OHCA Continues Expansion of Health Care Transaction Review Authority: Updated Regulations, Post-Transaction Monitoring, and Legal Challenges

Following the California legislature’s enactment of Assembly Bill 1415 (“AB 1415”) in September 2025 (see Prior Ropes & Gray Alert), the Office of Health Care Affordability (“OHCA”) has continued to significantly expand its review authority over material health care transactions. In this article, we highlight three recent developments that have an immediate impact on health care transactions in California:

1. Updated Regulations: On October 2, 2026, the Office of Administrative Law (“OAL”) approved OHCA’s updated Cost and Market Impact Review (“CMIR”) regulations¹ (the “Updated Regulations”), implementing AB 1415’s amendments to OHCA’s CMIR process. The Updated Regulations, submitted to OAL on September 11, 2026, have material differences from the proposed revisions OHCA released in May (see Prior Ropes & Gray Alert), clarifying and expanding new filing requirements for private equity (“PE”) groups, hedge funds, and management services organizations (“MSOs”).
2. Post-Transaction Monitoring: On August 12, 2026, for the first time, OHCA issued a post-transaction monitoring advisory letter in connection with a transaction for which it issued a CMIR waiver.² This development is particularly significant because OHCA has historically only waived CMIR or—in just two instances—ordered a CMIR. This CMIR waiver with additional monitoring constitutes a newly exercised third option,³ without any explicit grant of authority to do this type of post-transaction monitoring.⁴
3. New Legal Challenge: On January 30, 2026, The Ensign Group – an operator of skilled nursing, rehabilitation therapy, and assisted living services that is currently subject to a CMIR that has been pending for over a year – filed a challenge to OHCA’s CMIR regulations on constitutional and procedural grounds (the “Ensign Litigation”).⁵ The Ensign Litigation implicates not only OHCA’s existing review process, but also OHCA’s implementation of the Updated Regulations and its claim of authority to conduct post-transaction monitoring.

As explained further below with additional detail on each development, these actions collectively represent a signal that OHCA continues to aggressively expand its oversight of health care transactions through the Updated Regulations, as well as through the unprecedented exercise of post-transaction monitoring authority for which it lacks express statutory mandate. Meanwhile, the Ensign Litigation, with its next hearing scheduled for October 5, 2026, threatens to reshape OHCA’s authority and could implicate OHCA’s expanding authority.

1. Updated Regulations

OHCA’s CMIR program was first rolled out in April 2024 and later expanded by regulation in August 2024. AB 1415, which took effect January 1, 2026, further expanded the program, as it created a new category for “noticing entities,” encompassing PE groups, hedge funds, MSOs, newly formed business entities, and entities that own, operate, or control a health care provider. Although AB 1415 took effect on January 1, 2026, OHCA had yet to implement regulations specific to the newly covered “noticing entities,” though OHCA issued interim guidance advising that, pending amended regulations, noticing entities were required to provide, at minimum, “written notice” of a transaction to OHCA until regulations were issued.⁶

OHCA proceeded to publish proposed regulations implementing AB 1415 in May 2026 (the “May Draft”), which were subject to public comment through June 11, 2026.⁷ On September 11, 2026, OHCA released a revised draft, the Updated Regulations. OHCA filed the emergency rulemaking package with OAL on September 22, 2026, starting OAL’s 10-calendar-day review clock. OAL approved the Updated Regulations on October 2, 2026. The Updated Regulations take effect November 2, 2026 and remain in force for five years while OHCA separately pursues a regular (non-emergency) rulemaking process.

The Updated Regulations reflect some material changes from the May Draft, with certain revisions appearing to respond to comments and critiques from industry stakeholders, taking a more practical approach to reviewing noticing entities as part of material transactions.

i. PE and Hedge Fund Transaction Materiality Threshold

Under the May Draft, ownership of 5% or more of a health care entity’s assets, equity, debt, or liabilities by a PE group or hedge fund triggered a filing obligation. This low threshold received significant pushback during the public comment period. The Updated Regulations raised this threshold to 10%. OHCA stated in its Finding of Emergency that a 10% threshold will better align with federal Hart-Scott-Rodino filing requirements, under which passive investments of less than 10% are excluded from review.⁸ Notably, this threshold applies to groups of investors investing collectively – meaning that multiple investors who collectively reach the 10% threshold may trigger a filing obligation. Additionally, transactions involving rights to appoint or replace management, exercise vetoes, or otherwise influence operations may still fall within the filing framework even below the 10% threshold.

