In 2022, the state of California passed into law the California Health Care Quality and Affordability Act which requires that health care entities give the state 90-day notice of certain mergers, acquisitions, or other transactions projected to close on or after April 1, 2024.  Review of these transactions began on January 1, 2024.  Health care entities subject to this obligation include payers, fully integrated delivery systems, and providers, including large physician organizations, that meet certain thresholds.  Captured transactions are those that involve the sale of a material amount of assets of a California health care entity or the transfer of control of a California health care entity.  Transactions involving an out-of-state entity may also be captured if a California entity is involved.  Entities already required to file a federal merger control notice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), are not exempt from this notification requirement.

Notified transactions will be subject to robust and in-depth review by the state.  For any transaction that may raise competition concerns, the state will conduct a cost and market impact assessment and will issue a public report regarding its preliminary findings for public comment.  After receiving public input, the state will issue a final report, and may refer its findings to the state Attorney General for additional review if needed.  The Attorney General may then sue to block any mergers of concern.

California health care entities wishing to merge with or acquire another health care entity should anticipate, at minimum, a three-month long review by the state before closing.  Entities should also be aware of the possibility that any filed notification will become publicly known and available due to the public comment requirement and a separate online posting requirement.  There are limited exceptions in the law, which is broadly written to apply to a wide range of health care entities.  California’s Office of Health Care Affordability (“OHCA”), which is tasked with review of the pre-merger notifications, released regulations in December that broadened the definition of health care entities even further to include pharmacy benefit managers and “any parent, affiliates or subsidiaries that act in California on behalf of a payer” and meets certain criteria regarding control and responsibility.

California joins a growing number of states requiring state-specific notice for health care transactions, including many types of transactions that would not be subject to federal review under the HSR Act.  In May 2023, New York passed a law requiring health care entities to provide the state 30-day notice before closing any transactions.  In August 2023, Illinois passed a similar law that became effective on January 1, 2024.  Ten other states have pre-merger notification requirements for health care entities – Colorado, Connecticut, Hawaii, Massachusetts, Minnesota, Nevada, Oregon, Rhode Island, Vermont, and Washington.  Similar legislation was introduced in Florida, Maine, and North Carolina.  Based on this trend, it is likely several more states will expand health care transaction oversight in 2024.