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Less than a year after California’s new Office of Health Care Affordability (OHCA) released the first draft of its intensive healthcare transaction review regulations, OHCA now entertains its <a href="https://hcai.ca.gov/affordability/ohca/assess-market-consolidation/material-change-transaction-notices-mcn-and-cost-and-market-impact-review-cmir/" target="_blank" rel="noreferrer noopener">first-ever material change transaction notice (MCN)</a>. The MCN filing was made by the Rehabilitation Center of Santa Monica and deemed “complete” on April 12, 2024. The submitter here contemplates a relatively simple transaction. As described in the notice, the “submitter’s lease for the skilled nursing facility property is expiring and the landlord requested submitter’s cooperation in remaining the operator until the new operator/tenant obtains its license to operate the facility.”

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How did we get here so quickly?

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OHCA first introduced its Cost and Market Impact Review (CMIR) regulations last July. The tight CMIR timeline is supported by OHCA’s authorizing statute, the California Health Care Quality and Affordability Act, which permits the agency to adopt implementing regulations on an emergency basis until January 2027.<a id="_ftnref1" href="#_ftn1">[1]</a> Thus, OHCA has managed to introduce, accept comments and finalize its CMIR regulations by December 18, 2023 – in less than six months.

Why is this first MCN filing important?

OHCA’s CMIR regulations are brand new and were hastily drafted, with limited agency commentary and no prior conduct to inform on how OHCA will interpret and enforce the sweeping rules. To boil it down, the CMIR regulations (effective January 1, 2024) require certain “health care entities” to notify OHCA of “material change transactions” at least 90 days before closing such transactions.<a href="#_ftn2" id="_ftnref2">[2]</a> The categories of “health care entities” are alarmingly broad,<a href="#_ftn3" id="_ftnref3">[3]</a> and while the contemplated “material change transactions” include some thresholds, these thresholds are relatively low. OHCA is obligated under its authorizing statute to include certain time limits for its CMIR review process but has incorporated several stopping points for the agency to “toll” any statutory time limits. Cumulatively, this adds up to a regulatory process with the potential to bring typical transaction activity for a large part of California’s health care industry to a grinding halt. The Rehabilitation Center of Santa Monica’s MCN is our first look at how OHCA will manage its CMIR process.

California healthcare organizations will certainly scrutinize this first MCN, but expect attention from other jurisdictions as well. In the past year, multiple states have contemplated or adopted healthcare transaction review laws, but no other jurisdiction has attempted a transaction review law as broad and burdensome as OHCA’s CMIR process.

Remaining questions and takeaways for this first MCN

How long did it take OHCA and the health care entity to move from a mere submission to a “deemed complete” filing?

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Where is the rest of the filing? OHCA’s CMIR regulations include a lengthy list of documents that must be filed alongside the MCN.<a href="#_ftn4" id="_ftnref4">[4]</a>

This first MCN covers a relatively simple and typical skilled nursing facility transaction (more akin to a real estate transaction).

OHCA has already asked the general public for comments on the MCN.

Stay tuned – we should know by May 27, 2024 whether OHCA will conduct a CMIR on this first filing.

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<a href="#_ftnref1" id="_ftn1">[1]</a> Cal. Health &amp; Saf. Code § 127501.2(a).

<a href="#_ftnref2" id="_ftn2">[2]</a> Cal. Code Regs. tit. 22 § 97435(a).

<a href="#_ftnref3" id="_ftn3">[3]</a> A “health care entity” includes: (i) payers; (ii) providers; (iii) fully integrated delivery systems; (iv) pharmacy benefit managers; and (v) any entities that are a parent, affiliate or subsidiary of a payer that acts on the payer’s behalf in California. Cal. Health &amp; Saf. Code § 127500.2(k).

OHCA’s First Material Change Transaction Notice