The Weekly Articles

In the June 11, 2024 Weekly, The Watching discussed Stone v. Alameda Health System, a case addressing whether a health authority is covered by meal and rest break requirements in the California Labor Code and the Private Attorneys General Act (“PAGA”).  On August 15, 2024, the California Supreme Court issued its decision in the case.  The Court held that the Alameda Health System was a public entity, that a “person” as used in Labor Code section 18 excluded public entities and therefore AHS was not required to provide meal and rest breaks under Labor Code sections 226.6 and 512.  The Court also held that under Labor Code section 220, the Authority was exempt from certain other Labor Code sections.  Finally, the Court held that PAGA (Labor Code section 2699 et seq.) did not apply to public entities.  2024 WL 3819163.  Note that the case arose before the enactment of Labor Code section 512.1 which requires that, effective January 1, 2023, employees working in public hospitals and other healthcare facilities be provided with meal and rest breaks.    

See the new redesign of CHLN! The Summer issue includes articles on private equity investment in medical group practices, an update on the pixel litigation involving healthcare entities, an overview of the Medical Board’s process for physician investigations, and an update on AB 352 and confidentiality requirements for sensitive health records.

As reported in last week's Watching, the Department of Healthcare Access and Information's Office of Health Care Affordability (OHCA) recently proposed further amendments to its Cost and Market Impact Review (CMIR) emergency regulations (22 Cal. Code Regs. § 97431 et seq.) to expand the material change notice filing requirements to transactions that a health care entity is a "subject of," among other revisions. The proposed amendments were formally noticed on August 5, and filed with the Office of Administrative Law (OAL) on August 13, 2024. OAL approved the proposed amendments on August 22, 2024, with immediate effect. As an emergency rulemaking action, the amendments were subject to expedited notice and review under Government Code section 11346.1. Health and Safety Code section 127501.2 grants OHCA emergency rulemaking authority until January 1, 2027. A copy of the approved amendments is available here.

This isn’t Assemblymember Freddie Rodriguez’s first rodeo when it comes to protecting healthcare workers from workplace violence. Assembly Bill 977 is a redux of a bill passed (and vetoed) in 2015 (AB 172) that would increase penalties for assault and battery in emergency departments across California.

AB 977 would add to the assault and battery statutes that authorize higher misdemeanor penalties the additional category of physician, nurse, or other health care worker of a hospital engaged in providing services within the emergency department. The increased penalties include a higher fine ($2,000, up from $1,000) and a longer jail term (up to one year). The bill also provides for posting of a notice to patients.

Before joining the Assembly, Assemblymember Rodriguez served as an Emergency Medical Technician in the San Gabriel Valley. When he first introduced the earlier iteration of the bill in 2015, it was before the country was rocked by the Covid-19 pandemic. Assemblymember Rodriguez reintroduced the bill this year because of a dramatic exodus from the industry by healthcare workers after the Covid-19 pandemic while statistics seem to show an increase in emergency room violence. According to Cal/OSHA’s most recent report, there were 10,280 incidents of violence reported from 301 California hospital facilities for 2021/22.

According to bill co-sponsor, the California Hospital Association:

The federal Bureau of Labor Statistics reports that health care workers are five times more likely to experience workplace violence than employees in other sectors. In fact, a 2021 study found that 44% of nurses reported being subject to physical violence, while 68% reported verbal abuse — troubling numbers that were exacerbated by the COVID-19 pandemic. A 2022 study of one hospital emergency department supported these findings, demonstrating that incidences of workplace violence increased during the pandemic and were directly associated with the COVID-19 case rate.

The bill is also supported by nurse organizations, hospitals, doctor groups, and the California District Attorneys Association. The bill is opposed by the ACLU, public defender organizations, and criminal justice reform organizations.

In 2015, Governor Brown vetoed a similar piece of legislation, citing the lack of evidence that increased penalties and jail time reduces crime.

On August 5, 2024, California’s Office of Health Care Affordability (“OHCA”) published its proposed revisions to the Cost and Market Impact Review (“CMIR”) regulations (22 Cal. Code Regs. §§ 97431 et seq.). This published version includes revisions to OHCA’s May 15, 2024 prior draft, which were the subject of CSHA’s June 25, 2024 edition of Watching and discussed at the California Department of Health Care Access and Information’s Health Care Affordability Board’s June board meeting (see also the meeting minutes from the June board meeting). OHCA received a total of six (6) public comments on the prior draft.

