Health care antitrust is becoming an increasingly prevalent issue at the state level. Effective January 1, 2024, Illinois’ new premerger notification law requires parties to certain health care transactions to provide 30 days prior notice to the state before consummating certain M&A transactions. Herb Allen, Shareholder, Polsinelli PC, speaks with Elizabeth Maxeiner, Antitrust Bureau Chief, Illinois Attorney General's Office, about what motivated the new law, the kinds of health care transactions that are subject to the new law and the materiality thresholds, what parties can expect when completing a filing, and what might prompt closer scrutiny of a transaction. From AHLA’s Antitrust Practice Group.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Health care antitrust is becoming an increasingly prevalent issue at the state level. Effective January 1, 2024, Illinois’ new premerger notification law requires parties to certain health care transactions to provide 30 days prior notice to the state before consummating certain M&A transactions. Herb Allen, Shareholder, Polsinelli PC, speaks with Elizabeth Maxeiner, Antitrust Bureau Chief, Illinois Attorney General's Office, about what motivated the new law, the kinds of health care transactions that are subject to the new law and the materiality thresholds, what parties can expect when completing a filing, and what might prompt closer scrutiny of a transaction. From AHLA’s Antitrust Practice Group.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
<silence>
Speaker 2:This episode of A HLA speaking of health law is brought to you by A HLA members and donors like you. For more information, visit american health law.org.
Speaker 3:Hi, everybody. Um, thanks so much for joining this, A HLA podcast. This is a podcast brought to you , um, by the Antitrust Practice Group , uh, of a HA . Uh , my name's Herb Allen. I'm a healthcare antitrust lawyer at Polsinelli in Washington dc I'm a Vice-chair of ALA's Antitrust Practice Group. Um, and I'm really thrilled today to have Elizabeth Steiner , uh, here with us. Elizabeth is the head of antitrust enforcement in the Illinois Attorney General's Office. Um, and so Elizabeth , uh, thanks so much for joining us.
Speaker 4:Thank you. And thanks to the A HLA for , um, inviting me here. Uh, right off the bat, I wanna give a quick disclaimer that the remarks today that I make are my own, and I do not speak for the Office of the Illinois Attorney General or Kwame Raul. Um, but I'll just get started, kind of ex , uh, telling everyone a little bit about me and how I came to the position I'm in today. Um, great. I , uh, went to law school and at the University of Minnesota and ended up clerking for a couple years, working in private practice in Chicago , um, for about seven years, and doing antitrust among other things , uh, hedge fund litigation and bankruptcy litigation. But at some point, I determined that a , a public interest calling was for me. Um, and found this position at the office of the Illinois Attorney General , um, in the Antitrust Bureau. And I've been there since 2015 and became Bureau Chief in 2021. Uh, I was excited to really specialize in antitrust something that I find intellectually challenging, and at least right now, pretty exciting and kind of , um, full of a lot of change <laugh>. So , um, that's kind of where I am today.
Speaker 3:Well , um, yeah, that's really great. I think, you know , uh, healthcare antitrust is definitely something that is becoming a really big issue at the state level. Um, and in particular, we're seeing a lot of a focus on smaller transactions, transactions that might not be reported to the FTC and the DOJ under the HSR Act. Um, so maybe you could talk to us a little bit about this new pre-merger law that's coming into effect in Illinois on , and sort of what that might mean for smaller transactions , uh, that might not meet that $111.4 million threshold under the , uh, HSR Act.
Speaker 4:Yeah, and I'll just take a quick step back to, we're gonna be talking about the HSR ACT a lot today, and many of you may not know what that is, the Hart Scott Rodino Act. And , um, it's a , a federal law that governs , uh, the review of mergers , um, so that essentially before the merger occurs , um, certain transactions have to notify, give notification to the FTC and the DOJ of their transaction, and provide a certain amount of initial information so that the agencies can make a determination if it's something they need to investigate. And states are often also involved in that process, but it's a little bit more informal. And we are oftentimes kind of at the whim of the FTC or DOJ to let us know about the transaction. But even when they do, we have to get confidentiality waivers from the parties to get the same access, which can often result in delays. We're kind of behind the ball. So we wanted to get on more level playing fields so we can focus on transactions that are pretty local to our states. Um, and the trend there has been a trend of states passing similar laws. We're not the first , um, and they do tend to be in the healthcare space because those are kind of local. Uh, those are transactions that can have a more local impact rather than , um, uh, a nationwide impact. And particularly , um, in this area, the , the definition of a relevant market for a hospital merger has, has kind of changed over the last 15 years. Mm-Hmm . <affirmative> in , in , in the courts. The courts recognize the smaller relevant market. So it does make these issues more localized for us and lets us maybe focus on transactions that the federal agencies just don't have the resources or interest in , in looking at.
