Big step forward for Illinois healthcare oversight

New Illinois legislation that increases Attorney General oversight of healthcare mergers and acquisitions is good news for patients, healthcare workers, and communities

On August 11, 2023, Illinois Governor JB Pritzker signed House Bill (HB) 2222 into law, which will enhance state Attorney General (AG) oversight of mergers and acquisitions among healthcare entities. This legislation is an important step forward for Illinois to more effectively regulate healthcare transactions that could have the potential to negatively impact communities, patients, and workers.

After the Illinois General Assembly passed the legislation, the office of Illinois AG Kwame Raoul issued a statement applauding the legislation:

“ ‘Currently, many health care mergers and acquisitions are not reviewed at the state or federal level. Without proper review, these transactions can lead to diminished options for individuals who are already struggling to access health care services in their communities,’ Raoul said. ‘I appreciate the General Assembly’s passage of this legislation that will give my office more tools to protect Illinoisans from proposed mergers that lessen competition and increase health disparities.’ ”[1]

HB 2222, which was sponsored by 22 Illinois state representatives and 9 state senators,[2] amends the Illinois Antitrust Act, the Illinois Health Facilities Planning Act, and the State Finance Act.[3] Taken together, the changes to current law will require that healthcare entities provide notice to the AG of any mergers or acquisition activity 30 days prior to the closing or transaction effective date.[4]

The legislation will also empower the AG to request additional information related to the transaction. Under the law, “If the Attorney General requests additional information, the covered transaction may not proceed until 30 days after the parties have substantially complied with the request.” Healthcare entities in violation of these provisions can face a civil penalty of up to a $500 per day until they are back in compliance.[5]

While the new legislation does not grant the AG power to halt a transaction based on information or new information related to the transaction, it does allow the AG to enforce compliance with the law via civil penalties as well as court action.[6] According to the AG’s office, the new law will “better equip the Attorney General’s office with information necessary to determine whether a proposed transaction warrants an investigation and, when necessary, a challenge for anticompetitive conduct that could substantially lessen competition or harm the public or employees.”[7]

The AG’s enhanced powers come on the heels of recent controversies involving investor-owned hospitals in Illinois. Pipeline Health, owned by investment firms Deerfield Management, Davidson Kempner Capital Management, and Stanton Road Capital, acquired three Chicago-area safety net hospitals in 2019. Despite assuring regulators that it would keep the hospitals open for at least two years following the acquisition, Pipeline promptly moved to close Westlake Hospital in Melrose Park. Community outcry[8] and legal challenges ensued,[9][10] but Pipeline was ultimately able to close the hospital by having it declare Chapter 7 bankruptcy.[11]

During Westlake Hospital’s bankruptcy proceedings, it came out that closing and selling Westlake had been a condition of Pipeline’s purchase agreement with Tenet Healthcare, a critical detail that Pipeline had failed to disclose to regulators.[12]

At another of its hospitals, Weiss Memorial, Pipeline sold off one of its parking lots to a real estate developer planning to build luxury apartments despite community concerns that it was depriving the hospital of an important asset, eschewing an opportunity to build affordable housing, and contributing gentrification.[13]

Despite relatively robust change-of-ownership regulations in Illinois via the Health Facilities and Services Review Board, Pipeline’s investors were able to remain in the shadows during the health system’s controversies, obscured by a business structure that used dozens of subsidiaries and holding companies.[14]

Illinois’ new law has the potential to result in greater transparency surrounding healthcare mergers and acquisitions, including around ownership and conditions of sales. Had the law been in place in 2018, the AG could have requested more detailed information from Pipeline and Tenet, such as the conditions outlined in their acquisition agreement. In other words, the law may have made it easier for regulators to discover Pipeline’s plans to close Westlake.

The law could have helped shed more light on the sales of the Pipeline hospitals to other investor groups. Cedar Health Group, another private equity firm with a troubling track record, purchased Westlake Hospital out of bankruptcy in 2020, with plans to convert it into a specialty hospital.[15] However, as of September 2023, the hospital has still not reopened.[16]

Resilience Healthcare and Ramco Healthcare Holdings bought the remaining two Pipeline Hospitals, Weiss Memorial and Westlake Hospital, in December 2022.[17] Despite concerns about the lack of information on the new investors,[18][19] the Health Facilities Services and Review Board approved the transaction.[20]

The new Illinois legislation will go into effect in January 2024, and has the potential to shine a brighter light on mergers and acquisitions among healthcare entities in the state. Overall, it is a great step toward more effectively regulating healthcare mergers and acquisitions. However, the AG will not have the power to halt a transaction –only to request more information and postpone a transaction if the relevant entities are noncompliant with the law.

