The National Patchwork Grows: Illinois and Minnesota Pass New Health Care Transaction Oversight Laws

Illinois and Minnesota have joined a growing number of states that maintain a dedicated health care transaction review process.¹ With the Illinois law set to go into effect on January 1, 2024, and portions of Minnesota’s law already in effect, it is important that health care providers and investors pay close attention to how each state approaches the implementation of their oversight laws.

A Change in Approach

Consistent with recent trends on the coasts, the Illinois and Minnesota legislatures sought to cast a wide net to expand the types of captured entities subject to their new laws. For example, Minnesota appears to follow Oregon’s approach in looking not only at health care entities, but also any entities that exercise control over, or are controlled by, a health care entity. Following Washington’s lead, the Illinois law captures both provider organizations and more traditional institutional health care entities. However, as discussed below, questions remain regarding the scope of the Illinois law.

Upon first impression, it may appear that these midwestern states are continuing a trend of expansive reviews; however, in reality, it may be quite the opposite. Notably, the Minnesota law does not trigger a review unless and until in-state revenue for those entities located outside of Minnesota is at least $80 million. The Illinois law permits the notice obligation to be satisfied by filing copies of HSR or Illinois Health Facilities and Services Board filings. And whereas Oregon and California look to capture investments by private equity firms, it appeared that the Illinois and Minnesota legislatures were careful to avoid expressly targeting private equity. Similarly, a bill in Pennsylvania’s Senate takes an even narrower approach by only capturing hospital, nursing home, and hospice transactions.²

Another distinguishing factor is that both Illinois and Minnesota laws allow for longer periods of time to gather the information needed for their attorneys general (AGs) to make the determinations as to whether to intervene. Notably, both laws were supported by each state’s respective AG—support that is becoming increasingly necessary to advance this type of industry-focused competition law. In the case of the Maine bill, which ultimately failed, the AG opposed the bill, stating that the bill’s notice and review requirements would “impose significantly unnecessary procedural burdens on the [AG] and parties to transactions that do not raise anticompetitive concerns.” Thus, it appears legislative alignment with the state AG’s office may be key to future legislative efforts in new states adopting AG-centric approaches.

Below is a chart showing how the midwestern state laws compare to those on the coasts:

The Patchwork of Health Care Transaction Oversight Laws: An Overview

	WA	OR	NY	IL	MN
Timing	60 days’ prior notice; AG can request more information within 30 days of initial filing	30–180 days pre-closing	30 days pre-closing	30 days pre-closing	60 days pre-closing (≥$80 million) 30 days pre-closing ($10-80 million)
Covered Entities	Health care entities (e.g., hospitals, hospital systems, and provider organizations)	Must involve a health care entity (e.g., hospital, carrier, Medicare Advantage plan, any other entity primarily functioning as provider of health care items or services)	Health care entities (e.g., physician practices, physician groups, and management services organizations)	Health care facilities (e.g., hospitals, outpatient surgery centers) & provider organizations (e.g., physician organizations, provider networks)	Health care entities (e.g., hospitals, medical foundations, provider group practices, and any entity that owns or controls a captured entity)
Covered Transactions	M&A; contracting affiliations that allow entities to negotiate rates with payors	M&A; managed services organizations (“MSOs”) that impact access to essential services	M&A and most forms of change-in-control transactions but not clinical affiliations	M&A and contracting affiliations	M&A, any transition of control, most forms of asset transfers of 40% or more
Materiality Thresholds	If one entity is not licensed in WA, then they must generate $10M in revenue from WA patients	One entity ≥$25 million/year in revenue (all states + OR)   One entity ≥$10 million/year in revenue (all states + OR)	Transaction must result in health care entity increasing in-state revenues by $25 million or more	None for in-state entities. Transactions involving out-of-state entities with $10 million or more in annual in-state patient revenue are subject to the law	≥$80 million subject to notice & waiting; $10-80 million subject to notice only

 
To stay up to date on the latest state legislative efforts overseeing health care transactions, please visit our resource center.

The Tailored Empowerment of Attorneys General 

Illinois

Notification and Review Requirements. The Illinois law requires 30-day pre-closing notice of any merger, acquisition or contracting affiliation between two or more health care facilities or provider organizations not previously under common ownership or contracting affiliation. If an out-of-state entity is involved in the transaction, notice is only required if the out-of-state entity generates $10 million or more in annual patient revenue from Illinois residents. Notice of a covered transaction may be provided in one of three ways:

• Providing premerger notice under the Hart-Scott-Rodino Act, if applicable;
• Filing for change of ownership in compliance with the Illinois Health Facilities Planning Act, if applicable; or
• Providing separate notice to the Illinois AG.

If separate notice is provided to the AG, the AG may request additional information from the parties within 30 days of receiving the notice. If the AG initiates a request, the transaction may not proceed until 30 days after the parties have “substantially” complied with these requests. While transaction “approval” is not explicitly required under the bill, the AG has discretion to open an investigation and challenge conduct the AG deems anti-competitive.

Covered Transactions.

• Mergers. The consolidation of two or more organizations, including two or more organizations joining through a common parent organization, but not including corporate reorganizations.
• Acquisitions. Any agreement, arrangement, or activity that results in a person acquiring, directly or indirectly, the control of another person, including the acquisition of voting securities and noncorporate interests, such as assets, capital stock, membership interests, and equity interests.
• Contracting affiliations. The formation of a relationship between two or more entities that permit the entities to negotiate jointly with health carriers or third-party administrators over rates for professional medical services, or for one entity to negotiate on behalf of the other entity with health carriers or third-party administrators over rates for professional medical services. It excludes arrangements among entities under common ownership.