Speaker 3:Um, so it sounds like one of the things that motivated the change in the, in the law or the passage of this new law is maybe concern about smaller transactions and the impact they might have on sort of local healthcare markets in Illinois. Is that fair?
Speaker 4:Yeah, I think that's fair. Um, I mean, obviously it also includes the large transactions, and I think, you know, almost every hospital merger would probably , um, in this day and age have to be HSR affordable. But yeah, we , there are patterns of vertical mergers where hospitals are acquiring physician practice groups. Um, just a general consolidation trend in the healthcare services industries. And the best way to kind of follow that trend and understand these markets is to just have notification of when these mergers are happening. So we can see any problematic trends over time or just get familiar with the unique aspects of , of these markets in Illinois. Mm-Hmm.
Speaker 3:<affirmative> . Um, so as I read the statute, it applies to mergers, it applies to acquisitions, and it also applies to contracting affiliations, which I, I thought was interesting. You know, typically when we think of HSR filings, we think of m and a transactions and not contracting affiliations. Um, could you tell us a little bit about that? 'cause I, I think that's kind of a new, a new piece of, of this law is that, you know, p providers now that are entering into a, you know, a clinically integrated network potentially are gonna have to provide notice , um, to, to your, to your office when they, when they enter into that kind of a , a provider arrangement.
Speaker 4:Yeah, I mean, the key here is that they are two , uh, two organizations that were not under prior ownership are now negotiating on rates together. Mm-Hmm . <affirmative> with the carrier, third party administrate administrator. And that's why it's of antitrust concern because you're, you're consolidating that kind of negotiating power. Um, and so that's why the, you know, that's included in mergers and acquisitions. 'cause that is another kind of lever that the companies can have where they , where they gain negotiating power with where they didn't have it before.
Speaker 3:Um, can we just talk a little bit about the effective date of the statute? I know this is only gonna be relevant for the next 30 days or so. Um, but when we, we prep for today's call, I , I thought it was interesting that the effective date is not actually , um, it's not actually January 1st in terms of when parties are gonna need to , uh, you know , uh, be able to , uh, be subject to the act. Could you go into the little bit, explain a little bit the , the effective date issue that we discussed yesterday?
Speaker 4:Yeah. So , um, the effective date of the statute is January 1st, 2024. Um, now the statute gives us the authority to do certain things or to receive information and do things with that, but that does not become effective until January 1st. So for all intents and purposes, we would not expect submissions and , uh, for any transactions that are going to be anticipated to be closing before January 30th. Um, so if you've got a transaction now, it's due to, to close on January 10th, that should not we, I'll just, we will not be reviewing those <laugh> and there's, honestly, there's no way for you to submit it because I don't think our website will be up and running until , uh, January 1st or very close to that . So , um, but any transactions, the 31st or after, or if the transaction date is moved , let's say from January 15th to February 15th, you would then need to submit notification 30 days back from that , uh, February 15th date.
Speaker 3:Great. So the , so the key date for, for the effective date is transactions that close on or after , uh, January 31st.
Speaker 4:Yeah.
Speaker 3:Okay. Got it. Well, we've got that out of the way, the effective date. Um, so one of the things I wanna , um, ask you a little bit about , um, are the thresholds, the sort of materiality thresholds for in-state transactions? Um, the way I read the statute is , um, uh, mergers and acquisitions that involve one or more healthcare facility or provider organization will be subject to a notification requirement. Is that, is that right?
Speaker 4:Yep , that's right. Um, the, the health, and I'll just kind of go a little, little more detail about either of those categories. The healthcare facilities is something that's pretty clearly defined in the act as it refers to , um, certain , um, facilities that are defined in other acts that already exist. Um, so that should be pretty straightforward. And then the provider organizations has its own definition, and that actually does have a materiality component that it would be , um, a provider organization with , um, 20 or more licensed professionals. Uh, so it's not gonna be your family practices, you know , solar practitioners, a couple of doctors, that kind of thing.
