California Health Care Transactions Will Face Additional Regulatory Due Diligence as New Office of Health Care Affordability Examines Costs and Market Impact of Transaction | Weintraub Tobin

Certain health care transactions that closed on or after April 1, 2024 are subject to on-notice regulatory review and analysis by a new Office of Health Care Accessibility (“OHCA”) within the California Department of Health Care Access and Information. OHCA will prospectively analyze transactions by conducting a cost and market review of material transactions and report to the public on anticipated impacts on the healthcare market. Information submitted to OHCA by the parties to the transaction will become public information.

These new requirements for healthcare transactions are part of a larger budget bill that seeks to develop a comprehensive understanding of California healthcare cost trends and drivers of spending, as well as strategies cost control. The trailer bill also strives to maintain quality and equity in health care.[1] As part of these efforts, there will be a new Health Care Affordability Board that will set an overall California health care cost growth target for changes in capital spending. The Board may set expenditure targets by health sector.

OHCA will monitor cost trends, including the impact of consolidation, market power, venture capital activity, profit margins and other market failures on competition, pricing, l 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 be subject to a cost and market impact review are those that OHCA believes are likely to have a significant impact on market competition, the ability of the State to meet cost targets or costs for buyers and consumers.[2]

Parties to healthcare transactions must provide notice at least 90 days prior to closing.

This new regulatory process will be required for healthcare transactions involving healthcare payers, providers and integrated delivery systems. The healthcare providers whose transactions will be subject to the new requirement are:

  1. Physician organizations, including medical groups of 25 or more physicians, or fewer than 25 physicians if the group is a high-cost outlier;
  2. Clinical laboratories;
  3. Ambulatory surgery centers and approved ambulatory structures;
  4. Some licensed and unlicensed clinics;
  5. Risk-carrying organizations;
  6. Healthcare facilities such as hospitals; and
  7. Imaging centers.

The following transactions are subject to this due diligence process:

  1. The sale, transfer, lease, exchange or other disposal of a significant amount of assets to one or more entities; Where
  2. The transfer of control, responsibility or governance of a significant amount of the assets or operations of healthcare entities to one or more entities.

The following transactions are exempt from the new requirements: those currently subject to review by the Department of Managed Healthcare, the Commissioner of Insurance, the Attorney General, and agreements in which a California county acquires a healthcare provider to ensure continued access to services.

[1] See the Department of Health’s Access and Information Fact Sheet available at: Health Unit Affordability Fact Sheet.

[2] Chapter 47, Senate Bill 184, listed June 30, 2022, see new California Health & Safety Code Section 125706 et seq. from January 1, 2023.

Edward N. Arrington