Health Headlines – November 20, 2023

CMS Issues Final Rule that Will Require Disclosure of Ownership and Other Financial Relationships for Skilled Nursing Facilities and Nursing Facilities

On November 15, 2023, CMS published a final rule that will require many Medicaid certified nursing facilities (NFs) and Medicare certified skilled nursing facilities (SNFs) to provide more detailed reporting about their ownership structures and financial relationships (the Final Rule). According to CMS, these reporting requirements, in part, aim to shed light on the role that private equity and affiliated real estate investment trusts play in the nursing home industry. The Final Rule will require NFs and SNFs to report if they are owned or managed by a private equity firm or private equity-affiliated real estate investment trust and to provide information about any transactions with broadly defined “related parties.” 

As part of a broader push by the Biden administration to improve the quality of nursing home services, CMS is implementing previously unimplemented portions of Section 6101 of the Patient Protection and Affordable Care Act (Affordable Care Act). Implementing Section 6101 will require SNFs and NFs to report certain information upon initially enrolling in Medicare or Medicaid, after a change of ownership, and when revalidating their Medicare or Medicaid enrollment. Additionally, Medicare SNFs, once enrolled, must disclose any changes to the relevant information within the current timeframes specified in 42 CFR § 424.516(e) for reporting changes in enrollment data.

Medicare facilities will make these reports to CMS. Medicaid facilities will make these reports to the applicable state Medicaid agency. The information to be reported includes:

• Each member of the governing body of the facility, including the name, title, and period of service of each member.
• Each person or entity who is an officer, director, member, partner, trustee, or managing employee of the facility, including the name, title, and period of service of each such person or entity.
• Each person or entity who is an additional “disclosable party” (see definition below) of the facility.
• The organizational structure of each additional disclosable party of the facility and a description of the relationship of each such additional disclosable party to the facility and to one another.

The Final Rule’s definition of “disclosable party” is broad. Under the Final Rule, “disclosable party” will include:

any person or entity who: (1) exercises operational, financial, or managerial control over the facility or a part thereof, or provides policies or procedures for any of the operations of the facility, or provides financial or cash management services to the facility; (2) leases or subleases real property to the facility, or owns a whole or part interest equal to or exceeding 5 percent of the total value of such real property; or (3) provides management or administrative services, management or clinical consulting services, or accounting or financial services to the facility.

The Final Rule will also require that owning and managing NF and SNF entities will have to disclose whether they are private equity companies or real estate investment trusts.

The Final Rule will not require Medicare SNFs to make duplicative reports of information they are already required to report on the Form CMS-855A (the Medicare form used for initial enrollment, change of enrollment and revalidation).

In light of public comments received on the proposed rule published in February 2023 (the Proposed Rule), the Final Rule is not finalizing the definition of “Real Estate Investment Trust” from the Proposed Rule. Instead, the Final Rule is finalizing a definition that commentators recommended as “more consistent with federal law and industry practice,” which is the definition of Real Estate Investment Trust under 26 U.S.C. § 856.

The Final Rule also makes changes to the Proposed Rule by inserting “direct or indirect” before the term “ownership share” in its definition of “private equity company” (PEC) at 42 C.F.R. § 424.502. All other definitions remain the same from the Proposed Rule.

In short, the Final Rule will require NFs and SNFs to not only provide information about the ownership of the facilities, but also detailed information about entities with which the facilities have relationships through areas such as management services or real estate. The Biden administration hopes that these additional reporting requirements will “(1) provide additional transparency that may assist CMS and other regulators in holding nursing facilities accountable; and (2) allow consumers to select facilities with better knowledge of their owners and operators.” The information reported under this Final Rule will be made publicly available.

The Final Rule is effective January 16, 2024, but Medicare SNFs will not have to disclose the data in question until the Form CMS-855A is revised. Meanwhile, Medicaid SNFs will not have to disclose their required data until their respective State Medicaid agencies create a process to collect that data. CMS will be issuing subregulatory guidance to explain the new requirements, including examples of the types of data that must be disclosed.

A copy of the Final Rule is available here.

Reporter, Will Mavity, Los Angeles, +1 213 218 4043, wmavity@kslaw.com.