5 Key Takeaways from Panel Discussion with the California Office of Health Care Affordability

From the West Coast Healthcare Desk

Holland & Knight hosted a virtual roundtable discussion on Nov. 4, 2024, with an esteemed panel featuring Sheila Tatayon, assistant deputy director of Health Systems Compliance and chief counsel for California's Office of Health Care Affordability (OHCA), and Holland & Knight Healthcare Partners Kenneth Yood and John Saran. As moderated by Holland & Knight Associate Shalyn Watkins, the roundtable discussion focused on the inner workings of the OHCA and the OHCA's implementation of the California Health Care Quality and Affordability Act (the Act).

The audience of healthcare attorneys, consultants, financers and other stakeholders in the local, state and national healthcare economies posed many questions to the panel concerning the impact the Act and OHCA will have on the current and future progress of healthcare transactions in California. Holland & Knight Associate Emily Duncan guided the panel through these questions, including:

• Will the OHCA reporting process have a chilling effect on healthcare transactions in California in 2025?
• Will the scope of disclosures to be made to the OHCA under the Act put confidential and sensitive information in the town square available for open viewing?
• When added to existing reporting and approval processes – e.g., by the Federal Trade Commission, the California Attorney General, and the California Departments of Insurance and Managed Health Care – will the OHCA disclosure, analysis and reporting process extend the transaction timetable to the breaking point?

In case you missed the presentation, this Holland & Knight alert summarizes the engaging discussion by highlighting the following five key takeaways.

1. Timing: OHCA's Processing Time Has Been Quicker Than the Act Requires, But the Night Is Still Young

During the webinar, Tatayon said, OHCA "starts the clock" once it determines that a Material Change Notice (MCN) is complete. She further explained that the longest time period to date from initial submission to the waiver of a cost and market impact review (CMIR) has been 61 days. When asked whether other reviews, such as antitrust reviews or other regulatory approvals, can occur concurrently when OHCA's review, she explained that OHCA expects them to happen concurrently. Only if other reviews or determinations would impact OHCA's final decision, the regulations require OHCA to toll the timing of the review, and the review clock will stop pending resolution. She also explained that if a transaction requires CMIR, the review process could take up to 250 days. OHCA takes into account nine different factors when determining whether a transaction should be subject to a CMIR (see FAQ 24). In reviewing the nine factors, if OHCA determines that further review of any one factor is required, this can result in a CMIR.

However, a CMIR has not happened to date. The seven transactions filed to date were a major focus for the panel, which sought to understand whether there were any tips or takeaways for future filings. Tatayon explained that based on the current filings, OHCA's review appears to be relatively swift when all parties are cooperative and provide all necessary information. She explained that material change transaction notices (MCN) filings must be submitted at least 90 days before the transaction is set to close. If the filings are "clean" and all required information is submitted, Tatayon explained that from her perspective the review process has been fairly painless. OHCA initially reviews each submission for completeness, which has averaged about 21 days (ranging from nine to 34 days). Following a successful submission, the regulation states that OHCA has 45 days to decide whether further review of the transaction will be waived. To date, OHCA has waived CMIR on all but one of the seven filings and the panel discussed that in other states with similar procedures, CMIR happens in only a small number of transactions. While a transaction which requires that a CMIR could take up to 250 days to close, this is the exception and not the rule for deal timelines.

Takeaway: Based upon recent history, most transactions will not require CMIR and OHCA has been completing MCN reviews on average in 22.3 days from the date of completion.

2. Confidentiality: When Requesting Confidentiality for Documents Submitted, Your Request Should Be Clear and Complete, and You Must Detail the Confidential Nature of the Documents, the Legal Basis for Confidentiality and How Long Confidentiality Should Be Maintained

While the panel discussed the intricacies of many definitions and procedures within the regulations, the most popular discussion point included issues of confidentiality in filings. Tatayon explained that OHCA has already received public records requests for information in some filings and has a procedure for requesting and ensuring confidentiality of certain information. Most notably, she emphasized that it is imperative that requests for confidentiality are complete and clear on what should be confidential and why confidentiality is appropriate. The requirements for requesting confidentiality can be found in Cal. Code Regs. tit. 22 § 97438 (d). Tatayon expressed that incomplete requests for confidentiality will cause a delay in the MCN review process, so verifying that the request is complete will be important for streamlining the review.