Affected Entities.

• “Provider organizations” include entities in the business of health care delivery or management representing 20 or more health care providers in contracting with health carriers or third-party administrators for the payment of health care services (this is strikingly similar to Washington’s approach).
  • It is unclear whether “represent” means to hold contracts, negotiate contracts, etc. In addition, the absence of a definition of “health care” leaves open the interpretation as to what provider organizations may be captured.
• “Health care facilities” include ambulatory surgical treatment centers, licensed hospitals, kidney disease treatment centers, and institutions, buildings or rooms used for any service covered by the Illinois Health Facilities Planning Act, including outpatient surgical procedures and cardiac catheterization.

Consequence for Failure to Provide Notice. Failure to provide notice may result in civil penalties of up to $500 per day. The AG may also seek a temporary restraining order or injunction for non-compliance.

Minnesota

Notice and Review Process. The Minnesota law creates a two-pronged notice and review system for health care transactions, with applicable requirements depending on the revenue generated by the health care entities involved in the transaction.

• Health Care Entities Generating $80 Million of Revenue or More. If a covered transaction involves a health care entity with “average revenue” of at least $80 million per year, or that will result in an entity that is projected to have “average revenue” of at least $80 million when operating at full capacity, the health care entity involved must provide notice to the Minnesota AG and Minnesota Commissioner of Health 60 days before closing. The AG may extend the waiting period by an additional 90 days (for a total of 150 days) by notifying the health care entity in writing.

  If the AG determines that the covered transaction (a) will substantially lessen competition or tends to create a monopoly or monopsony and/or (b) is contrary to the public interest, the AG may commence an action to enjoin or unwind the transaction or seek other equitable relief as deemed necessary.

  This portion of the law went into effect on May 27, 2023.

• Health Care Entities Generating Between $10 Million and $80 Million in Revenue. If a covered transaction involves a health care entity with between $10 million and $80 million in average annual revenue or will result in an entity that is projected to have average annual revenue of at least $10 to $80 million in average revenue when operating at full capacity, it must provide notice to the Commissioner of Health at least 30 days prior to closing, or within 10 business days of the date the parties first reasonably anticipate entering into the transactions.

  The Minnesota law does not grant the Commissioner of Health the authority to enjoin covered transactions involving health care entities generating between $10 million and $80 million. Instead, it allows the Commissioner of Health to use the data received to analyze the impact of health care transactions on equitable access, cost, and quality of health care services.

  This portion of the law will go into effect on January 1, 2024.

Affected Entities. “Health care entities” are defined to include licensed hospitals, hospital systems, captive professional entities, medical foundations, health care provider group practices, and any entity controlled by, or that exercises control over, any of the aforementioned entities. Interestingly, captive professional entities are defined to solely include hospital-affiliated physician groups.³ Moreover, the definition of “health care provider group practices” only picks up medical practices consisting of physicians, physician assistants, or advanced practice registered nurses. Accordingly, we would expect that the law does not apply to other health care professions such as dentists and physical therapists.

However, the catch-all phrase at the end of the definition is broad – “control” is defined to mean the direct or indirect power to direct the management and policies of a health care entity, whether through ownership of voting securities, membership in a nonprofit entity, or by contract (including by management contract). It is unknown how this phrase will be interpreted.

Covered Transactions. The Minnesota law covers any action, or series of actions within a five-year period, which occurs in part within Minnesota or involves a health care entity formed or licensed in Minnesota, with such actions including:

1. the creation of new or merger of existing health care entities;
2. the sale, lease, or transfer of ≥ 40% of; the granting of a security interest of ≥ 40% in; or the transfer of ≥ 40% of the shares or other ownership of a health care entity’s assets to another entity;
3. changes in the members of a health care entity’s governing body that transfers control, responsibility for, or governance of the health care entity to another entity;
4. an agreement that results in the sharing of 40% or more of the health care entity’s revenues with another entity, including affiliates of such entity;
5. changes in 40% or more of the membership of a health care entity formed as a Minnesota nonprofit corporation; and
6. any other transfer of control of a health care entity, or acquisition of control of a health care entity, by another entity.

Consequence for Failure to Provide Notice. Failure to provide the AG or Commissioner of Health with any required information following providing notice can affect the notifying health care entity. With respect to covered transactions involving health care entities generating greater than $80 million in average revenue, failure to provide timely information required by the AG or the Commissioner of Health is deemed independent and sufficient ground for a court to enjoin or unwind the transaction or provider other equitable relief. With respect to covered transactions involving health care entities generating between $10 million and $80 million in average revenue, failure to provide required information to the Commissioner of Health gives the Commissioner the right to receive the Commissioner’s requested information within 14 days of the request.

Looking Forward

It will become more clear in the coming months whether the Illinois or Minnesota law marks a shift in the national direction to a focus on empowering state AGs, or merely marks a brief pivot to a different approach. Whether state AGs will desire this increased power and administrative burden remains an open question. Health care providers, particularly those with operations in multiple states, and health care investors should be mindful of new laws⁴ and the increase in state oversight of health care acquisition activity and continue to monitor for updates on the success of proposed legislation focused on health care transaction activity.

If you have any questions regarding the impact of the Illinois law or the Minnesota law, please contact your usual Ropes & Gray attorney or one of the authors.