Reed Smith In-depth

A host of new health care laws will govern the delivery of health care services in California in 2023. These new laws address a number of public policy issues being debated in state capitals around the country, including privacy, access to prescription medications, substance abuse treatment, gender-affirming care, and licensure of skilled nursing facilities. We describe many of these laws below. For additional information on these laws or legislation that may be proposed in the 2023-2024 legislative session, please contact a member of our California health care team.

Regulatory review of transactions by the new Office of Health Care Affordability (Senate Bill No. 184)

In 2023, California joins a handful of other states in establishing a health care cost commission. A new California law establishes the Office of Health Care Affordability (OHCA), whose goals are to control health care costs while maintaining quality of care and broad accessibility. The new law grants OHCA the ability to request data from certain health care entities and state agencies, and to use such data to analyze the health care market for cost trends and drivers of spending, develop data-informed policies for lowering health care costs for consumers and purchasers, set and enforce cost targets, and create a state strategy for controlling the cost of health care and ensuring affordability for consumers and purchasers. In addition to OHCA’s role with cost targets, the law vests OHCA with authority to review health care mergers, acquisitions, affiliations, and other transactions and may refer the transaction to the attorney general for further review of unfair methods of competition, anticompetitive behavior, or anticompetitive effects.

The new law also establishes the Health Care Affordability Fund for the purpose of receiving and expending revenues (upon appropriation by the California legislature) collected under the new law. Enforcement of the cost growth targets begins in 2026, at which time OHCA will be required to take certain actions against health care entities that fail to meet those targets, including performance improvement plans and administrative penalties.

This new law is lengthy and contains important amendments to health care delivery. Below are some key highlights of the law.

Health care transactions. Under the new law, health care transactions will be subject to OHCA review if they involve a change to ownership, operations, or governance structure. In particular, transactions will be subject to review if they (a) involve the sale, transfer, lease, exchange, option, encumbrance, conveyance, or disposal of a material amount of a health care entity’s assets to one or more entities or (b) transfer control, responsibility, or governance of a material amount of the assets or operations of the health care entity to one or more other entities. The law does not define “material amount of assets.”

The review process applies to physician practices (generally those with 25 or more physicians), hospitals and health systems, clinics, ambulatory surgical centers, clinical laboratories, imaging centers, pharmacy benefit managers, and health plans. Dentists, pharmacies, drug manufacturers, durable medical equipment suppliers, home health agencies, and emergency medical transportation providers are not subject to the transaction review process.

For a transaction closing on or after April 1, 2024 the parties must notify OHCA at least 90 days prior to entering into a transaction agreement (the notice obligation begins upon execution of an agreement as opposed to 90 days prior to closing). OHCA will determine within 60 days of receipt of the notice whether it will conduct a cost and market impact review. Transactions may not proceed without either the completion of a cost and market impact review or receipt of a waiver. If OHCA conducts a review, it will produce a preliminary report and solicit comment from the public and the parties. A transaction cannot close until 60 days after OHCA publishes its final report. During this time, OHCA may refer the transaction to the attorney general for review, and the attorney general may pursue litigation to block the transaction pursuant to antitrust laws or allow it to proceed subject to certain conditions, including implementation of a monitor, ongoing reporting requirements, and restrictions on managed care contracting and rate setting.

Over the course of 2023, OHCA is expected to undertake a rule-making process to define key provisions of the cost and market impact review, including material changes that warrant notification, thresholds (e.g., annual revenues or market share) for determining which entities or prospective transactions will be subject to the noticing requirements, factors to be considered in the reviews, requests for data, and relevant timelines.

Medi-Cal. The new law also extends Medi-Cal eligibility for the full scope of benefits to individuals who are 26 to 49 years old, and who may not have satisfactory immigrant status provided they are otherwise eligible for those benefits. Additionally, recognizing the importance of individuals being able to stay with their chosen primary care provider, this law requires the eligibility and enrollment plan to enable an individual to do just that – maintain their primary care provider or medical home. The law requires coordination among the counties, Medi-Cal managed care health plans, health care providers, and consumer advocates, among others, to identify and maintain primary care provider or medical home relationships. Certain eligibility extensions will also now be offered for children under five years old and pregnant individuals.