Healthcare Alert: New Legal Requirements Part 2

LEGAL ALERT Part 2

Of note this month:
Carrie Burnsed will be attending the American Health Law Association’s Long Term and Post-Acute Care Law and Compliance Conference this month. Upon return, she will be sharing highlights and insights from the event.
Carrie’s practice focuses on healthcare regulatory and transactional work in general and skilled nursing facilities in particular.
See full bio here.

CONNECTICUT’S NEW CHANGE IN OWNERSHIP PROCESS WILL IMPACT HEALTH CARE FACILITIES LICENSED BY DEPARTMENT OF PUBLIC HEALTH

BY CARRIE L. BURNSED

Summary of Changes

Changes in ownership and beneficial ownership of a licensed healthcare facility require approval even where the transfer is to a relative.
Application documents include a description of the transaction, copies of the definitive agreements, ownership and license history, and any organizational charts.
Notice and the application with supporting documentation must be submitted at least 120 days in advance of the proposed change in ownership.

Broadened Scope of Required DPH Approval

Effective as of October 1, 2023, Connecticut updated its approval process for changes in ownership and beneficial ownership of licensed healthcare facilities, including hospitals, behavioral health facilities, outpatient surgical centers, nursing homes, assisted living services agencies, and home health agencies. Public Act 23-122 (the “Act”) changed §19a-493 of the Connecticut General Statutes governing the approval process for changes in ownership of licensed healthcare entities. The new language broadens the circumstances that require notice and approval by the Department of Public Health (“DPH”) and lengthens the time of the approval process.

The Act removes the exemption for certain transfers of ownership to relatives. As of October 1, 2023, any change in ownership or beneficial ownership of a facility or institution resulting in the transfer to an owner or a beneficial owner “related by blood or marriage” will be subject to prior approval by DPH. For the purposes of the Act, related by blood or marriage means a parent, spouse, child, brother, sister, aunt, uncle, niece, or nephew. If DPH denies the change of ownership request, the Act prohibits any person related to the applicant by blood or marriage from subsequently applying to acquire any ownership interest in the same facility or institution.

Exempt Transactions

The Act added the following exemptions from the change of ownership requirements:

Changes in Legal Form: If the current licensee only changes from a corporation to a limited partnership, a sole proprietorship to a corporation or similar changes, it will not be considered a change in ownership if the beneficial ownership remains unchanged provided the requisite information is submitted to DPH to update the facility’s licensing information.
Small Scale Physician Ownership Changes in Outpatient Surgery Centers: A change of ownership or beneficial ownership resulting in the transfer to a physician licensed in Connecticut of 10% or less of the ownership interest in an outpatient surgical facility, provided the requisite information is submitted to DPH to update the facility’s licensing information.
Certain Hospital Transactions: A change of ownership of, or to, a licensed federally tax-exempt hospital that is exempt from the approval requirements by the Executive Director of the Office of Health Strategy and the State’s Attorney General under existing law, assuming the owner provides any requisite information to DPH.

Application Requirements

The Act also changes the way notice is provided to DPH and requires that the proposed new owner, or the current owner in the case of a change in beneficial ownership, apply with the appropriate documentation. The notice to DPH and the application must be filed at least 120 days prior to the effective date of the proposed transfer. The required information and documentation in the application includes the following:

