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At long last, the cost and market impact review (CMIR) regulations promulgated by the California Office of Health Care Affordability (OHCA) have been approved by the California Office of Administrative Law (OAL). The final regulations, which are available to view here, were submitted by OHCA on December 8, 2023 and approved by OAL on December 18, 2023. As we have highlighted in our series of posts[1] throughout the year, these regulations, in combination with the related statutory provisions in SB 184, set forth the framework for OHCA’s authority to receive advance notice of and review a large scope of healthcare transactions in the coming months of 2024, reflecting a dramatic change to California’s healthcare regulatory landscape. To refresh and update our readers regarding the CMIR regulations, this article will provide an overview of the key components and practical considerations regarding this new reporting regime, while also commenting on the key final tweaks to (and omissions from) the regulations.

1. Who is subject to the CMIR process?

Health Care Entities

Under SB 184, “health care entities”, which include (i) payers, (ii) providers and (iii) fully integrated delivery systems[2], are potentially subject to OHCA’s CMIR authority. The statute, together with clarifications under the regulations, defines “payers” to include fully-licensed Knox-Keene health care service plans, licensed health insurers, third party administrators, publicly funded health care programs, and pharmacy benefit managers, and any other entity that pays for or arranges for the purchase of health care services on behalf of employees, dependents or retirees. “Providers” include physician organizations (including medical groups comprised of 25 or more physicians, medical foundations, restricted Knox-Keene plans, and risk bearing organizations), health facilities (including hospitals, SNFs and other nursing facilities, intermediate care facilities and hospices), outpatient clinics (including ASCs and specialty clinics), clinical laboratories and imaging centers.

Over the course of the year, in various drafts of the regulations, OHCA considered deeming management services organizations (MSOs) as health care entities subject to the CMIR process. Notably, MSOs are not included as a health care entity in the final regulations, but the regulations do include parents, affiliates or subsidiaries of a payer that act in California on behalf of a payer and (i) control, govern or are financially responsible for the payer, (ii) are subject to the control, governance or financial control of the payer, or (iii) in the case of a subsidiary, are a subsidiary acting on behalf of another subsidiary.

The final regulations also specify that physician organizations with less than 25 physicians could be considered a health care entity if they are determined to be a high cost outlier (i.e., whose costs for the same services are substantially higher compared to the statewide average).

Which health care entities are subject to CMIR?

While health care entities are broadly defined under the statute and final regulations, only health care entities meeting at least one of the thresholds set forth below are required to notify OHCA under the CMIR process:

  1. Health care entities with at least $25 million in CA-derived annual revenue or that own or control at least $25 million of California assets;
  2. Health care entities with at least $10 million in CA-derived annual revenue or at least $10 million of California assets and are involved in a transaction with a $25 million health care entity; or
  3. Health care entities located in a designated primary care health professional shortage area in California, as defined in Part 5 of Subchapter A of Chapter 1 of Title 42 of the Code of Federal Regulations (commencing with section 5.1), available at

While much attention has been paid to the monetary thresholds set forth above as OHCA worked to finalize the regulations, it is important to emphasize that the last threshold regarding designated primary care health professional shortage areas should not be ignored in assessing the applicability of the CMIR process to parties, as such areas include significant geographic portions of the state, both urban and rural.

2. What types of transactions are within scope of OHCA’s purview?

Material Change Transactions

Transactions must be considered “material change transactions” to be within the scope of the CMIR process. Under the statute and final regulations, a wide variety of transactions are considered material change transactions, including those involving:

  1. A transaction value of at least $25 million and provision of health care services, which are defined to include not just clinical services, but related equipment and technology services;
  2. An increase in a health care entity’s annual California revenue by at least $10 million or 20% at normal or stabilized levels of utilization or operation;
  3. Transfer or other disposition of 25% or more of the assets of the filing party;
  4. A filing party’s transfer of control, responsibility, or governance, defined to include 25% or greater ownership/control changes as well as vesting of significant voting rights (e.g., veto rights, supermajority rights) even if ownership/control transfer is less than 25%;
  5. An entity contracting with payers on behalf of consolidated or combined providers and is more likely than not to increase annual California revenue by at least $10 million or 20% of any providers in the transaction;
  6. The formation of a new entity for the provision of health care services projected to have at least $25 million in annual California revenue or assets;
  7. A series of related transactions occurring over the past 10 years for the same or related services involving the same health care entities or entities affiliated with the same entities; or
  8. The acquisition of a health care entity by another entity and the acquiring entity has consummated a similar transaction within the last 10 years, with a health care entity that provides the same or related health care services.


