Oregon Health Care Market Oversight Program Creates Hurdle for Healthcare Transactions

June 14, 2024

Matt Heldt, Christopher Pallanch, Maureen McGee & Rocky Dallum - Tonkon Torp LLP

View Full Article

Oregon

Healthcare organizations be warned: entities that operate, own, or are closely related to a health care provider with any presence in Oregon may need to seek approval from the State before completing any merger, acquisition, clinical affiliation, or other similar transaction. Since March 1, 2022, the Oregon Health Authority (OHA), through the Health Care Market Oversight (HCMO) program, has exerted influence over transactions involving at least one healthcare entity with a presence in Oregon.

The law defines healthcare entity broadly to cover any entity (including closely related or parent entities) whose primary function is the provision of healthcare items or services. The HCMO program covers more than hospitals, pharmacies, health insurance companies, and provider groups. It also covers any entity or parent entity whose primary function includes the provision of healthcare items or services.

With certain exceptions, healthcare entities must submit a notice of transaction and proposal for review to the HCMO program before completing any “material change transaction.” A material change transaction is one where one party has average revenue of $25 million in the preceding three fiscal years and another party has (or is projected to have if a new entity) at least $10 million in average revenue. This includes transactions among out-of-state entities doing business in Oregon, if the OHA determines that the transaction could increase healthcare costs or limit access to healthcare in Oregon. Transaction can mean any merger, acquisition, contract, clinical affiliation, contracting affiliation, corporate affiliation, or formation of a new organization when at least one party is a healthcare entity.

When healthcare entities enter into material change transactions, they must provide the OHA with notice at least 180 days before the transaction. The OHA will require a fee “proportionate to the size of the parties” to reimburse its cost of reviewing the transaction.

The OHA begins with a preliminary review and will then either approve, or approve with conditions, if the transaction meets one or more of several criteria. Generally speaking, the OHA is looking for whether the transaction will have negative effects on healthcare access or costs for Oregon residents. If the OHA does not approve (or approve with conditions) after preliminary review, it will then conduct a comprehensive review, for which the OHA may appoint a review board of stakeholders. Comprehensive reviews take up to 180 days from notice, but may extend longer in some circumstances. Once a comprehensive review is complete, the review board will recommend that the OHA either approve, approve with conditions, or disapprove the transaction. The burden for approval after comprehensive review is higher than for preliminary review.

At all levels of review, the OHA may request more information. Transaction parties are required to give the OHA what it requests – even if the information is confidential. The OHA is also permitted to post public notices of the proposed transaction and seek public comment. Comprehensive reviews may include up to two public hearings.

OHA administration of the HMCO program is untested in court and could change with new Oregon law on the horizon, given that one aspect of HCMO review is whether a transaction is “contrary to law.” In the 2024 legislative session, Oregon House Bill 4130 unsuccessfully sought to impose new restrictions on the “corporate practice of medicine” that would have severely limited the ability of management service organizations to invest in or partner with primary care and specialty clinics. Had the bill passed, these restrictions would have become a part of the evaluation process in any HCMO review, adding yet another level of complexity to any healthcare activity in Oregon. While HB 4130 failed, similar measures are likely to be introduced in the 2025 legislative session.

There is still much uncertainty with the HCMO program. The best practice for any organization facing OHA transactional review is to contact an interdisciplinary team with prior experience navigating HCMO. Our team at Tonkon Torp has successfully navigated this process multiple times (including transactions between out-of-state entities) and is well-positioned to represent clients from start to finish without losing sight of the main goal – completing the transaction on time.

About Tonkon Torp
Tonkon Torp LLP is a leading business and litigation law firm serving public companies, substantial private enterprises, entrepreneurial businesses, and individuals throughout the Northwest. Tonkon Torp is celebrating its 50th year in business! See our History Timeline for more information, or visit tonkon.com.