Takeaway: OHCA understands the need for confidentiality and, based upon recent history, is willing to adhere to any requests that are complete as required under the regulations.

3. Friendly Advice: Don't Hesitate to Ask

Throughout the roundtable discussion, Tatayon emphasized that many questions by submitters and would-be submitters can be resolved by reading the applicable regulations and familiarizing oneself with the OHCA website. She made specific note of OHCA's flowchart that can help practitioners determine whether their clients must file an MCN. And when a review of the regulations and website doesn't answer your questions, Tatayon explained that her office routinely responds to email questions from practitioners and has responded to more than 90 requests for assistance since OHCA's inception. She said MCN-related questions can be emailed to cmir@hcai.ca.gov. According to Tatayon, OHCA always offers to meet in person, and has met with at least 20 attorneys to assist with filings to date. While the in-person meeting isn't required, every transaction which has been submitted to OHCA so far, has included the in-person meeting before the submission of the MCN. Finally, she highlighted that input from the public is appreciated as the OHCA board regularly holds public meetings regularly where it welcomes collaboration and questions. This is good news for investors and their advisors who are trying to understand these newest changes to deal flow in California. OHCA is open to collaboration and wants to help submitters get their questions answered to help ensure the most efficient review process possible.

Takeaway: Staying updated on current rules and guidance online, and participating in public discussions, can provide valuable insights and a better understanding of what OHCA expects for MCNs.

4. Don't Forget: Monitor the OHCA's Portal

OHCA's portal serves as the primary communication channel for all submission-related updates, notifications and decisions. Tatayon stated that on average it has taken 21 days from the time of filing to the time OHCA determines a filing is complete because "in every instance [OHCA has] had to go back and ask for additional information ... so if you are contacted requesting additional information, try to respond as quickly as you can … so it's really important if you want to keep your transaction moving to keep providing information to OHCA … once you've submitted all communications go through the portal." She explained that email notifications from OHCA's portal sometimes end up in spam, so setting reminders to check the portal directly is advisable because OHCA will not follow up with submitters independently. In short, responsiveness can help expedite the review process, particularly when OHCA requests additional information or clarification.

Takeaway: Being proactive and responsive in communication can improve the overall efficiency of the submission process and minimize unnecessary delays.

5. Holland & Knight Reflection: OHCA Is Not Stopping Players in the Healthcare Industry from Considering Deals

Although specific data was not discussed regarding the comparative volume of deals before and after the promulgation of the Act, Holland & Knight believes that the Act did not stop deal flow in 2024. Even though OHCA does not have the authority to approve transactions, it amended its regulations because of a perception that the framework was not capturing enough transactions. Deals are still happening daily in California, and the seven filings to date are indicators that California is still an ideal place for investment in healthcare. By contrast, the threat of Assembly Bill (AB) 3129, which was ultimately vetoed by Gov, Gavin Newsom due to redundancy with OHCA's process, as discussed in a previous alert, made national news and caused concerns in boardrooms across the state while the bill made its way through the legislative process. It will be interesting to see if the demise of AB 3129, reaffirmation of OHCA's process and perhaps the new administration in Washington, D.C., will spark increased healthcare deal volume in California. Holland & Knight continues to monitor these changes and makes tracking them easier via our HK Navigator tool.

Conclusion

Navigating OHCA's review process can seem tricky because it is a new system, but by embracing these five key takeaways, healthcare transaction counsel can expedite and facilitate transaction closings. If you were not able to attend the webinar, please see our recording. For questions, please contact the presenters.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.