Despite the broad applicability of the CMIR framework, the statute and final regulations do contain certain exceptions. Indeed, the final regulations specify that the following are not considered material change transactions: (i) transactions in the usual and regular course of the health care entity (i.e., those that are typical in the day-to-day operations of the health care entity); (ii) situations in which the health care entity directly, or indirectly through one or more intermediaries, already controls, is controlled by, or is under common control with, all other parties to the transaction, such as a corporate restructuring; and (iii) affiliations that involve collaboration on clinical trials, graduate medical education programs, health professions training programs, health sciences training programs, or other educational and research programs.

Likewise, the text of SB 184 exempts from the CMIR process agreements or transactions: (i) involving Knox-Keene health care service plans, where such agreements or transactions are subject to the review of the Department of Managed Health Care (DMHC) for cost impact or market consolidation, (ii) involving insurers where such agreements or transactions are subject to the review of the Department of Insurance (DOI); (iii) where a county is purchasing, acquiring or taking control of an entity to ensure continued access in that county; and (iv) involving nonprofit corporations where such agreements or transactions are subject to the review of the Attorney General. Nonetheless, the statutes and regulations do not provide further specification regarding the exact scope of these exemptions, and thus it is unclear, for example, whether the inclusion of a Knox-Keene licensee, licensed insurer or nonprofit corporation in a larger underlying transaction would exempt an entire transaction from the CMIR process, or if only the portion of the transaction involving such entity would be exempt. It is possible OHCA may issue further guidance on such or similar fact patterns. Moreover, SB 184 permits the Attorney General, the DMHC and the DOI to refer transactions under their respective purview to OHCA for a CMIR.

3. What does the notice and review process entail?

Timeline and Review Standards

Health care entities meeting the thresholds identified above that seek to close a material change transaction on or after April 1, 2024 will need to provide OHCA with a complete notice of the transaction at least 90 days prior to the closing of the transaction.

Once filed, OHCA must notify the submitter within 45 days if it determines that a CMIR will not be conducted. OHCA must notify the submitter within 60 days of the filing if OHCA intends to conduct a CMIR. Note that the 45 / 60 day timeline is tolled while OHCA awaits additional information from the parties or if the transaction is under review by another government agency. The filing parties may appeal OHCA’s decision to conduct a CMIR within 10 days of OHCA’s determination, and OHCA will then have 5 days to decide to uphold the original determination or grant a waiver of the CMIR.

In deciding whether to conduct a CMIR, OHCA weighs certain factors as specified in the final regulations, including whether the transaction:

  1. May result in negative impact on availability or accessibility of health care services, including the filer’s ability to offer culturally competent care;
  2. May result in negative impact on costs for payers, purchasers, or consumers;
  3. May lessen competition or create monopoly in geographic service areas impacted by the transaction;
  4. May lessen competition for health care entities to hire workers or may negatively impact the labor market;
  5. Negatively impacts a general acute care or specialty hospital;
  6. May negatively impact the quality of care;
  7. Is part of a series of similar transactions that further a trend toward consolidation;
  8. May entrench or extend a dominant market position of any health care entity in the transaction; or
  9. Is between a California entity and an out-of-state entity and may negatively impact affordability of or limit access to health care services in California.