Speaker 3:Got it. And those same thresholds also apply to the, the contracting affiliation that we talked about as, as well, right? So , yes. Yep . So if you have a contracting affiliation with just a few doctors, you know, a small network or maybe just a few doctors joining a network, that wouldn't necessarily require a , a notice?
Speaker 4:Correct. Both parties would have to fall within the, the definitions.
Speaker 3:Got it. So if you had a, a 20, a 20 provider network , uh, sorry, a 20 provider group that was joining a bigger network, that would be something that would require notice?
Speaker 4:Yeah, exactly.
Speaker 3:Okay. So , um, you know, a lot of the , uh, things that parties, you know, struggle with when new laws come online are sort of understanding how does the, how does a law like this apply to their very peculiar situation and their transaction? Um, is there any way to get guidance from your office if parties have questions? You know, they're wondering is am I a , am I a facility? Am I a provider Or under that 20, you know, 20 provider threshold , um, is there, is there a good way to sort of get guidance from someone in your office on , on questions like that ?
Speaker 4:Yeah, there will be a , um, a new email address that's dedicated just to these , these submissions that you can use to seek further information. And so to , depending on the question or to the extent we can provide , we're not providing legal advice, but we can give our perspective on how we view the statute and , and help you along from there. So yeah, we should be easily accessible to to , to field any questions.
Speaker 3:So in terms of actually making the filing, right, let's say you determine that you have a transaction or a contracting affiliation that needs to be reported. Um, how does, how does a party actually go about making a filing? And do both parties make a filing or is it just one party?
Speaker 4:Yeah, so , um, I'll just kind of walk through how I understand the mechanics. Um, it's kind of in three phases, and this is kind of where the HSR ACT comes back into play. It is , it does really kind of mirror the , uh, kind of on a smaller scale, the HSR process. So yes , both parties make the filing. Um, the first question you're gonna ask is, is this, is this transaction already reportable to the federal agencies under the HSR Act? If it is , all you need to do is on the same day you provide the filings to the federal agencies, you provided it to us. And there, there isn't , as of right now, there's going to , um, the plan is to have an email address on the site that you can email your HSR filing to, or if that isn't sufficient for us too large or something, you can contact us and we can make other arrangements. Um, if you
Speaker 3:Are . And on that point, is it the full filing with all the attachments or just the form? Yes,
Speaker 4:We, we consider the , I think the agencies do as well, but the, the documents that support the form are part of the form, so we consider that all the same package. Um, so yes. Um,
Speaker 3:Well , I think you'll, you'll want an FTP link depending on <laugh> filing .
Speaker 4:I know , I mean, it really can vary filing my office of that <laugh>. Um, and so the , so that's the first category, the HSR filings. The second one is, okay, your transaction is not , uh, does not meet the HSR threshold, but you do, or a facil or a healthcare facility that does have to report a change of ownership to the , um, the health planning board , uh, in Illinois. And if you fall into that category, you really have to do nothing <laugh> , because what, what , uh, the legislature did was just modify the Health Board's Act to say that they need to send that change of ownership form to us at the same time they send to the local legislators that are already notified in the statute. So that's the easiest category. You do nothing, but just be aware that we are being notified and, you know, we will know. And then if it is a problematic transaction, we may wanna investigate further. And then the third category , uh, really applies to, mostly to provider organizations, but some fac could be some facilities , um, that do not meet the HSI threshold, do not have to file a change of ownership , uh, with the health board. Um, they simply have to fill out, we've, we're gonna have a form on our website that you can as guidance, but there's just some very simple categories set out in the statute as to like the name of the names of the parties, what services you provide, and the nature of the transaction , um, to just give us a , a high level sense of the purpose of the transaction so we can start taking a look at it. And that will be submitted on through the website or through the, through an email address provided on the website.
Speaker 3:Great. Well that , um, I think we all look forward to that website , uh, going live <laugh> , um, and familiarizing ourselves with the form , uh, mm-Hmm , <affirmative> as an antitrust lawyer, that's always fun. Um , so costs , are there any, any costs or fees that parties need to, to pay upfront when they make a filing?