The Updated Regulations also confirm OHCA’s intention to omit specific California revenue- or asset-related thresholds for noticing entities, including MSOs. The Finding of Emergency states that, given the complexity of PE, hedge fund, and MSO structures, OHCA did not utilize financial and geographic thresholds for these entities.⁹ OHCA’s regulations include financial thresholds for health care entities that are party to, or subject to, a material change transaction, and these thresholds remain unchanged in the Updated Regulations.

ii. MSO Definition

The Updated Regulations incorporate the statutory definition of MSO and move substantive criteria into the filing-threshold provisions.¹⁰ The Finding of Emergency reiterates that the statutory definition of an MSO requires that the MSO provide “management and administrative support,” which is defined to include “provider rate negotiation, revenue cycle management, or both.” As such, filers have generally interpreted this narrow definition to convey OHCA’s intention that MSOs that do not provide such services would not be captured under any circumstances, and thus not require a filing. The Updated Regulations do not broaden the definition.

Under the Updated Regulations, a filing is required when: (a) an MSO provides management services to a health care entity meeting the $25 million revenue threshold; (b) an MSO serves two or more providers collectively generating $10 million in annual California-derived revenue; or (c) there is a transfer of control of a health care entity involving an MSO.

While the Updated Regulations do not include specific MSO revenue or asset thresholds, as stated above, they maintain fairly narrow circumstances under which entities are considered MSOs for purposes of the law. To qualify as an MSO subject to these requirements, an entity must meet one of four criteria: (1) it is owned by a hospital with physician organizations as clients or affiliates; (2) it employs a physician-owner of physician organizations; (3) it shares directors, officers, or investors with a health care entity; or (4) it is affiliated with at least two of the following: a payer, two or more physician organizations, or a hospital.

iii. Enhanced Notice Content & Disclosure Requirements

The Updated Regulations introduce several new disclosure obligations:

• Officer and Director Compensation. New subsection 97438(c)(15) requires disclosure of compensation or financial incentives – including deal-contingent compensation – for officers and directors.
• MSO Client Disclosure. New subsection 97438(c)(8) requires MSOs to identify all health care entities to which they provide management or administrative support services.
• PE / Hedge Fund Portfolios. The May Draft broadly required PE groups and hedge funds to provide the names of all health care entities and MSOs in participating asset managers’ portfolios, which would have required disclosures across fund investments regardless of the asset managers’ relationship with the entity. In response to pushback in public comments, OHCA reformulated this requirement in the Updated Regulations to require PE groups and hedge funds to provide the names of all health care entities and MSOs “directly or indirectly owned, controlled, or financed by the participating asset managers and the funds they manage in the portfolios of participating asset managers.” The Updated Regulations do not specifically define what it means for a PE group or hedge fund to “directly or indirectly” own, control, or finance, including whether they would apply any specific thresholds under which disclosure would not be required (e.g., 5%, 10%), continuing to leave ambiguous whether this regulatory language has any practical effect of minimizing potential disclosures.
• Serial Transactions Involving MSOs. The existing ten-year lookback period for historical transactions involving the acquisition of the same entity or roll-up transactions involving the same entities that trigger a notice filing under subsections 97438(c)(7)-(8) now also applies to MSOs.

2. Post-Transaction Monitoring

While aiming to expand the breadth and scope of transactions under OHCA’s jurisdiction through its issuance of the Updated Regulations, OHCA has also broadened its authority by subjecting a noticed transaction for which CMIR was waived to post-transaction monitoring.

