/>iSince April 2024, the California Department of Health Care Access and Information (HCAI), Office of Health Care Affordability (OHCA) has received twenty-six Material Change Transaction Notices (Notices) as part of its authority to review certain proposed California health care transactions. (See our prior posts here and here .) In twenty-three of the proposed transactions, OHCA has reviewed the Notices and waived a full Cost and Market Impact Review (CMIR), with two transactions still under review.
In June 2025, for the first time, OHCA issued a final determination that a submitted Notice requires a CMIR. The proceeding will focus on portions of a proposed transfer of assets and operations of twenty-two skilled nursing facilities (SNFs) from Covenant Care to subsidiaries of multiple experienced SNF operators, along with the transfer of the underlying real estate leases.
Separately, in the California legislature, Assembly Bill 1415 (AB-1415) (see our prior post here) passed the state Assembly and was amended in the Senate on June 27, 2025 and again on July 2, 2025. AB-1415 seeks to directly require private equity groups, hedge funds, and other entities to notify OHCA of proposed health care material change transactions and affords OHCA review of such proposed transactions. These two events – the first CMIR and the potential expansion of OHCA’s authority pursuant to AB-1415 – reconfirm California’s focus upon the competitive, quality, and patient accessibility impacts of material change health care transactions.
First Ever Cost and Market Impact Review
In March 2025, OHCA received a Notice in connection with the proposed Covenant Care transaction. Pursuant to the Notice, the purchase price is $25 million with the stated transaction purposes of ensuring the SNFs (1) are owned and operated by entities with expertise in providing high-quality services, and (2) can leverage purchasers’ strong relationships with regulators, payors, and local communities. In April 2025, OHCA confirmed that the Notice was complete.
Based upon review of the Notice, on June 6, 2025, OHCA made an initial determination that the agency would conduct a CMIR for components of the transactions involving three Covenant Care SNFs located in Los Angeles, Santa Barbara, and Ventura Counties (the Counties) (while waiving a CMIR for the remaining nineteen SNFs). On June 16, 2025, the submitters appealed the CMIR determination to the Director of HCAI. On June 23, 2025, the Director upheld OHCA’s CMIR determination.
Under OHCA’s regulations, the Covenant Care CMIR will examine a variety of factors relating to the parties and their relative market position, including the transaction’s potential impact upon (1) the availability or accessibility of health care services, (2) the quality of health care services, (3) lessening of health care marketplace competition (including in the labor market) resulting in increased costs, reduced quality, or access limitations, (4) ability to meet California health care cost targets, and (5) other factors OHCA determines in the public interest. The CMIR will also consider certain prior transactions the parties have entered into over the past ten years and any consumer concerns, including complaints against the parties.
The Covenant Care CMIR determination does not identify the specific concerns supporting a CMIR for the three identified SNFs. While not expressly stated, OHCA appears to be concerned with potential transaction impacts given that these three SNFs would be operated by affiliates of a purchaser and real estate investment trust with significant operations in the Counties. The purchaser owns twenty-one of the approximately 375 SNFs in Los Angeles County (approximately 6%), two of the approximately fifteen SNFs in Santa Barbara County (approximately 14%), and three of the approximately twenty SNFs in Ventura County (approximately 16%). Beyond this significant market presence, the purchaser and real estate investment trust have been involved in a significant number of related transactions in California over the past ten years.
In terms of next steps, absent any tolling of the ninety-day review period, the CMIR Preliminary Report will be published by September 22, 2025. Comments from the parties and public will be accepted through October 2, 2025. The CMIR Final Report will be issued by October 17, 2025, and the transaction may not close until at least December 16, 2025. While OHCA lacks the authority to block or impose conditions upon the transaction, the California Attorney General may undertake enforcement actions.
AB-1415 Update
Following its passage from the California Assembly to the Senate in June 2025, AB-1415 was referred to the Senate Committee on Health. Following a passing vote from the Committee on Health, AB-1415 was agreed to be amended and referred to the Senate Appropriations Committee with a hearing date scheduled for August 25, 2025. On June 27, 2025 and July 2, 2025, AB-1415 was notably amended by: (1) increasing the reporting requirements for management services organization (MSO) transactions and narrowing the definition of an MSO, and (2) removing the definition of “health system.”
MSO Amendments
Prior amendments to AB-1415 removed MSOs as “health care entities” and designated MSOs (along with private equity groups, hedge funds, parent entities, and certain other entities) as “noticing entities,” which must directly report to OHCA certain California material change transactions between themselves and a health care entity. The bill directs OHCA to adopt regulations establishing reporting thresholds, including but not limited to annual gross and net revenues and market share in a given service or region.
With the June 27th amendments, MSOs would not only notify OHCA of material change transactions between an MSO and a health care entity, but also would further report to OHCA sales of assets or changes of control of the MSO itself if the transaction involves (1) a private equity group or hedge fund, (2) another MSO, or (3) other entities created for the purpose of entering into agreements or transactions with health care entities. Relatedly, the June 27th amendments narrow the definition of MSO to solely include the provision of management and administration support defined as provider rate negotiation, revenue cycle management, utilization management, claims handling, customer service, and network development. Together, these amendments require that certain types of MSOs with the ability to significantly influence health care operations would report to OHCA material change transactions involving the MSO itself and certain other entities.
Health System Amendment
Under existing OHCA authorities, “health care entities” having pre-transaction reporting obligations include payers, providers, and fully integrated delivery systems. As initially drafted, AB-1415 added “health systems” to the definition of “provider.” “Health systems” was defined to include the following entities, under common ownership or control: (1) hospital systems comprised of two or more hospitals including at least one general acute care hospital; (2) a combination of one or more hospitals and one or more other providers; and (3) a combination of one or more hospitals, one or more providers, or one or more health plans or health insurers. With the July 2nd amendments, “health systems” have been removed from the definition of “provider.” As such, only providers such as individual physician organizations, health facilities, clinics, and clinical laboratories would have affirmative OHCA material change transaction reporting requirements.
Takeaways
The fact that OHCA has issued its first CMIR determination after reviewing twenty-four Notices with two preliminary reviews pending (less than 5% CMIR rate) suggests that OHCA is adhering to its goal of a balanced approach in determining when to issue a final CMIR determination. (See Health Care Affordability Advisory Committee Meeting , June 16, 2025). As evidenced by the Covenant Care CMIR, a determination to conduct a full CMIR significantly impacts the timeline for closing a proposed material change transaction. If OHCA waived a CMIR in the Covenant Care matter, the transaction could have closed on June 23, 2025, but with the CMIR the earliest the transaction can close is December 16, 2025.
The amendments to AB-1415 reflect both a desire by the bill’s author to ensure that OHCA has authority to review additional types of transactions impacting the California health care market, while acknowledging opposition to the bill from multiple California health systems and hospital associations. Opponents note the creation of overly burdensome and duplicative filing requirements that could disrupt or delay necessary investment and innovation in the health care sector. The amendments narrowing the definition of MSOs and removing health systems from the provider definition seek to address these concerns. Notwithstanding these changes, the bill’s author has publicly stated it will be a challenge for AB-1415 to reach the Senate floor.
As currently drafted, AB-1415 does not otherwise impact OHCA’s pre-transaction review of “health care entity” material changes, and “noticing entities” likely would submit the same material change transaction notice information as currently required of “health care entities.” If ultimately enacted (with a likely effective date of January 1, 2026), it remains unclear whether AB-1415 would increase the burden upon OHCA in conducting its pre-transaction review or whether the likelihood of a full CMIR would be impacted.