Speaker 4:No costs at all. Um, the only thing to keep in mind is that there is a civil penalty if you do not comply with the statute , uh, which is $500 a day , uh, during non-compliance, you , there is an ability to cure. So if you , um, if we find about the , out about the transaction before it closes kind of through the press or something, and we notify, oh, we haven't gotten your filing yet , um, you have 10 days to cure and provide the filing and not have to pay the civil penalty. But that goes away , uh, once the, the date of the transaction occurs. Um, we also have the , um, ability to seek A TRO , uh, with a court to kind of stop the transaction or take a , you know, seek whatever relief we need to, to be able to get the materials and look at the transaction before it closes.
Speaker 3:Um, you mentioned a TRO, if , if the parties fail to file is , you know, an injunction or some sort of order unwinding the transaction, is that a possibility or is it really just we want the, the filing and we want to , we want to , um, you know, a monetary penalty?
Speaker 4:We do want the, the filing in advance. I think it's a , I will just say that it is possible under the law that we could seek to unwind a transaction that violates the antitrust laws. It's , that meets the standard under the Clayton Act , um, for being a transaction that substantially lessens competition. Um, that is not our , we don't want to have to do that, that <laugh> , that's a lot of work and effort and, but you know, that is a possibility. So the key here is giving us notice before the transaction Yeah . So we can get comfortable with it, have a chance to look at it so we don't disturb anything that unnecessarily.
Speaker 3:Yeah , no, and I think that's a really good point for, you know, parties that just see this as a burden. I mean, there is kind of a benefit right, to parties for , with smaller transactions that might not have been reportable before. Um, you know, they can get feedback before they do the transaction from your office about whether there might be antitrust problems so that there isn't that problem, you know, after it closes and, and you , you know, you have a , uh, uns scrambling the egg problem.
Speaker 4:Absolutely. And the statute is 30 days in advance, but if you want to submit it earlier to get that answer, to get that indication from us, to the extent we can give it to you, you can file earlier. And that actually happens on , with the federal agency agents or agencies all the time , um, transactions that know that they're gonna get a close look , uh, tend to file sometimes even a year in advance because they know a , a court hearing might actually happen. So, you know , Mm-Hmm . <affirmative> try to get some advice internally and to kind of see what , um, might strike a , an antitrust enforcer is problematic and get in early and , and talk it through.
Speaker 3:Mm-Hmm, <affirmative> . So , um, one of the things that struck me about the new law is that there's a provision that gives your office the ability to ask for more information and that, and that actually stops that 30 day clock.
Speaker 4:Um , yeah, that, oh , go ahead, <laugh>.
Speaker 3:Well, I , I was just gonna ask, you know, do you anticipate, you know, a lot of transactions will be subject to additional requests for information or subpoenas , um, or is it gonna be really a small subset of transactions that ultimately get sort of additional requests or , uh, subpoenas and potentially extend that 30 day clock out ?
Speaker 4:Yeah. So again, this is another aspect that mirrors the, the federal HSR Act. Um, or they have what's called a second request, and the , the second request stops the clock on the merger and tells substantial compliance with that second request. Um, a small, small percentage of reported transactions on the federal level actually get a second request. Um, it's really just the, the problematic transactions, but we don't know that they exist until you give us notice. So I would suspect the same will be true. Um, and also, you know, I, part of the, the motivation behind , behind this law is to help us partner with our federal counterparts better. So, you know, if if you have a transaction that the FTC is gonna wanna look at, then you should assume that we also will be looking at it in conjunction with that FTC. So if you think your transaction's gonna get a second request, chances are you're gonna get <laugh> second request from us as well. We'll be working, the goal is to work together. Um, but also remember, like if, you know, if your transaction, you just haven't really given us very much information about it, and at first blush, you know, to someone who may not know the market as well as you, and it looks problematic, it's gonna increase the chance you get a second request. If we don't have that information. Um, that is one thing I'd like to flag on the change of ownership , uh, submissions, they don't often have a lot of information that are provided beyond just the fact of, of the transaction, or like, we don't have the full picture of the transaction, so it may be like a multi-facility purchase, but the way that the , uh, form is filed with the board, it's just one trans , one facility at a time. So if we are, if we don't understand it upfront , it's gonna increase the likelihood that we're , you're gonna , uh, get a second request from us so we can understand it. Um, so just keep that in mind. <laugh>.