One of the most substantive proposed changes is to expand the pool of potential submitters to OHCA from health care entities that are a “party to” a material change transaction, to now also include health care entities that are “a subject of” a material change transaction, even if that health care entity is not a party to the transaction. The prior draft of the proposed revisions defined being “a subject of” a transaction to mean that the transaction “concerns a health care entity’s assets, control, responsibility, governance or operations, in whole or in part.” (emphasis added). However, the revised version defines being a “subject of” a transaction to mean that the transaction “will result in the transfer, as used in [22 Cal. Code Regs. § 97431(p)], of a health care entity’s assets, control, responsibility, governance, or operations, in whole or in part to one or more entities.” (emphasis added). 

This narrowed definition was in response to public comments that OHCA’s prior proposed definition using the term “concerns” was unclear and overly broad, and that capturing all transactions that “concern” a health care entity’s assets, control, responsibility, governance or operations would arguably reach beyond OHCA’s statutory authority. Despite OHCA’s revisions to narrow the definition of a health care entity that is a “subject of” a material change transaction, the proposed revised regulations, if the Office of Administrative Law (the “OAL”) approves and files them with the Secretary of State, would still mean that transactions that previously would have not have required a filing with OHCA may now be subject to OHCA’s review.

For example, in OHCA’s Findings of Emergency Regulations and Notice of Proposed Emergency Regulations, published on August 5, 2024 (“Findings”), OHCA describes its rationale for expanding the regulations to include health care entities that are a “subject of” a material change transaction. OHCA explains that this proposed change is in response to questions regarding whether a notice is required for transactions in which non-health care entities (e.g., holding companies or parent owners of a health care entity) transfer assets or control of a subsidiary health care entity, even though the subsidiary health care entity itself is not a party to the transaction. Accordingly, if the revised regulations are finalized in its current form, such transactions may now be subject to OHCA’s review, as the subsidiary health care entity would ostensibly be a “subject of” the parent entity’s transaction. Therefore, under the revised regulations, the subsidiary health care entity may be required to file notice with OHCA, even if the subsidiary health care entity is not itself a party to such transaction.

OHCA further comments in its Findings that the proposed revised regulations are intended to align with OHCA’s statutory authority to review notices from health care entities for transactions that either (1) sell, transfer, lease, exchange, option, encumber, convey, or otherwise dispose of a material amount of its assets to one or more entities, or (2) that transfer control, responsibility, or governance of a material amount of the assets or operations of a health care entity to one or more entities, regardless of the health care entity’s role in the transaction.

Pursuant to OHCA’s Notification of Proposed Emergency Regulatory Action, OHCA filed the revised regulations with the OAL on August 13, 2024. The OAL has until August 23, 2024 to review and either approve or disapprove the revised regulations. The public has until August 19, 2024 to submit additional public comments.

The Summer 2024 Issue of California Health Law News will be posted and available online later this week. Special thanks to the CSHA Publications Committee, and Co-Chair Kate Broderick in particular, for the refreshing re-design! 

As we move into the latter half of the year, I wanted to take a moment to reflect on what’s ahead for CSHA and highlight some of the memorable moments from our recent gatherings.

This last May, we held our annual meeting in the breathtaking setting of Lake Tahoe. The event was particularly eventful due to an unexpected snowfall that blanketed the region during our stay. The snow, while beautiful, brought some challenges including the potential of being snowed in. Thankfully, before anyone prematurely resorted to cannibalism, the weather cleared just in time for a safe departure on Sunday, leaving us with unforgettable memories of the snow-covered mountains—a rare sight so late in the year. One of our members even took advantage of the snowfall to build a snowman, complete with a CSHA badge. Unfortunately, the snowman melted before we could collect its attendance fee.

The Tahoe meeting also marked a milestone for CSHA, as it was the first time we utilized our new CSHA conference app. The app was met with enthusiasm, especially the interactive game that many attendees enjoyed. The app’s success has set a precedent for future events, making our meetings not only more engaging but also more accessible.

Looking ahead, our focus is on planning and preparation for our upcoming events. We held our first board meeting following the Annual Meeting in July, where discussions began in earnest for the 2027 Annual Meeting and Spring Seminar. Planning these events starts early each year to ensure we deliver high-quality educational content and networking opportunities for our members.

As we continue to strengthen CSHA’s community, I strongly encourage all members to consider getting involved with one of our committees or task forces. Whether it’s the Publications Committee, the Education Committee, the Membership Committee, the Hearing Officer Committee, the Diversity Task Force, or the Technology Task Force, your participation is vital. We’ve been working hard to encourage members who have not participated before to get involved, and this is a great opportunity to contribute to our organization’s success.

