SB 1998 Would Add Consent Requirement for PE, Hedge Fund Healthcare Transactions in Illinois

BACKGROUND

On January 1, 2024, Illinois Public Act 103-0526 went into effect to amend the Illinois Antitrust Act, the State Finance Act, and the Illinois Health Facilities Planning Act. As discussed in a previous On the Subject, Public Act 103-0526 granted the Illinois attorney general (IL AG) oversight over a broad array of transactions that involve healthcare facilities and provider organizations. This oversight includes a requirement that healthcare facilities and provider organizations provide notice to the IL AG at least 30 days prior to a covered transaction closing or taking effect, as defined by the Illinois Antitrust Act. The IL AG can also request additional information, as it deems necessary, within 30 days of receiving notice of a covered transaction. If the IL AG requests additional information, the covered transaction may not proceed until 30 days after the parties have substantially complied with the request, but the IL AG does not currently have an approval right for covered transactions. For a more detailed description of the requirements under Illinois Public Act 103-0526, please see our prior On the Subjects:

• “Effective January 2024: Illinois Joins Growing List of States that Require Attorney General Notice of Healthcare Transactions.”
• “Illinois House Passes Legislation to Increase State Oversight of Healthcare Consolidation.”

KEY TAKEAWAYS

SB 1998 would add a requirement that if a hedge fund or private equity group provides any financing to a covered transaction, the IL AG must give written consent before the transaction can take effect. SB 1998 would add definitions to clarify what is considered a hedge fund and a private equity group under the Illinois Antitrust Act.

SB 1998 does not provide a clear timeframe for the IL AG to issue its consent, nor does SB 1998 provide any criteria according to which consent would be issued or denied. If SB 1998 is passed, the IL AG’s oversight on such transactions would likely cause delays and add expense. SB 1998 would also make Illinois the first state to require an attorney general’s consent before healthcare facility covered transactions involving hedge fund and private equity groups can close.

McDermott will continue to monitor the bill’s progression through the state legislature and update this On the Subject as developments arise.

KEY DEFINITIONS

• “Acquisition” means an agreement, arrangement, or activity the consummation of which results in a person acquiring directly or indirectly the control of another person.
  • It includes the acquisition of voting securities and noncorporate interests, such as assets, capital stock, membership interests, or equity interests.

• “Contracting affiliation” means the formation of a relationship between two or more entities that permits the entities to negotiate jointly with health carriers or third-party administrators over rates for professional medical services or permits one entity to negotiate on behalf of the other entity with health carriers or third-party administrators over rates for professional medical services.
  • “Contracting affiliation” does not include arrangements among entities under common ownership.

• “Covered transaction” means any merger, acquisition, or contracting affiliation between two or more healthcare facilities or provider organizations not previously under common ownership or contracting affiliation. Covered transactions also include transactions between an Illinois healthcare entity and an out-of-state healthcare entity when the out-of-state entity generates $10 million or more in annual revenue from patients residing in Illinois.

• “Healthcare facility” means the following facilities, organizations, and related persons:
  • Ambulatory surgery treatment centers.
  • Hospitals and other locations or operations licensed under the Hospital Licensing Act.
  • Outpatient surgery centers.
  • Kidney disease treatment centers.
  • Any other institution, place, building, or room used for the provision of a healthcare category of service defined under the Illinois Health Facilities Planning Act, including cardiac catheterization and open-heart surgery.

• “Hedge fund” means a pool of funds managed by investors for the purpose of earning a return on those funds, regardless of the strategies used to manage the funds. “Hedge fund” includes, but is not limited to, a pool of funds managed or controlled by private limited partnerships.
  • “Hedge fund” does not include natural persons or other entities that contribute funds to hedge funds but otherwise do not participate in the management or in any change of control of the hedge fund or the fund’s assets.
  • It further does not include entities that solely provide or manage debt financing secured in whole or in part by the assets of a healthcare facility.

• “Merger” means the consolidation of two or more organizations, including through a common parent organization or by forming a new organization.
  • “Merger” does not include a corporate reorganization.

• “Private equity group” means an investor or group of investors that primarily engages in the raising or returning of capital and invests, develops, or disposes of specified assets.
  • “Private equity group” does not include natural persons or other entities that contribute or promise to contribute funds to the private equity group but otherwise do not participate in the management of the private equity group or the group’s assets or in any change in control of the private equity group or the group’s assets manner, including but not limited to lease, transfer, exchange, option, receipt of a conveyance, creation of a joint venture, or any other manager of purchase, by a private equity group or hedge fund of a material amount of the assets or operations, or a change of control, of a healthcare facility in Illinois.

• “Provider organization” means a 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.
  • “Provider organization” includes physician organizations, physician-hospital organizations, independent practice associations, provider networks, and accountable care organizations.