Speaker 3:Well, I , I think that that dovetails with a point that I wanted to ask you about , which is that, you know, sometimes what we see as parties actually proactively going in to talk to the enforcers and say, we have this deal. Um, we know that there may be some degree of overlap or some reason that you may have questions. Here's why we think despite those questions, you know, this, this is a good deal and will benefit, you know, patients in Illinois. Is that something you'd be open to as parties kind of coming in , um, you know, proactively and saying, Hey, we have this deal. Can , can we have a meeting? Can we walk through a slide deck describing, describing the transaction?
Speaker 4:Yeah, that would be absolutely welcome and very helpful. Uh , oftentimes parties have white papers prepared. Um, anything to give us guidance. I think the key , um, to remember is make sure you're speaking, speaking to the antitrust concerns , um, and not just jumping to kind of broad reasons why you like the transaction , um, or just jumping to efficiencies before you've kind of addressed the market. We , you know, there's a lot of aspects to the antitrust analysis that we need to look at. And I do think, you know, the business folks focus on the bene , you know, the efficiencies, like all the great things they're gonna get, but there's other things that we have to look at. So just keep that in mind, make it very antitrust focused , uh, when you speak to us.
Speaker 3:And it , it sounds like it might be a , a good idea to, to have an antitrust lawyer with you , uh, at that meeting to help put together the presentation.
Speaker 4:Absolutely.
Speaker 3:Um, so let's say your office gets the filing. There are no concerns. Um, you know, you , you're not gonna investigate further. Um, what happens then?
Speaker 4:So you'll hear nothing <laugh>, we just to be clear, we are not approving your transaction. Mm-Hmm. <affirmative> . Um, this is simply a notification statute so we know about it and can investigate at our discretion. Um, so the best news you will get is no news. The , the , you know, you will , you know, if you didn't get a subpoena or any kind of outreach from us , um, you're good to go. And again, that tracks what goes on on the federal level. Again, they do not approve transactions, they just choose not to investigate or , um, do anything further. So, yeah, no news is good news. <laugh> ,
Speaker 3:You set that 30 day , um, calendar appointment and Yeah , <laugh> ,
Speaker 4:It
Speaker 3:Goes off . You're good to go.
Speaker 4:Yeah.
Speaker 3:Um, so when, okay, let's turn to now turn to transactions that do raise concerns. Um, what, what sort of substantive law are you gonna be looking to? Is there a, is there a, do a new standard under this statute that, that transactions are gonna be subject to? Or is it sort of a traditional , uh, existing federal and state antitrust law?
Speaker 4:Yeah, definitely the latter. It, there are no new substantive standards in this statute. It's purely procedural, just to give us that notice. So Right. It's just the case law under the Sherman Act and any potentially relevant state, state court law. I don't think there is any actually in Illinois. So it's really driven by federal , uh, jurisprudence. But , um, yeah, that's so , so no new standard, no new public interest standard or anything like that.
Speaker 3:Got it. Um, we're seeing a lot of transactions where the agencies are asking about labor markets. Is that something that , um, you know, you're gonna be thinking about? Does this transaction impact employees or wages?
Speaker 4:Yeah , um, we definitely will be looking at that. I mean, I don't think it's any secret that our o office is interested in labor antitrust matters. We have pending cases , uh, regarding this question. And there was a recent seventh circuit decision in the , um, in a no poach case with McDonald's, where Judge Easterbrook and the , and the panel made clear that labor markets are a separate market and you cannot use benefits in the consumer market to , um, out , uh, outweigh any harms to the labor market . So yes, that is, that is the law, and that's how we're gonna look at it.
Speaker 3:Great . Um, so I, I think we talked yesterday about the North Shore advocate case. Is that one of the cases that, you know, parties might look to in terms of substantive law that , um, ye might apply to their transaction in healthcare?
