Ownership Transparency in Healthcare: A New Era of Accountability
In the ever-evolving landscape of healthcare, transparency has emerged as a crucial element in ensuring quality care and accountability. Recently, the U.S. Department of Health and Human Services (HHS) Centers for Medicare and Medicaid Services (CMS) published a final rule mandating increased ownership and managerial information disclosure for Medicare skilled nursing facilities (SNFs) and Medicaid nursing facilities. This rule aims to shed light on the prevalence of private equity involvement in these facilities and address concerns about the potential impact on care quality.
The Need for Transparency in Healthcare Ownership
The Final Rule, effective from January 16, 2024, requires SNFs and nursing facilities to provide more detailed information on the Medicare Enrollment Application Form CMS-855A regarding ownership and managerial information. This move comes in response to studies linking private equity ownership to a decline in the quality of care. By requiring comprehensive ownership data, CMS aims to gain insight into the extent of private equity involvement in Medicare-enrolled nursing home facilities and SNFs.
The publication of this Final Rule follows a growing wave of criticism surrounding private equity’s role in the healthcare system. In April 2022, CMS made public data on mergers, acquisitions, consolidations, and changes of ownership in hospitals and nursing homes enrolled in Medicare. Additionally, the Federal Trade Commission (FTC) proposed amendments to the premerger notification requirements under the Hart-Scott-Rodino Antitrust Improvements Act (HSR) in June 2023. These amendments expand the scope of required disclosures for premerger reviews, including identifying minority shareholders and upstream controlling entities.
Balancing Transparency and Regulatory Burden
While transparency is crucial for accountability, there are concerns about the potential administrative burden and its impact on the flow of capital into the healthcare sector. The Final Rule requires SNFs to disclose the organizational structure of each additional disclosable party, including up-the-chain indirect ownership. This places a significant administrative burden on the facilities and Medicare Administrative Contractors, leading to longer processing timelines for enrollments, changes of information, and revalidations.
It remains to be seen whether increased transparency and scrutiny will positively impact the healthcare delivery system. Critics question whether the additional oversight will hinder the sector’s evolution or genuinely address the concerns surrounding private equity involvement. The coming years will reveal the true effects of these measures on care quality and the overall healthcare landscape.
Enhanced Disclosure Requirements for SNFs and Nursing Facilities
The Final Rule imposes specific disclosure parameters on nursing homes, mandating the provision of detailed ownership and managerial information. SNFs and nursing facilities must report the following information to CMS or the applicable state Medicaid agency:
Governing Body Information
Each member of the facility’s governing body must be disclosed, including their name, title, and period of service. This information allows for a better understanding of the individuals responsible for the facility’s operations and decision-making processes.
Officers, Directors, and Managing Employees
The Final Rule requires the disclosure of all officers, directors, members, partners, trustees, and managing employees of the facility. This information provides insights into the key individuals involved in the facility’s day-to-day operations and management.
Additional Disclosable Parties
The Final Rule introduces the concept of “additional disclosable parties” who have a significant influence on the facility’s operations. These parties may provide operational, financial, or managerial control, policies and procedures, financial or cash management services, or lease/sublease real property to the facility. Disclosing these parties helps identify external entities that impact the facility’s functioning.
Organizational Structure and Relationships
SNFs and nursing facilities must disclose the organizational structure of each additional disclosable party and describe the relationships between these parties and the facility and each other. This requirement aims to provide a comprehensive understanding of the relationships and dependencies that exist within the facility’s ownership and management structure.
Implementation Timeline and Reporting Procedures
Medicare-enrolled SNFs should begin reporting the newly required information when the revised Form CMS-855A becomes available. The reporting should occur upon initial enrollment, revalidation, reactivation, and any change of ownership (CHOW). CMS plans to conduct off-cycle revalidations to collect the required data from SNFs.
To streamline the reporting process, the CMS Form-855A’s application has been revised to include a question about whether any listed entities are a private equity company (PEC) or a real estate investment trust (REIT). This change aims to avoid redundant reporting of information already disclosed on the same application submission.
States that administer Medicaid programs have the option to adopt similar disclosure policies for nursing facilities under their jurisdiction. This flexibility allows states to align with the federal requirements while accommodating their unique regulatory frameworks.
The Role of Private Equity Companies and Real Estate Investment Trusts
The Final Rule introduces definitions for private equity companies (PECs) and real estate investment trusts (REITs) for Medicare provider enrollment purposes. Understanding these definitions is essential for identifying entities with potential interests in SNFs and nursing facilities.
Private Equity Companies (PECs)
Private equity companies are publicly traded or non-publicly traded entities that collect capital investments from individuals or entities. These companies then purchase direct or indirect ownership shares of healthcare providers. By defining PECs, the Final Rule aims to identify the involvement of private equity in the ownership and operation of SNFs and nursing facilities.
Real Estate Investment Trusts (REITs)
Real estate investment trusts are corporations, trusts, or associations managed by one or more trustees or directors. These entities have transferable shares or certificates of beneficial interest that evidence beneficial ownership. REITs are subject to certain taxation rules and must meet specific ownership criteria. The Final Rule’s definition of REITs helps capture the presence of such entities in SNFs and nursing facilities.
State-Specific Notice Requirements for Healthcare Transactions
In addition to federal regulations, several states have enacted laws requiring notice of material transactions involving healthcare providers. These state-specific requirements aim to enhance oversight and transparency at the local level. Here are some examples of notice requirements in specific states:
- California: Healthcare entities must submit notice of the transaction at least ninety (90) days prior to the closing of a material transaction to California’s Office of Health Care Affordability (OHCA) (Cal. Health & Safety Code §§ 127500 et seq.).
- Connecticut: Parties involved in transactions resulting in a material change to the business must submit written notice to the Attorney General at least thirty (30) days prior to the effective date of the transaction (Conn. Gen. Stat. § 19a-486(i)).
- Illinois: Healthcare facilities must provide notice of covered transactions to the Attorney General at least sixty (60) days before the transaction closing or effective date (Illinois HB-2222).
- Massachusetts: Providers and provider organizations must submit notice of any material change to their operations or governance structure to the commission, the center, and the attorney general at least sixty (60) days before the proposed change (Mass. Gen. Laws Ch. 6D § 13).
- Minnesota: Parties involved in healthcare transactions must provide notice to the Attorney General and Minnesota Commissioner of Health at least sixty (60) days prior to the proposed completion date (Minnesota HF 402).
- Nevada: Parties to reportable healthcare or health carrier transactions must submit a notification to the Attorney General at least thirty (30) days before the consummation of the transaction (Nev. Rev. Stat. § 598A.370).
- New York: Healthcare entities must submit written notice to the department at least thirty (30) days before the closing date of the transaction (N.Y. Pub. Health L. §§ 4550-4552).
These state-specific notice requirements complement the federal efforts to enhance transparency and accountability in healthcare transactions.
Conclusion
Ownership transparency is becoming the new normal in healthcare, driven by concerns about private equity involvement and care quality. The Final Rule requiring increased disclosure of ownership and managerial information for SNFs and nursing facilities represents a significant step towards achieving greater transparency and accountability. While some express concerns about the regulatory burden, the long-term effects of these measures on the healthcare sector remain to be seen. As the healthcare landscape continues to evolve, transparency will play a vital role in ensuring quality care and maintaining public trust in the system.