A cover letter identifying the facility or institution, including name, address, county, and licensed bed count.
A description of the proposed transaction, including the name of each current owner of the facility, the name of each proposed new owner or beneficial owner, and the name of each owner of any non-publicly traded parent corporation of each proposed new owner and beneficial owner.
An organizational chart of the current owner and the new owner, including parent businesses and wholly owned subsidiaries.
A copy of the agreement of sale or other transfer of ownership interests and, if applicable, any lease or management agreements.
Whether any proposed new owner has been convicted or pled guilty to a charge of fraud, patient or resident abuse or neglect, or a crime of moral turpitude.
The name of and documentation for any licensed healthcare facility owned, operated, or managed by each proposed new owner and beneficial owner in the United States during the preceding five years. In addition, applications must state whether each such disclosed facility has been subject to:
- A pending complaint, investigation, or licensure action by a governmental agency;
- Three or more civil penalties imposed by DPH final order or imposed by another state during the two years prior to the submission of the application;
- State-imposed Medicare or Medicaid sanctions, other than civil penalties of $20,000 or less;
- Medicare or Medicaid provider agreement termination or nonrenewal;
- State citation or federal deficiency in connection with an inappropriate discharge or denial of admission; and
- State citation or federal deficiency in the five years prior to submission of the application that identified a “serious risk to the life, safety, or quality of care” of the facility’s patients or residents.

The Act defines “serious risk to the life, safety, or quality of care” to include, but not be limited to, any violation of state licensure or federal certification requirements that resulted in any of the following outcomes:

State or federal agency action to ban, curtail, or temporarily suspend facility admissions or to suspend or revoke a facility’s license.
DPH or Center for Medicare and Medicaid Services (“CMS”) action to decertify, terminate, or exclude from Medicaid or Medicare participation, or deny payment for new admission imposed only due to the facility’s failure to correct identified regulatory noncompliance.
Federal deficiency cited as a pattern or widespread scope of actual harm or immediate jeopardy (Scope and Severity Levels H, I, K, or L).
CMS designation that the facility is a “poor performer” based on a finding of “substandard quality of care” or immediate jeopardy on a current survey or a survey in the proceeding two years. “Substandard quality of care” is defined as the failure to meet one or more requirements of 42 CFR §483.13 (resident abuse or restraint), 42 CFR §483.15 (admission, transfer, and discharge rights) or 42 CFR §483.25 (quality of care), that are cited as immediate jeopardy (Scope and Severity Levels J,K, or L), a pattern of or widespread actual harm that is not immediate jeopardy (Scope and Severity Levels H or I), or a widespread potential for more than minimal harm but less than immediate jeopardy, with no actual harm (Scope and Severity Level F).
Facility’s failure on a second revisit to correct previously identified deficiencies and that caused CMS to impose a denial of payment for new admissions or DPH to restrict facility admissions.

Notice and Application Process

Once received, the application for a change in ownership will be reviewed by DPH. The commissioner of DPH may schedule an inspection to ensure that all the requirements of Chapter 368v governing healthcare institutions have been met. When evaluating an application, DPH will consider whether each proposed new owner or beneficial owner demonstrates character and competence and quality of care, and whether there is evidence of acceptable past and current compliance with state and federal requirements for each facility owned, operated, or managed by said owner.

The approval requirements above do not apply when the proposed change of ownership or beneficial ownership is 10 % or less of the ownership of a licensed outpatient surgical facility and such change results in a transfer to a physician licensed in Connecticut. However, the facility must provide sufficient information to DPH about the change in ownership so that it can update the facility’s license information. No expedited process is available under the Act.

Additional Statutes Change

In addition to making these revisions to the change of ownership process, the Act also amends prior law at Connecticut General Statutes § 19a-491 to reduce the disclosure threshold of the ownership interests of an initial owner of a nursing home from 10% to 5%. Specifically, any person with 5% or greater ownership interests in the initial owner of the nursing home must now be disclosed to DPH.

The Act also amends Connecticut General Statutes § 19a-528a to require DPH to update the notice on its nursing home change of ownership application to provide that any person with at least 5% ownership interests in the nursing home or the entity that owns the nursing home may be subject to civil or criminal liability and administrative sanctions under federal and state law for the abuse or neglect of a nursing home resident committed by a nursing home employee.

If you would like assistance with assessing a change of ownership or beneficial ownership transaction considering the new requirements, or if you have any other questions regarding the new requirements, please feel free to contact:

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

Carrie L. Burnsed
Health Care
Corporate Business & Transactions

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