Regulatory success in Rhode Island via the Hospital Conversions Act
State laws can go and should go even farther. For example, the Rhode Island AG holds significant power to enforce the state’s Hospital Conversions Act (HCA) by intervening in healthcare mergers and acquisitions that may not meet the criteria to maintain or enhance the delivery of healthcare in the state.[21]

In fact, Rhode Island AG Peter Neronha used his office’s powers when private equity firm Leonard Green and Partners tried to exit its investment in safety net hospital chain, Prospect Medical Holdings, after extracting hundreds of millions of dollars in debt-funded dividends.[22] As a condition of the sale, Neronha proposed that Leonard Green and the minority owners commit $120 million to an escrow account to ensure the hospital stay open. In response, Prospect threatened to shut down the Rhode Island hospitals.[23]

After weeks of negotiations with the state, the Leonard Green-led ownership group eventually agreed to commit $80 million into an escrow account to ensure that the company’s two Rhode Island hospitals remain open.[24]

Regulatory changes in other states
Minnesota, Washington, New York, and Oregon, have also recently passed legislation increasing state oversight of healthcare transactions that may have anticompetitive impacts, while Pennsylvania and California are in the process of attempting to update their regulations. While these new state laws vary considerably,[25] they point to a trend that more is needed in the regulation of healthcare mergers and acquisitions.

More resources:

• To read the text of the new Illinois law, click here.
• To learn more about PE-owned Pipeline Health and what happened to its hospitals in Chicago, you can read PESP’s report, “How Private Equity Raided Safety Net Hospitals, Volume 2: Pipeline Health.”
• For an overview of state-specific Attorney General oversight authority in the healthcare provider market, visit sourceonhealthcare.org.
• To learn more about how federal and state agencies engage in antitrust enforcement for hospitals and other healthcare providers, visit KFF’s brief, “Understanding the Role of the FTC, DOJ, and States in Challenging Anticompetitive Practices Of Hospitals and Other Health Care Providers.”

[1] illinoisattorneygeneral.gov. “Attorney General Raoul Applauds General Assembly Passage of Legislation Increasing Oversight of Health Care Market Consolidations,” May 18, 2023. https://www.illinoisattorneygeneral.gov/news/story/attorney-general-raoul-applauds-general-assembly-passage-of-legislation-increasing-oversight-of-health-care-market-consolidations.

[2] ilga.gov. “Illinois General Assembly – Bill Status for HB2222.” Accessed August 30, 2023. https://www.ilga.gov/legislation/BillStatus.asp?DocNum=2222&GAID=17&DocTypeID=HB&SessionID=112&GA=103.

[3] ilga.gov. “Illinois General Assembly – Full Text of Public Act 103-0526.” Accessed August 30, 2023. https://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=103-0526.

[4] gov.illinois.gov. “Gov. Pritzker Takes Bill Action,” August 11, 2023. https://gov.illinois.gov/news/press-release.26878.html.

[5] ilga.gov. “Illinois General Assembly – Full Text of Public Act 103-0526.” Accessed August 30, 2023. https://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=103-0526.

[6] From Full Text of Public Act 103-0526: “Whenever the Attorney General has reason to believe that a health care facility or provider organization has engaged in or is engaging in a covered transaction without complying with the provisions of this Section, the Attorney General may apply for and obtain, in an action in the Circuit Court of Sangamon or Cook County, a temporary restraining order or injunction, or both, prohibiting the health care facility or provider organization from continuing its noncompliance or doing any act in furtherance thereof. The court may make such further orders or judgments, at law or in equity, as may be necessary to remedy such noncompliance.”

[7] illinoisattorneygeneral.gov. “Attorney General Raoul Applauds General Assembly Passage of Legislation Increasing Oversight of Health Care Market Consolidations,” May 18, 2023. https://www.illinoisattorneygeneral.gov/news/story/attorney-general-raoul-applauds-general-assembly-passage-of-legislation-increasing-oversight-of-health-care-market-consolidations.

[8] “Transcript of Public Hearing.” Illinois Health Facilities and Services Review Board, March 11, 2019. https://hfsrb.illinois.gov/content/dam/soi/en/web/hfsrb/projects/projectdocuments/2019/exemptions/e-004-19/2019-03-22-e-004-19-westlake-public-hearing-transcript.pdf.

[9] Staff Reporter. “Owners of West Suburban Hit with Lawsuit.” Oak Park, March 7, 2019. https://www.oakpark.com/2019/03/07/owners-of-west-suburban-hit-with-lawsuit/.

[10] Schencker, Lisa. “A Conflicting Series of Rulings Leaves Westlake Patients and Staff Members More Bewildered than Ever.” Chicago Tribune, April 18, 2019. https://www.chicagotribune.com/business/ct-biz-westlake-hospital-closure-appeals-court-20190418-story.html.

[11] Pg. 2; Bugbee, Mary. “How Private Equity Raided Safety Net Hospitals: Volume 2- Pipeline Health,” July 18, 2023. https://pestakeholder.org/reports/how-private-equity-raided-safety-net-hospitals-pipeline-health/.