As we continue to navigate the complexities of our field, I am confident that CSHA will remain a vital resource for all our members, providing opportunities for learning, connection, and professional growth. I look forward to seeing what we will accomplish together in the coming year.

After its initial introduction earlier this year by California’s Attorney General and Assembly Speaker Pro Tempore, the California Legislature recently made a series of significant revisions to AB 3129.  The bill was introduced to address the involvement and influence of private equity and hedge funds in California’s healthcare sector to avoid anticompetitive effects or negative impacts on healthcare access and affordability.  As initially drafted, private equity groups and hedge funds would have to obtain the consent of the Attorney General before certain investment in healthcare facilities, provider groups, or nonphysician providers.  See March 19, 2024 Weekly Watching on AB 3129.  However, in several subsequent amendments, the Legislature materially altered the bill in several notable ways, among other changes.

First, the Legislature limited the applicability of the bill to “Provider Groups” including 10 or more licensed health professionals, or a “Provider” with two to nine licensed health professionals, if their gross annual revenue exceeds $25 million (an increase from an initial threshold of $10 million). 

Second, the Legislature expanded the Attorney General’s scope of review by addressing the applicability of the bill to certain transactions involving a “material amount of the assets or operations” if it affects more than 15 percent of the market value or ownership shares of the healthcare facility, provider group or provider, or if the transaction involves a hospital. 

Third, the Legislature removed the limitation on management services arrangements between private equity groups or hedge funds, on the one hand, and health care facilities, provider groups, and providers on the other hand in exchange for a fee.  This limitation had been widely criticized as potentially eliminating certain models of practice in California, but it remains to be seen whether the final language of the statute or implementing regulations may still impose restrictions requiring changes to these practices. 

Fourth, the written notice and consent requirements were expanded, including the factors the Attorney General may rely upon in deciding whether to consent to the transaction. 

Finally, the Legislature added a provision allowing the private equity group or hedge fund to seek a public evidentiary hearing before an administrative law judge (ALJ) to challenge the decision of the Attorney General, requiring the ALJ to issue a statement of decision within 60 days after receipt of post-hearing briefing, at which point the Attorney General would issue a final determination with 45 days either accepting or rejecting the statement of decision.  The bill authorizes the private equity group or hedge fund to petition for a writ of administrative mandamus with the superior court pursuant to Section 1094.5 of the Code of Civil Procedure if the Attorney General does not consent or conditionally consents to the transaction, and imposes a deadline on the superior court to issue its response to the petition not later than 180 days after its filing. 

On August 5, 2024, the Senate Appropriations Committee heard testimony in opposition from the American Investment Council and the Association of Dental Support Organizations, and the Department of Finance indicated it did not have a position on the bill yet as it had not received a fiscal estimate of implementation costs from the Department of Justice, though it estimated from the bill’s provisions that it would generate costs in the low hundreds of thousands of dollars annually.  The Committee then moved the bill to the appropriations suspense file.  Suspense Day is quickly approaching in mid-August, at which point it is expected that AB 3129 will move to the Senate Floor.  If passed, the bill is anticipated to become effective January 1, 2025, which is likely to increase private equity and hedge fund healthcare transaction activity in the last quarter of this year ahead of the effective date.  After January 1, 2025, private equity groups and hedge funds will need to consider the projected timelines of transactions with health care providers to include the Attorney General review period and potential challenges.

AB 3275, a bill authored by Assembly Member Soria and Speaker Rivas, aims to address delays in health plan payments to hospitals and providers. The bill in part proposes to shorten the existing payment and notice timelines to 30 calendar days from the current 45 working days for HMOs and 30 working days for all other types of coverage. The bill would also add the concept of “clean claim” in state law, a concept that’s existed in federal law for Medicare claims (42 CFR 447.45), and would direct state regulators to develop their own definition and criteria for “clean” claims  without “rely[ing] on federal standards.” The bill is set for hearing in Senate Appropriations on Monday, August 5.

On July 3, the California Secretary of State’s office assigned a ballot initiative to make permanent the existing managed care organization (MCO) tax and designates funds to be used for specified Medi-Cal services as Proposition 35 on the November ballot. Prop 35 will make permanent the existing MCO tax that is currently set to expire in 2026. The ballot initiative also requires that revenues from the MCO tax be used only for specified Medi-Cal services, including primary and specialty care, emergency care, family planning, mental health, and prescriptions drugs and provide for sustainable funding for the Medi-Cal program. The measure is supported by a large coalition of health care organizations. For more information and for the language for Prop 35 and other qualified ballot measures, see the Secretary of State’s website here.