By: Mena M. Arsalai, Kimberly V. Martinez, and Alexandra J. Porter
In a significant development marking a pivotal moment in California’s healthcare landscape, the Office of Health Care Affordability (“OHCA”) has broadened its regulatory oversight of healthcare transactions. The California Office of Administrative Law recently approved OHCA’s regulations under which “health care entities” are required to notify OHCA of “material change transactions” at least 90 days before closing for transactions finalized on or after April 1, 2024 (the “CMIR Regulations”).
Once a material change notice (“MCN”) is filed, OHCA has 60 days to decide whether to (i) conduct a cost and market impact review (“CMIR”) of the proposed transaction or (ii) waive such review. OHCA is required to conduct a CMIR if the proposed transaction poses a risk of significant impact on market competition, the state’s ability to meet cost targets, or costs for purchasers and consumers.
The first MCN filing was deemed completed on April 12, 2024. While this filing offered a first look at how OHCA will manage its CMIR process, the contemplated transaction in the filing did not relate to the sale of a business. Rather, as described in the notice, the submitter entered into the transaction solely as an accommodation to the landlord and its new operator/tenant. “Submitter is not ‘selling’ its business, but is agreeing to transfer the business operations to the new operation when the new operator obtains its license to operate the Facility.” Based on the facts of this notice, OHCA ultimately decided to waive the CMIR.
OHCA recently entertained its second MCN filing[1]. Unlike the first filing, this transaction contemplated the sale of a business, Invitae Corporation, a biotechnology company that provides genetic testing services. Invitae Corporation filed for Chapter 11 bankruptcy, and the bankruptcy court approved the sale of Invitae Corporation’s assets to Laboratory Corporation of America Holdings, a national provider of clinical laboratory services. The second MCN filing was deemed completed on June 5, 2024.
This latest MCN filing described the transaction as “an asset sale, through which LabCorp Genetics, Inc., a newly formed entity, will acquire certain assets of Invitae Corporation in accordance with the negotiated Asset Purchase Agreement and certain requirements under the bankruptcy code.” The goal of the transaction was described as “for Invitae to sell its assets to pay its creditors and settle its executory debts, while maintaining patient access to Invitae’s services.”
OHCA concluded its review by waiving the CMIR. A few of the details in this notice that may have helped OHCA reach this conclusion include the following:
- Invitae Corporation stated in the notice that the licensed laboratories in California were not involved in the contemplated transaction.
- The location of all services would not be changing post-transaction.
- The services provided would not be changing post-transaction.
- The patient population served would not be changing post-transaction.
- Laboratory Corporation of America Holdings committed to retaining at least 95% of Invitae Corporation’s employees under compensation and benefit conditions at least as favorable as those prior to the closing.
- Invitae Corporation contended that the contemplated transaction would promote competition and that without it, Invitae Corporation faces the prospect of complete cessation and liquidation, reducing options for patients and healthcare professionals and leading to job losses.
Each MCN filing is significant because it provides guidance on how OHCA will interpret and enforce the relatively new CMIR Regulations. California healthcare entities will benefit from closely reviewing each MCN filing and as more filings are made, we will gain a better understanding of the process.