On July 21, 2026, OHCA issued a CMIR waiver for the material change notification from NAHS Holding, Inc. (“NAHS”) regarding the purchase of the stock of NAHS by MOJUMU, Inc. Then, on August 12, 2026, OHCA took the unprecedented step of issuing a post-transaction monitoring Advisory Letter – the first of its kind.¹¹ NAHS is an Employee Stock Ownership Plan and the grandparent entity of 12 skilled nursing facilities in California. In the Advisory Letter, OHCA noted that, although it had waived CMIR, it identified quality and access concerns, including concerns regarding quality ratings, Medi-Cal access, historical CMS penalties, and staffing ratios. OHCA stated that it will monitor the performance of and assess changes in quality and safety at the acquired facilities using publicly available performance measures. If OHCA observes impacts to these performance measures, it will issue and publicize a follow-up report on its findings and, if necessary, coordinate with other regulatory agencies and the Attorney General. The post-transaction monitoring notice does not appear to have guardrails limiting OHCA’s review and, importantly, does not include an end-date.

Post-transaction monitoring represents a significant expansion of OHCA’s authority to review health care transactions. OHCA has based its authority to conduct post-transaction monitoring on Cal. Health & Saf. Code § 127507(a), which authorizes OHCA to monitor cost trends, conduct research, and study the health care market, but notably does not explicitly authorize post-transaction monitoring. OHCA’s review process has, until now, been relatively straightforward and binary. Only two of the over 50 noticed transactions (less than 4%) have been subject to a full CMIR to date, and those transactions involved parties with significant market shares in California. For all other transactions, OHCA has simply waived additional review, resulting in two predictable pathways for a noticed transaction (i.e., CMIR or no CMIR). Now, following other states with more aggressive health care transaction review processes such as Oregon, OHCA appears to be exercising authority for a third option that includes post-transaction monitoring, despite its apparent lack of express statutory authority to do so.¹² This development signals that parties should not assume a CMIR waiver will be the end of OHCA’s involvement in a transaction.

3. Legal Challenge

In July 2025, OHCA initiated a CMIR of the Covenant Care transaction, pursuant to which Covenant Care will transfer skilled nursing facility assets and operations to different entities. The Ensign Group and its affiliates (“Ensign”) were among the post-closing operators for three specific skilled nursing facilities subject to the CMIR, and CareTrust REIT, Inc. was acquiring the real estate.¹³ OHCA waived the CMIR for most of the 22 facilities in the transaction but ordered a CMIR for the three facilities going to Ensign affiliates. See Prior Ropes & Gray Alert.

In connection with the CMIR, on October 5, 2025, OHCA served a subpoena on Ensign, seeking rate and payer-contract information as well as a list of all Ensign transactions nationwide since 2015. After meet and confer efforts failed, Ensign filed suit on January 30, 2026, challenging OHCA’s scope of authority and seeking a declaration that the CMIR regulations violate the U.S. and/or California Constitution and are void and unenforceable as they apply to Ensign. Ensign argues that OHCA lacked statutory authority to subject its business to a CMIR or to serve it with a subpoena, and that OHCA engaged in selective enforcement by singling out only Ensign's portion of the broader Covenant Care transaction, in violation of Ensign’s equal protection and due process rights. Ensign also asserts that the CMIR regulations are preempted by federal antitrust law. The Court scheduled a hearing on the demurrer for October 5, 2026.

The Ensign Litigation is the first legal challenge to OHCA’s CMIR regulations¹⁴ and, if successful, would carry significant implications for the broader regulatory framework. A ruling in Ensign’s favor could fundamentally reshape OHCA’s authority to review health care transactions. If the court finds the underlying CMIR framework constitutionally deficient, the Updated Regulations – which build upon that same framework – could also be affected. The litigation also implicates OHCA’s claimed authority for post-transaction monitoring, which relies on similar statutory authority. A judicial finding that OHCA has exceeded its statutory mandate could call into question the advisory letter framework discussed in Section II above. Accordingly, although OHCA has taken actions to expand its review authority, its actions have not gone unnoticed, and stakeholders are now actively pushing back in court, which is rare as far as state health care transaction notice laws are concerned.

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Investors and companies with plans to expand their health care business in California should plan for potentially extended timelines and be prepared to navigate OHCA’s new efforts to expand its review authority, both through the Updated Regulations implementing AB 1415 and post-transaction monitoring.

For additional updates on health care transaction law legislation, visit our HealthTrax website or contact the authors of this Alert.