by Jordan E. Grushkin and Matthew J. Goldman Jordan E. Grushkin and Matthew J. Goldman are partners at Sheppard Mullin. n an effort to upend the status quo in health care in California without com pletely reinventing the health care delivery system in the state, Governor Gavin Newsom and state leg-islators teamed up to devise a regulatory reporting and cost control regime that could have a significant impact on health care transactions in Cali for nia. Effective as of April 1, 2024, California health care transactions are subjected to a new regulatory regime—the cost and market impact re view (CMIR) regula-tions issued by the California Of fice of Health Care Afford -ability (OHCA)—that could substantially delay closing and require substantial public disclosure for in-scope deals. While specific to California, this law is part of a broader nationwide trend as states such as New York, Illinois, Oregon, and Indiana seek to regulate health care transac-tions in an effort to analyze and restrain potentially unsustainable growth in health care costs. Both the CMIR and the OHCA itself are products of the California Health Care Quality and Affordability Act, also known to observers as SB 184. 1 The statute provides that transactions involving certain “health care entities” 2 must submit a com pre hensive filing to state regulators, who will in turn review the filing and either undertake a thor-ough review process, ulti-mately resulting in a detailed report to the public, or grant a waiver. 3 As a part of its mandate from SB 184, the OHCA is responsible for issuing cost growth targets in the coming years for entities subject to the law, with the potential for administrative penalties for failure to abide by such targets. 4 These cost growth targets are in tended to function as a percentage path for year-over-year growth in health care costs, with the ultimate objective of reducing the growth in health care ex -penditures in the state. In -deed, an animating principle behind the law is cost control, with a particular focus on the impact of consolidation, in -cluding, in particular, consoli-dation driven by private equity investment. For this reason, certain transactions and entity types are either exempted from application of SB 184 in its entirety or potentially subjected to a reduced regulatory time frame and review process. Only “material change transactions” involving “health care entities” that meet certain size/materiality thresholds are subject to the CMIR process. Under SB 184, “health care entities” include providers, payers, and fully integrated delivery systems. 5 For purposes of the law “payers” include licensed health insurers, fully licensed Knox-Keene health care ser-vice plans, third-party admin-RICHARD EWING LOS ANGELES LAWYER JUNE 2024 18
Los Angeles Lawyer June 2024 Los Angeles Lawyer: Page 18
