As we previewed in our previous blog article, the California Department of Health Care Access and Information (HCAI) hosted a live public workshop on August 15, 2023 for in-person and virtual attendees to make comments and pose questions regarding the proposed regulations governing the Office of Health Care Affordability’s (OHCA) review authority for certain healthcare transactions.

Takeaways of Workshop Discussion

The public workshop drew key stakeholders from across the healthcare spectrum, each with differing perspectives on potential impacts of the proposed regulations and considerations for OHCA as it works to finalize them. Although interests varied across the commentators, a few themes stood out over the course of the session:

• Scope of Regulated Parties and Transactions

Dillon Iwu, the Director of Government Affairs at American Investment Council (AIC), echoed concerns of several other commentators regarding the breadth of the regulations and the parties and transactions subject to review. Specifically, Iwu encouraged OHCA to consider revising and limiting the definition of “health care entity” (“HCE”) to omit management services organizations (“MSOs”) from being considered payers and take an approach more consistent with how the industry and statutes define “payers” (e.g., risk bearing entities and third parties licensed by the state). Bill Barcellona from American Physician Groups also was concerned about how MSOs are referenced in the regulations and emphasized that many MSOs in the state are unaffiliated contracted organizations with no common ownership or control over HCEs, and thus OHCA should consider distinguishing and excluding such third party MSOs from the scope of OHCA review. Janice Rocco, Chief of Staff at California Medical Association (“CMA”), raised a more general concern that the proposed definition of an HCE would be broad enough to include more parties than within OHCA’s original statutory authority.

Several speakers brought up the general scope of transactions and circumstances contemplated by the regulations. Lois Richardson of the California Hospital Association (CHA) raised concerns with the breadth of the definition of “transactions” and, particularly, that the inclusion of “a change of assets… or… operations” could expand the statute in a manner which could implicate seemingly routine or ordinary course transactions. Alternatively, multiple commentators (such as Beth Capell of Health Access California and Michelle Grisat of California Nurses Association (CNA)) suggested that OHCA should not just focus on “transactions”, but also general market reviews and urged OHCA to consider labor market impacts as an independent circumstance permitting OHCA to perform a cost and market impact review (“CMIR”).

The thresholds proposed by OHCA regarding transactions within the scope of review were also a hot topic of discussion. Janice Rocco argued that the thresholds for a change in control should be increased from OHCA’s original proposal (i.e., more than 10% of the control of, responsibility for, or governance of an HCE), Similarly, Barcellona highlighted that the transaction thresholds as proposed (e.g., a transaction involving an increase of $10M or more in annual revenue) could trigger filing requirements for small practices and could delay hiring specialized providers. On the other hand, Beth Capell voiced the concern that the thresholds were too high and urged OHCA to consider closer alignment with thresholds implemented by the California Attorney General.

• Distressed Hospitals and Other Distressed Assets

Mark Farouk from the California Hospital Association (CHA) was one of many commentators to express concerns regarding the breadth of the proposed regulations and its potential effects on distressed assets in the healthcare space. He pointed out that OHCA’s review under the proposed regulations could delay transactions with any external entity by several months days and warned this could have chilling effects on partnerships that can serve as an essential lifeline to distressed hospitals. JR De Vera, on behalf of Union Organizers in Monterey County, expressed concerns on the opposite side of the coin: that allowing transactions to continue without such review process could result in increasing healthcare costs which impacts cannot be measured particularly in communities in which such hospitals are primarily serving low-wage workers. Similar sentiments were expressed by Beth Capell, Health Access California; Harvey Mckeon, NorCal Carpenters Union; and Shannon Oliviera Hovis, Director of NARAL Pro-Choice California.

• Consideration of Benefits of “Material Change Transactions”

Several commenters, including Farouk, suggested OHCA consider the potential benefits of material change transactions (both in reconsidering the scope of the proposed regulations and also regarding whether a CMIR should be conducted), including improving the ability of entities to enter into value-based reimbursement models, promoting integration across multi-specialty services, and facilitating efficiency through economies of scale. Beth Capell of Health Access California raised alternative concerns that if benefits are considered, the regulations should require production of evidence supporting the basis for such benefits and consider options for requiring validation of such assertions.

• Timing Considerations, Reporting Requirements and Fees

Another common theme expressed during the workshop was the potential length of time it could take OHCA to review a transaction and for parties to actually close a transaction. Janice Rocco argued that if OHCA used its maximum possible length of time to review, it could hinder smaller transactions due to smaller or distressed entities’ inability to maintain financial solvency during such a lengthy period. Several speakers also critiqued the timeline for advance notice and recommended OHCA refine the notice requirement to be specifically based on the closing date of a transaction. Marc Aprea from Aprea & Micheli proposed that OHCA establish a clear timeframe for an expedited review process, and a guarantee to issue a final report within 75 days of deciding to conduct a cost/market review to avoid unnecessary delay, referring to Oregon and Massachusetts as examples of regulations that imposed similar time limits. Another interesting point was raised by Barcellona, who mentioned that as the proposed regulations stand, HCEs reorganizing under Chapter 11 would be required to file notice with OHCA 90 days before the entity’s bankruptcy proceedings, as the change of control or assets would be triggered based upon a bankruptcy filing.

Confidentiality was another technical concern raised by commentators during the workshop, particularly regarding the extent of information required to be reported and speakers sought clarity with respect to the types of financial information that must be provided. Specifically, Andrew Demetriou from Husch Blackwell in Los Angeles requested that the regulations define “certified financial statements”, one of the types of documents that organizations must submit with the required notice. Demetriou pointed out that “certified” does not have a particular meaning in the industry, and smaller organizations will not have audited financial statements, so OHCA should clarify the nature of statements it would like to see.

On the other hand, other commentators opined that the reporting requirements set forth in the proposed regulations should be expanded. For example, Michelle Grisat suggested that parties should be required report any planned or potential workforce changes (e.g., rate changes, changes in location of services, reductions in shifts, or shifting to lower acuity settings) and historical workforce transactions in patterned transactions. 

Finally, commentators indicated that the regulations as proposed could, in some cases, result in OHCA processing duplicative revenue information also received and processed by other to state agencies. Bill Barcelona expressed concerns with the costs inherently caused by the dual review procedures and noted that such initial costs could actually diminish competition by overly burdening new players. Marc Aprea also suggested the proposed regulations include caps on reasonable costs which must be reimbursed.

Looking Forward

HCAI indicated during the workshop that they would offer a summary of the comments for OHCA’s Board to discuss during its August meeting. Healthcare stakeholders had the opportunity to provide written comments to OHCA regarding the regulations until August 31, 2023.

It remains to be seen whether and, if so, how OHCA revises or tweaks the regulations following the public comment period. Based on the lively discussion and important issues raised during the workshop, however, we expect that OHCA will have a lot to consider before moving to finalize them in the fall of this year. We will keep readers posted as further updates are unveiled in the coming weeks and months.