be examined when determining whether or not your company is an applicable healthcare entity,” Grushkin said.
- “Is there a ‘material change transaction?’”
There are eight transactions that would be considered a “material change transaction:”
- A deal valued at more than $25 million involving healthcare services
- A party’s annual earnings increase by at least $10 million or 20%
- Transferring more than 25% of a company’s assets
- When a company’s ownership or control changes by at least 25%
- When healthcare providers pair up with insurance companies in a way that raises their revenue by $10 million or 20% in California
- Creating a new healthcare organization anticipated to make at least $25 million a year
- A series of similar deals involving the same healthcare companies or related ones in the last 10 years
- When a healthcare organization is acquired by another, and the buyer has done a similar deal with a similar organization in the last decade
If the transaction applies to the regulations, then notice needs to be submitted to OHCA 90 days before the transaction closes, according to the webinar.
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