On June 30, 2022, Governor Gavin Newsom signed the 2022-2023 California state budget, which included a trailer bill, Senate Bill 184 (the Bill) which makes numerous statutory revisions impacting health programs and consumers. The Bill establishes the Office of Health Care Affordability (OHCA) within the Department of Health Care Access and Information to combat rising health care costs. California will join other states such as Massachusetts, Oregon, and Nevada in implementing a health care cost commission.

Pursuant to the Bill, OHCA will use data collected across health care providers and state agencies to set standards involving health care quality, equity, cost, and workforce stability. OHCA will be focused on setting and enforcing cost targets through monitoring of cost trends and data-driven policies designed to guarantee affordability of care. Cost targets will apply to all health care sectors that OHCA chooses to regulate.

Critically, OHCA also will be responsible for analyzing major transactions involving health care entities. Through cost and market impact reviews of mergers and acquisitions, joint ventures, corporate affiliations, and other strategic projects, OHCA will review adverse market and pricing impacts before the transaction closes.

OHCA and Transaction Review

In January 2024, OHCA will begin taking notice of transactions set to occur on or after April 1, 2024. Health care entities will be required to give written notice of a transaction at least 90 days prior to closing the deal. OHCA will respond to the health care entities within 60 days of receiving notice of the transaction and will either waive or conduct an impact review. If the proposed agreement or transaction appears to have an adverse effect on health care prices or markets within California, OHCA will conduct an impact review at the expense of the parties to the agreement. Transactions subject to impact reviews will be required to wait an additional 60 days after receiving a final report from OHCA before proceeding with the transaction.

Matters may be further reviewed by the attorney general’s office for anti-competitive behavior and effects after OHCA review. Transactions involving insurance plans require OHCA consultation with insurance regulatory agencies. Health care service plans and health insurers must also demonstrate the impact of any changes in the rate of growth of health care costs stemming from cost targets when submitting rates for review.

OHCA transaction review will be broad in that the impacted health care entities consist of payers, providers, and fully integrated delivery systems under Cal. Health & Safety § 127500.2(k). This means hospitals, hospice facilities, insurers, clinical labs, imaging facilities, physician organizations, and other providers and payers will be subject to review. Other entities, such as drug manufacturers, dentists, and home health agencies are not considered health care entities, but could still be subject to review if transacting or affiliating with any reviewable entities.

Other Impacts of Senate Bill 184

The Bill also establishes the Health Care Affordability Board, an eight-person board that will include the Secretary of Health and Human Services, the CalPERS Chief Health Director, four members appointed by the Governor, one by the Senate Committee on Rules, and one by the Speaker of the Assembly. The board must approve statewide health care cost targets by the start of 2025 and, eventually, sector-specific cost targets for sectors it defines, which could be as specific as an individual health care entity. Then, beginning in 2026, OHCA will take action to enforce these cost targets on noncompliant entities. Health care entities should prepare to balance minimal cost increases with improved workforce stability.

Below is a timeline specifying certain effective dates of the Bill:

*This post was co-authored by Paul Sevigny, legal intern at Robinson+Cole. Paul is not admitted to practice law.