LEGAL ALERT

CENTERS FOR MEDICARE & MEDICAID SERVICES’ NEW RULE REQUIRING NURSING FACILITY DISCLOSURES OF ADDITIONAL OWNERSHIP INFORMATION
BY CARRIE L. BURNSED

ABOUT THE AUTHOR
Halloran Sage welcomes Carrie L. Burnsed as Counsel. Her practice focuses on healthcare regulatory and transactional work in general and skilled nursing facilities in particular. See full bio here.

On November 17, 2023, Centers for Medicare & Medicaid Services (“CMS”) published a final rule which will implement portions of Section 6101 of the Patient Protection and Affordable Care Act. The final rule requires skilled nursing facilities and nursing facilities (collectively, “nursing facilities”) to disclose additional ownership and managerial information. It also expands the definition of “managing employee,” defines who qualifies as an “additional disclosable party,” and clarifies the definitions for private equity companies (“PECs”) and real estate investment trusts (“REITS”).

The official effective date of the new rule was January 16, 2024. However, nursing facilities will not be required to report this information until CMS revises the CMS 855A form to collect this data. As of the date of this article, CMS has not provided an estimate for when the revised CMS 855A form will be available. In addition, the final rule states the newly disclosed ownership information will be made publicly available as CMS intends to meet the one-year timeframe from when the proposed rule was first published, which was November 17, 2023, and so the newly disclosed ownership information might be publicly available by November 17, 2024.

Ownership Reporting Requirements for Nursing Facilities

Once the revised CMS 855A form becomes available, a nursing facility enrolled in Medicare must disclose the name, title, and period of service for each person or entity who is an officer, director, member, partner, trustee, or managing employee of the facility, and information on any person or entity who is considered an “additional disclosable party.” An “additional disclosable party” is a person or entity that “exercises operational, financial, or managerial control over the facility. This includes any entity that leases or subleases real property to the facility. In addition, nursing facilities must disclose any entity that provides management or administrative services, including clinical consulting, accounting, or financial services.

When disclosing these parties, nursing facilities must also identify their organizational structure and describe the relationship between each disclosable party and the nursing facility, and any relationship the entities have to one another. As outlined in the Social Security Act at section 1124(c)(5)(D), disclosing the organizational structure includes identifying all officers, directors, and shareholders of a corporation with a five percent (5%) or more ownership interest, disclosing all managers and members of a limited liability company (and their respective ownership interests), identifying all partners in a general partnership, all general partners and any limited partners in a limited partnership with a ten percent (10%) or more ownership interest, any trustees of a trust, and the contact information for any individuals who meet the definition of an additional disclosable party above.

Nursing facilities must report this information as part of an initial Medicare application, revalidation, or change of ownership application. They must also report changes to this information under the same timeframes currently outlined at 42 CFF § 424.516(e), meaning within thirty (30) days for a change in ownership or control and ninety (90) days for all other changes. To the extent there is overlap between the parties and entities to be disclosed, each disclosable party need only be reported once.

Disclosure Requirements for Private Equity Company and REIT Owners and Managers of Nursing Facilities

The new rule adds a second part to the definition of “managing employee” which now includes an individual who directly or indirectly manages, advises, or supervises any element of the practices, finances, or operations of the facility. Particularly, this now includes the general manager, business manager, administrator, director, or a consultant to the facility.

CMS also requires all owning and managing entities of nursing facilities to disclose whether they are a private equity company or a REIT. As noted above, the new rule clarifies the definitions of “private equity company” and “real estate investment trust.” Real estate investment trusts are defined at 42 CFR §424.502 as “a publicly traded or non-publicly traded company that owns part or all of the buildings or real estate in or on which the provider operators.” The new rule defines REIT “as defined in 26 U.S.C. 856,” which is a reference to the detailed definition in the Internal Revenue Code (“IRC”). This change might significantly reduce the scope of the entities subject to the disclosure requirements. The definition arguably could have picked up any company that owned real estate used by a nursing facility. Tying the definition to the one used in the IRC should more appropriately limit the scope to actual REITs. A private equity company is now defined as “a publicly traded or non-publicly traded company that collects capital investments from individuals or entities and purchases a direct or indirect ownership share of a provider.” This change significantly expands the scope, picking up private equity companies that are only indirect owners of nursing facilities.

Notably, existing facilities with no change in ownership will only need to report this information through a revalidation application. Although revalidation applications are typically due from a nursing facility every five years, CMS indicated it will issue off-cycle revalidations to collect this information.

Penalties and Potential Enforcement Actions

These new disclosure requirements are backed up by current CMS enforcement authorities. CMS specifically noted in the final rule its authority to deny or revoke Medicare enrollment if a nursing facility provides false or misleading information regarding its ownership interest. Denied enrollment could result in a reapplication bar of up to three years, or up to 10 years in the event of revoked enrollment. Failure to provide accurate or complete information may also subject the nursing facility to fines and/or the owner to imprisonment. With respect to Medicaid enrollment, CMS noted that it routinely conducts oversight of Medicaid provider enrollment requirements through audits and that states will be responsible for their own oversight and enforcement mechanisms. Violations of the final rule may also lead to collateral enforcement actions. For example, CMS’ characterization of the reporting requirements as a condition of payment may also lead to the government or whistleblowers seeking to enforce the final rule through the federal False Claims Act.

FOR MORE INFORMATION, PLEASE CONTACT:

Carrie L. Burnsed has joined Halloran Sage with a well-established knowledge of healthcare law based upon over 20 years of experience. Mrs. Burnsed advises clients with healthcare, corporate transactions, and business law matters. She has experience with healthcare industry transactional matters, including healthcare facility acquisitions and joint venture transactions. She has assisted in the purchase and sale of over 150 nursing and assisted living facilities in both brokered and non-brokered deals. Mrs. Burnsed has also assisted in the purchase and sale of large portfolios that consisted of multiple long term care facilities and in the construction and licensing of over 25 new long term care facilities. During her legal practice in Oklahoma, Mrs. Burnsed served as a statewide legal referral for the Oklahoma Assisted Living Association and Oklahoma Association of Health Care Providers. Carrie L. Burnsed was recently selected to serve on the judging panel for the American Health Law Association’s Inaugural Inclusion, Diversity, Equity, and Accessibility “IDEA” Champion. Mrs. Burnsed has been a member of the AHLA since 2002. She is also a current member of the Health Care Compliance Association.

Carrie L. Burnsed, Esq.
burnsed@halloransage.com
860.297.4630

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