The California state legislature recently introduced – and then quickly pulled – new legislation that would have required Attorney General notice and consent for a potentially broad range of health care transactions and also prohibited certain managed care contracting practices.
AB 1132 – the Health Care Consolidation and Contracting Fairness Act of 2021 was first introduced in the California Assembly on February 18, 2021. Initially the bill would have required Attorney General approval for certain types of health-related transactions and other arrangements that are valued at $3 million or more as well as certain other arrangements involving health care service plans or health insurers. The bill was amended in March of 2021 and, as amended, would have required Attorney General approval where a medical group, hospital, health plan, insurer, or pharmacy benefit manager entered into a transaction valued at over $5 million to either sell or transfer control over a material amount of its assets or operations. In addition, the amended bill would have included the following provisions:
- Ambulatory surgical centers not owned by or affiliated with a general acute care facility would have been exempt from the notice and consent requirements;
- Notice to the Attorney General would need to be provided 90 days in advance and the Attorney General would have 90 days to make a decision (which period the Attorney General would be able to extend by another 45 days under certain conditions). Before issuing a decision, the Attorney General would need to hold a public hearing;
- The Attorney General’s approval could be based on factors such as whether or not the proposed material change would have a significant impact on market competition or costs, whether it would improve quality of care or access, and whether the change was in the public interest;
- The Attorney General would have the ability to recoup from the entities seeking consent any costs incurred in reviewing and making a determination on the transaction, as well as costs incurred in engaging an expert to assist with monitoring ongoing compliance; and
- In addition to the Attorney general notice and consent provisions, the bill would have prohibited health facilities from entering into any contract with a health plan or insurer that restricts the plan or insurer from directing or steering enrollees to other providers or facilities.
On April 12, 2021, however, the bill was amended to remove all of the above provisions related to health care consolidation and contracting, which may be a welcome development for providers considering a transaction in the near future. The amended bill now focuses on care coordination for Medicare/Medi-Cal dual eligible beneficiaries. Specifically, the bill requires dual eligible to be assigned to Medi-Cal managed care health plans in Coordinated Care Initiative counties. The Coordinated Care Initiative is a demonstration project which enables dual eligibles to receive a continuum of services that maximize access to, and coordination of, benefits between the Medicare and Medi-Cal programs.
It is unclear why the health care consolidation and contracting provisions of the bill were removed. We understand anecdotally that legislative committee meeting times remain somewhat limited due to COVID-19 and that some controversial or difficult measures are being set aside for now due to limited committee time to work out the issues. Health care facilities and providers may recall that last year the California Senate debated a bill (SB-977) that would have imposed notice and approval requirements on health care systems, private equity groups, and hedge funds seeking to acquire or affiliate with a health care facility or provider (please click here and here for our previous alerts on SB-977). That bill ultimately did not pass in the 2020 legislative session even though it had strong support from the Attorney General, organized labor, and a broad legislative coalition. Health care provider and payor stakeholders should continue to monitor the California legislative landscape and be prepared for the possibility of these proposed measures to resurface again.
For additional information, please contact one of the authors of this update or your regular Polsinelli lawyer.