On May 16, 2024, the California Office of Health Care Affordability (“OHCA”) released proposed emergency regulations to update its existing rules for the reporting of certain health care transactions to OHCA for consideration of whether a Cost and Market Impact Review (“CMIR”) is warranted under the California Health Care Quality and Affordability Act. The current CMIR regulations became effective January 1, 2024, for transactions with a proposed closing date on or after April 1, 2024.
On November 28, 2023, the California Office of Health Care Affordability (“OHCA”) submitted proposed emergency regulations (the “Regulations”) on the reporting of certain transactions involving health care entities for review by the California Office of Administrative Law, the final step in the regulation process. The final Regulations, reflecting changes in response to public comments and those proposed by the Office of Administrative Law, were released on December 18, 2023, and will apply as of January 1, 2024, to covered transactions with a proposed closing date on or after April 1, 2024. Earlier articles covered the draft regulations and revised regulations, which parallels similar reporting regulations in nine other states, including Massachusetts, Washington, and Oregon. New York is proposing similar regulations for adoption in 2024.
This article will comment on the most recent changes to the Regulations and certain practical issues that must be considered in future transactions that will be subject to the reporting regime and cost and market impact reviews (“CMIR”).
In July of this year, the California Office of Health Care Affordability (“OHCA”) released draft regulations requiring the advance reporting of certain healthcare transactions that could affect the cost of healthcare or adversely impact the healthcare market in California. These reporting requirements implement provisions of amendments to the California Health and Safety Code enacted in 2022, which authorized OHCA to review proposed transactions and, if appropriate, undertake a detailed cost and market impact review (“CMIR”) to determine the potential impact on the health care economy of California.
On July 31, 2023, the California Office of Health Care Affordability (“OHCA”) released draft regulations concerning pre-transaction review of so-called “Material Change Transactions” as part of its legislative mandate to review transactions which could have potential impacts on the costs of health care in the State of California. When approved, final regulations would be effective January 1, 2024. The draft regulations contemplate a dramatic expansion of state review of transactions affecting health care services. The draft regulations are to be discussed at a public regulatory workshop to be convened by OHCA on August 15, 2023, at its Sacramento offices. OHCA will accept public comments on the draft regulations through August 31, 2023, submitted to CMIR@HCAI.CA.GOV.
This is the fifth article in our series on “Closing a Private Equity Transaction.” In Part I, the benefits of preparing for a transaction were explained, along with how best to prepare. In Part II, the letter of intent was discussed, and key terms were identified. In Part III, we walked through what to expect during the due diligence process. In Part IV, we outlined the various healthcare regulatory issues that arise in private equity transactions. Here, we highlight some of the more material terms typically negotiated in the definitive transaction documents.
The primary definitive document will be the purchase agreement (which will either be an asset purchase agreement or a stock purchase agreement, depending on the structure of the transaction). The first step will be to confirm the agreement contains the various terms negotiated in the letter of intent. (See Part II for a discussion of the terms that should be negotiated.) While the LOI will cover the major deal terms, the purchase agreement will expand upon those terms in more detail, and include other provisions necessary to effectuate the transaction.
This is the second article in our series on “Closing a Private Equity Transaction.” As discussed in “Part I,” advance preparation is critical to getting a deal done. Once preparation for a potential transaction is complete, and an interested buyer or investor is identified, the parties will proceed with negotiating a letter of intent (LOI).
With a few exceptions (which are mentioned below), the LOI is a nonbinding document, but should include those terms essential for both parties to close the transaction. This is the moment when the parties will be in the best position to ensure that the time and expense that will be required for negotiating a definitive purchase agreement will be justified. Such terms can include:
To increase the likelihood of ultimately closing a transaction with a private equity investor or buyer, the key is preparation. Preparation is divided up into several steps.
First, before seeking a potential investor or buyer, the owners of the business should go through a semi-formal process to confirm the owners and key members of the business have shared, or at least compatible, motivations and priorities in a pursuing a potential transaction (e.g., capital for improving or growing the business, building a brand, creating value for a future exit, or cashing out). This will allow the business to focus on those investors/buyers with aligned expectations, and ultimately gain the required approval to close a transaction from the owners and key members of the business.
As with any transaction, a healthcare deal typically starts with a Letter of Intent (“LOI”) or Term Sheet to outline the base agreements on the business deal. The LOI or Term Sheet should include not only the purchase price (or range), purchase price adjustments, payment terms, closing conditions, confidentiality, exclusivity, and other common items, but also the transaction structure – for example, asset sale, stock/membership interest sale, merger, joint venture, affiliation, etc.