If OHCA decides to conduct a CMIR, it is required to complete the review within 90 days of its determination, which period can be extended for one additional 30 day period and tolled while OHCA awaits additional information from the parties or if the transaction is under review by another government agency. Upon completion of the CMIR, OHCA will issue a preliminary report of its findings and the parties to the transaction and the public will have the opportunity to submit written comments within 10 days of the preliminary report. OHCA will issue a final report within 15 days of the close of the comment period. Parties may not close the transaction until 60 days following the issuance of the final report.

In sum, there is a potential for a 9 month timeline from the initial notice to OHCA to complete the CMIR process for applicable health care entities, not including any preparation time to submit the filing or tolling of the timeline under the CMIR process.

The final regulations include a limited process for expedited review of a notice of material change transaction. The submitter must demonstrate, with a detailed explanation and any underlying documentation substantiating the need for expedited review, either that (i) one of the parties to the transaction is undergoing severe financial distress (i.e., a grave risk of immediate business failure) and the transaction is necessary to ensure continued health care access in the relevant markets, or (ii) there is a substantial likelihood of a significant reduction in the provision of critical health care services within one or more geographic regions.

What are health care entities required to provide and disclose?

Parties subject to the CMIR process will need to file through OHCA’s online portal. Filing materials include a broad range of information and disclosure materials, including, among other things:

  1. Identification and description of parties involved in the transaction, including listing of Tax IDs and California health care licenses of parties;
  2. Description of transaction, current services, expected post-transaction impacts on services, post-transaction organizational and operational changes;
  3. Description of certain prior M&A activity involving certain parties to the transaction in the last 10 years;
  4. Definitive transaction agreements (with accompanying appendices and exhibits);
  5. HSR filings related to the transaction;
  6. Documentation sufficient to show valuation of transaction;
  7. Pre-closing and post-closing organizational charts;
  8. Certified financial statements for prior 3 years; and
  9. Organizational and governing documents of parties.

Information included in the notice is treated as a public record unless the submitter requests confidentiality for such information and OHCA accepts such designation. Marked-confidential versions of definitive transaction agreements, compensation documents, contract rates, and transaction valuation documentation are deemed confidential and nonpublic.

4. Practical takeaways for stakeholders

It is safe to say that the CMIR process detailed in OHCA’s final regulations and SB 184 marks a significant overhaul to California’s healthcare regulatory landscape, and most parties looking to consummate transactions in the California healthcare space in 2024 will need to take into account and potentially navigate this new regulatory process.

For parties wishing to avoid going through the CMIR process, it may be advisable to attempt to close transactions in advance of the April 1, 2024 date.

For transactions where such a closing timeline is not possible or potentially could slip past April 1, 2024, parties should be carefully reviewing the transaction components in conjunction with the regulations to determine whether notice of a material change transaction will be needed. And if such notice is needed, parties may be wise to begin the process of collecting and preparing information and documentation needed to submit a complete notice of material change transaction, including accessing the need to seek confidentially for certain materials.

Moreover, definitive transaction agreements involving transactions closing on or near April 1, 2024 should contemplate appropriate closing conditions and/or contingencies in the event the transaction fails to close prior to April 1.

Parties should also be prepared from an operational perspective that transactions may face substantial delays in the ability to close, given the potential timeline in the CMIR regulations, and it is certainly possible that OHCA could experience backlogs which exacerbate the regulatory timeline.

On the other hand, it remains to be seen how aggressive OHCA will be in subjecting all in scope parties and transactions to the CMIR process. SB 184 does entitle OHCA to specific performance, injunctive relief, and other equitable remedies a court deems appropriate for enforcement of any of the requirements of the law. That being said, whether OHCA decides to focus its CMIR role towards certain types of transactions over others and/or be more willing to grant waivers for certain transactions are a few of the key enforcement-related questions that could have answers or more clarity in the coming months.


[1] See links to Sheppard Mullin’s blog series re SB 184 and OHCA:

[2] A fully integrated delivery systems is defined as a “system that includes a physician organization, health facility or health system, and a nonprofit health care service plan that provides health care services to enrollees in a specific geographic region of the state through an affiliate hospital system and an exclusive contract between the nonprofit health care service plan and a single physician organization in each geographic region to provide those medical services.”