[12] Goldberg, Stephanie. “Westlake’s Owners Never Intended to Keep the Hospital Open.” Crain’s Chicago Business, June 15, 2021. https://www.chicagobusiness.com/health-care/westlakes-owners-never-intended-keep-hospital-open; Pgs. 3-4; “Transcript of Hearing Held on 11-19-20 during Westlake’s Chapter 7 Bankruptcy Proceedings.” United States Bankruptcy Court for Northern District of Texas, November 19, 2020. https://drive.google.com/file/d/1t4_LzOEDUC98O8G4IUCRrQfsTkZtNaxh/view?usp=share_link.

[13] Pgs. 6-17; Bugbee, Mary. “How Private Equity Raided Safety Net Hospitals: Volume 2- Pipeline Health,” July 18, 2023. https://pestakeholder.org/reports/how-private-equity-raided-safety-net-hospitals-pipeline-health/.

[14] Pg. 22; Appendix A (starting pgs. 25-34); Bugbee, Mary. “How Private Equity Raided Safety Net Hospitals: Volume 2- Pipeline Health,” July 18, 2023. https://pestakeholder.org/reports/how-private-equity-raided-safety-net-hospitals-pipeline-health/.

[15] Pg. 18; Bugbee, Mary. “How Private Equity Raided Safety Net Hospitals: Volume 2- Pipeline Health,” July 18, 2023. https://pestakeholder.org/reports/how-private-equity-raided-safety-net-hospitals-pipeline-health/.

[16] Hospital, Woodlake Specialty. “Now Open OCC Health.” Now Open OCC Health. Accessed September 7, 2023. https://woodlakespecialty.com/.

[17] Pg. 21; Bugbee, Mary. “How Private Equity Raided Safety Net Hospitals: Volume 2- Pipeline Health,” July 18, 2023. https://pestakeholder.org/reports/how-private-equity-raided-safety-net-hospitals-pipeline-health/.

[18] Pg. 7, “Pipeline -West Suburban Medical Center, Oak Park – Board Meeting.” State of Illinois Health Facilities and Services Review Board, June 7, 2022. https://www2.illinois.gov/sites/hfsrb/Projects/ProjectDocuments/Exempt/E-025-22/2.%20E-025-22%20West%20Suburban%20Medical%20Center.pdf.

[19] Pg. 1, “Letter from Maria Barnes.” Illinois Health Facilities and Services Review Board, May 18, 2022. https://hfsrb.illinois.gov/content/dam/soi/en/web/hfsrb/projects/projectdocuments/2022/exemptions/e-025-22/2022-05-18-e-025-22-letter-of-concern-group.pdf.

[20] Pipeline Health. “State Board Approves Resilience Healthcare Purchase of West Suburban Medical Center and Weiss Memorial Hospital | Pipeline Health.” Accessed December 21, 2022. https://www.pipelinehealth.us/newsroom/news/state-board-approves-resilience-healthcare-purchase-of-west-suburban-medical-center-and-weiss-memorial-hospital/.

[21] “Healthcare Regulatory | Rhode Island Attorney General’s Office.” Accessed August 30, 2023. https://riag.ri.gov/about-our-office/divisions-and-units/civil-division/public-protection/healthcare/healthcare-0.

[22] O’Grady, Eileen. “How Private Equity Raided Safety Net Hospitals and Left Communities Holding the Bag: A Case Study on Leonard Green & Partners’ Ownership of Prospect Medical Holdings.” Private Equity Stakeholder Project, November 2022. https://pestakeholder.org/wp-content/uploads/2022/11/Prospect_Primer_Nov-2022.pdf.

[23] Laura Cooper and Brian Spegele, “PE-Backed Chain Threatens to Shut Two Hospitals Over Financial Dispute With Rhode Island,” Wall Street Journal, May 2, 2021, sec. Markets,  https://www.wsj.com/articles/pe-backed-chain-threatens-to-shut-two-hospitals-over-financial-dispute-with-rhode-island-11619964001.

[24] Laura Cooper, “Rhode Island Regulator Approves Hospital Sale,” Wall Street Journal, June 1, 2021, https://www.wsj.com/articles/rhode-island-regulator-approves-hospital-sale-11622591539.

[25] Gersh, Deborah, John Saran, Ryan Marcus, Jaclyn Freshman, and Meg Lewellyn. “The National Patchwork Grows: Illinois and Minnesota Pass New Health Care Transaction Oversight Laws.” Ropes & Gray (blog), August 14, 2023. https://www.ropesgray.com/en/newsroom/alerts/2023/08/the-national-patchwork-grows-illinois-and-minnesota-pass-new-health-care-transaction-oversight-laws; Towhey, Jessica R. “More States Increasing Scrutiny of Healthcare Transactions, with Skilled Nursing Targeted.” McKnight’s Long-Term Care News, August 15, 2023. https://www.mcknights.com/news/increased-scrutiny-of-healthcare-mergers-and-purchases-could-be-just-the-beginning-of-nursing-homes-headaches/.