Speaker 4:Yes. I highly recommend reviewing the Seventh Circuit opinion in the North Shore advocate matter. Uh, our office was involved, we worked with the FTC to challenge , uh, north Shore an advocate , uh, proposed merger, I think it was 20 15, 20 16 ish. Um, it on the district court, the, the court would did not , uh, grant the preliminary injunction, but that was appealed. Um, seventh circuit reversed, and then the parties abandoned the deal. But , uh, this case , the case really sets forth the standard of how hospital mergers are reviewed , um, and how the market is looked at. There are geographic market in particular. There's also , um, uh, like a third circuit, a couple of third circuit cases too that have more, more recent hospital merger cases. Um, I think Hershey Pinnacle is one mm-Hmm , <affirmative> . Um , and then there's one in New Jersey, but I can't remember the name of it, but there are, there's some good case law that really like sets forces , they're consistent with one another. They set forth the standard, and that's what we're gonna be looking at as , as we , uh, uh, look for any concerns.
Speaker 3:Um, I wanna ask you a little bit about confidentiality. Um, parties often ask me when they have a transaction, you know, will my HSR filing be confidential? Will anyone know that this deal is gonna happen , um, down the road? Um, how does confidentiality play here? I mean, is are submissions to your office under this new law going to be treated as confidential? Or will the, the fact of the transaction be posted somewhere?
Speaker 4:So they are, all of our antitrust investigations are confidential, that, that predates this act. But also there's been a few amendments to our confidentiality provision to make it even more expansive, that even voluntary submissions during an investigation , um, are kept confidential. Um, the only exception, like , just keep in mind, your change of ownership application is not confidential, just under the way it works now, it's, it's posted publicly, so we will be getting that public document, so we wouldn't necessarily, necessarily assert that as confidential. Um,
Speaker 3:And that's the filing with the health facilities and services review board ?
Speaker 4:Yes, that's correct. Um , but yes, HSR we absolutely respect confidentiality. Um , and we do not, you know, we , we , we do not publicize that information. The only way that , um, you know, keep in mind if we are investigating, we do have to get witnesses and talk to folks. So it's possible that in information about the merger could get out , um, based on just those kinds of phone calls. But certainly we do, do not provide the materials that you provide to us to anyone unless authorized by the statute.
Speaker 3:Um, well, I think that's, yeah, that's really helpful. Um, so on remedies, it is in antitrust , uh, merger investigations, there often are kind of two categories of remedies. One being , uh, an injunction to block the deal. We call that a structural remedy. And then the other is often called a behavioral remedy, which is some kind of a consent decree , um, where the parties agree , you know, maybe that they won't do something. Where do you see kind of this new law in terms of the, the remedies that you're gonna be seeking? Are , um, are you gonna be, are we gonna see a lot of consent decrees coming out of this law? Um, do you have any thoughts on that?
Speaker 4:It's , so, it's really hard to predict what's going to happen, but all, all options are on the table. I mean, it's hard to prejudge any particular transaction. It could be that a consent decree can really address any harm in , in any particular transaction. And of course, we would do that. Um, just the one thing I'd like to flag is we're not, we are not a regulatory agency. Uh, we're a law enforcement agency , so we don't necessarily have the resources to kind of regulate ongoing conduct for 10 years. Um, so we're not looking to enter into that kind of thing that would need , um, kind of resource , uh, resources put to that. Um, so that in that case , you know, structural would be preferred. And structural can also include potentially divestiture . So, you know, if you're looking to buy four or five clinics, but one of 'em is really problematic, you'd have to potentially divest that one. Um, so yeah, all options are on the table. Um, it's hard to, it's hard to know what transaction's gonna lead to , to what, but yeah, consent decree is certainly a possibility too .
Speaker 3:Um, so I have no more questions. I, I , I guess, you know, we'll look for this , uh, website coming on January 1st.
Speaker 4:Yeah, I think, and just, if you just go to our , uh, main website, there should be a big button or something there to kind of draw your attention to find , uh, the actual , uh, website. But please, you know, any more feedback, you could , you know, we're, we're new to this process as well, so we're learning. Um, so we're, we're open to all feedback and, and suggestions , um, as we kind of administer the statute going forward.
Speaker 3:Well, wonderful. Thank you so much for joining us and sharing your , uh, views on this. And , uh, thanks to all of our listeners.
Speaker 4:Thank you.
Speaker 2:Thank you for listening. If you enjoyed this episode, be sure to subscribe to a HLA speaking of health law wherever you get your podcasts. To learn more about a HLA and the educational resources available to the health law community, visit American Health Law .