Starting January 1, 2024, healthcare facilities and provider organizations engaging in certain transactions in Illinois, such as mergers and acquisitions, will have new reporting requirements. Illinois recently joined a growing number of states, including California and New York, in requiring expanded oversight and transparency of transactions involving healthcare facilities and provider organizations. Illinois’ Public Act 103-0526 (the “Act”), enacted in August 2023, amends the Illinois Antitrust Act, the State Finance Act and the Illinois Health Facilities Planning Act to increase oversight by the Illinois Attorney General’s (the “IL AG”) of certain “covered transactions” for healthcare facilities and provider organizations.
Overview and Noteworthy Takeaways
The Act provides additional reporting and review requirements for healthcare facilities and provider organizations in connection with certain transactions, requiring them to:
- Provide 30 days’ prior notice to the IL AG of any merger, acquisition or contracting affiliation for any entity not previously under common ownership or contracting affiliation (each a “Covered Transaction”) (including Covered Transactions with any out of state entity generating $10 million + in annual revenue from Illinois residents);
- Provide the IL AG with a copy of any premerger notification submitted to the federal government in connection with the requirements under the HSR Act;
- Provide simultaneous notice to the IL AG in connection with the completed change of ownership application submitted to the Illinois Health Facilities and Services Review Board (the “IL Review Board”); or
- Notify the IL AG of any Covered Transaction not captured at items (2) and (3) above, and include details in such notice as described in the Act.
Failure to meet the notice requirements of the Act may result in daily fines of $500 to healthcare facilities and provider organizations for violations of the reporting requirements, as detailed below.
Amendments to the Illinois Antitrust Act
By way of background, the Illinois Antitrust Act, enacted in 1965, supplements the federal anti-trust laws in securing the benefit of free and open competition to Illinois businesses and consumers. Under Illinois law, a private lawsuit may be filed against a party for an alleged antitrust violation at the same time a federal action is pending. In its current form, the Illinois Antitrust Act, provides the IL AG with the authority to bring action on behalf of a private party as a result of certain mergers and acquisitions that provide grossly unfair advantages to large business entities to the detriment of consumers. The Act includes additional reporting requirements under the Illinois Antitrust Act, requiring entities to provide 30 days’ prior notice to the IL AG in connection with any Covered Transactions. The added notice requirement would include any Illinois healthcare facility or provider organization seeking to contract with an out of state entity generating at least $10 million or more in revenue from Illinois residents.
The Act’s definition of “healthcare facilities” includes:
- Ambulatory surgical treatment centers;
- Hospitals and other facilities licensed under the Hospital Licensing Act;
- Kidney disease treatment centers; and
- Outpatient surgical centers.
The Act defines a “provider organization” as any corporation, partnership, business trust, association or organized group of persons whether incorporated or not, in the business of healthcare delivery or management, that represents 20 or more healthcare providers in contracting with health carriers or third-party administrators for the payment of healthcare services. The definition includes:
- Physician organizations;
- Physician-hospital organizations;
- Independent practice associations;
- Provider networks; and
- Accountable care organizations.
Further, under the Act, a “contracting affiliation” would include the formation of a relationship between two or more entities that permits the entities to negotiate jointly with health carriers or other third party administrators over rates for professional medical services, or that permits an entity to negotiate on behalf of the other entity with health carriers or third-party administrators over rates for professional medical services. Contracting affiliations do not include arrangements among entities under common ownership.
The Act requires any healthcare facility or provider organization that is a party to a Covered Transaction and is required to file a premerger notification under the HSR Act to simultaneously provide a copy of the filing to the IL AG. Where a Covered Transaction does not require filing under the HSR Act, the healthcare facility would still need to satisfy its notice obligations to the IL AG by filing for a change of ownership with the IL Review Board in compliance with the Illinois Health Facilities Planning Act. The IL Review Board would then provide a copy of the filing to the IL AG at the same time such notice is provided to other shareholders, as required under Section 8.5(a) of the Illinois Health Facilities Planning Act.
In addition, any entity that is a party to a Covered Transaction that is not subject to the filing requirements under the HSR Act or the change of control filing with the IL Review Board will need to provide written notice to the IL AG, including (i) the names and business addresses of the parties, (ii) the identification of all locations where each party currently provides healthcare services, (iii) a description of the nature and purpose of the transaction, and (iv) the effective date of the proposed transaction. Within 30 days’ of receipt of the notice, the IL AG may request additional information from the parties and the Covered Transaction may not proceed until 30 days’ after the parties have “substantially complied” with the additional request from the IL AG. Any failure to comply with the notice requirements or requests for additional information may result in a daily penalty of $500 for each day of noncompliance, after a 10 day cure period.
Additional Amendments under the Illinois Finance Act and Health Facilities Planning Act
Section 8.5(a) of the Illinois Health Facilities Planning Act requires healthcare facilities to obtain a certificate of exemption from the IL Review Board in connection with any planned change in ownership by filing an application which details the terms of the proposed transaction. As discussed above, the Act amends Section 8.5(a) of the Health Facilities Planning Act to include additional notice to the IL AG upon completion of the change in ownership application.
The Act also amends the Illinois Finance Act to include a new antitrust enforcement fund to be used by the IL AG for enforcement of the Illinois Antitrust Act.
Additional Considerations for Health Facilities and Provider Organizations
The Act raises concerns for delays in the closing process for Covered Transactions. The added reporting requirements and IL AG review process create the potential for an additional 90 day extension in healthcare transactions and failure to provide timely notice may result in penalties. The lack of clarity in the requirement for “substantial compliance” with additional inquiries from the IL AG, and the added power of the IL AG to seek a temporary restraining order or injunctive relief for noncompliance, create further possibilities for closing delays. Healthcare facilities and provider organizations should spend additional time consulting with their legal counsel in determining the best path forward with regard to transaction benchmarks and a timeline for making the required filings with the IL AG and the relevant Illinois authority.