CMS proposes new disclosure requirements for Medicare SNFs and Medicaid nursing facilities targeting PE and REIT ownership

CMS recently proposed a rule requiring the disclosure of private equity (PE) or real estate investment trusts (REITs) ownership, managerial, and other disclosable information for Medicare skilled nursing facilities (SNFs), as well as recommending comparable requirements for Medicaid nursing facilities (NFs). If finalized, the rule could impose additional complexity on transactions involving PE or REIT ownership of SNFs and increase the reporting burden of PE or REITs with existing ownership interests in certain facilities.

CMS explains that the timing of this proposal is purposefully aligned with the Biden Administration initiative to improve the safety, quality, and accountability of nursing homes. This proposal also appears to bolster other recent CMS efforts the agency describes as strengthening provider enrollment rules to “stop fraud before it happens” and stop playing “pay and chase” with individuals and organizations it views as posing an undue risk of fraud, waste or abuse to the Medicare and Medicaid programs. These new reporting requirements and definitions would continue to expand CMS’ current authority over provider enrollment.

Further, CMS states that this proposed rule is necessary to obtain important data about the owners and operators of Medicare SNFs and Medicaid NFs and that this would better enable CMS and states to monitor the ownership and management of these providers; the agency views this is an especially critical consideration given documented quality issues and differences in outcomes of these facilities with certain types of owners.

CMS’s authority to impose additional disclosure requirements was established through Section 6101(a) of the Affordable Care Act, which added a new section 1124(c) to the Social Security Act (the Act) in 2010. Although it issued proposed regulations in 2011 to implement this section, CMS did not finalize that proposal. This current proposal is CMS’ most recent effort to promulgate regulations to implement section 1124(c) of the Act.

The proposed rule if finalized would require reporting the following information for all Medicare SNFs and Medicaid NFs:

• 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 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.

Some of this data is already required, but the proposal includes the expansion of definitions for certain terms that may require a provider to report additional people or entities.

Certain aspects of the proposal apply only to Medicare SNFs and not to Medicaid NFs. For example, while CMS is proposing that a Medicare SNF, once enrolled, would be required to disclose any changes to this information as part of any change of ownership (pursuant to 42 C.F.R. § 489.18) and report any changes to this data within the current timeframes set forth in 42 C.F.R. § 424.516(e), it is not proposing (although it is encouraging) states require its enrolled NFs to do the same.

Further, CMS “suggests” (but is not proposing) that states collect data signifying whether a reported organization is a PE company or REIT for Medicaid NFs enrollment records, but is requiring Medicare SNFs to report this information.

New definitions

CMS is proposing several new definitions to “explain” some of the terminology associated with these reporting requirements for both Medicare SNFs and Medicaid NFs; these terms include, but are not limited to, “private equity company,” “REIT,” “additional disclosable party,” and “organizational structure.” While applicable to Medicare SNFs, CMS is not proposing (although it is suggesting) to define the terms “private equity company” and “REIT” for purposes of reporting these types of organizations in its Medicaid NF enrollments.

The following are the new proposed definitions. For some of these terms, there are slight variations in the proposed definitions for Medicare versus Medicaid (noted below).

Additional Disclosable Party: means (with respect to a skilled nursing facility defined at section 1819(a) of the Act for Medicare or nursing facility for at section 1919(a) of the Act for Medicaid) 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 facilit

(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.

Managing Employee: CMS notes this new definition is “slightly” broader than current 42 C.F.R. § 424.502 for Medicare and encompasses more individuals than those currently required to be disclosed: an individual (including a general manager, business manager, administrator, director, or consultant) who directly or indirectly manages, advises, or supervises any element of the practices, finances, or operations of the facility.

For Medicaid specifically, CMS is proposing to revise 42 C.F.R. § 455.101's definition of “managing employee” in two ways. First, it would clarify in the definition's opening sentence that an individual can qualify as a managing employee: (1) even if he or she is acting under contract or through some other arrangement; and (2) whether or not the individual is a W-2 employee of the institution, organization, or agency. Second, CMS is proposing to add to the end of the definition of this term, a separate definition of “managing employee” that mirrors section 1124(c)(5)(C) of the Act and applies only to NFs. It would mean an individual (including a general manager, business manager, administrator, director, or consultant) who directly or indirectly manages, advises, or supervises any element of the practices, finances, or operations of the facility.

Organizational Structure: With respect to a Medicare SNF or Medicaid nursing facility, it would mean:

• For a corporation – the officers, directors, and shareholders of the corporation who have an ownership interest in the corporation which is equal to or exceeds 5 percent
• For a limited liability company – the members and managers of the limited liability company including, as applicable, what percentage each member and manager has of the ownership interest in the limited liability company
• For a general partnership – the partners of the general partnership
• For a limited partnership – the general partners and any limited partners of the limited partnership who have an ownership interest in the limited partnership which is equal to or exceeds 10 percent
• For a trust – the trustees of the trust
• For an individual – contact information for the individual.

Private Equity Company (Medicare only – for now): means, for purposes of this subpart only, a publicly-traded or non-publicly traded company that collects capital investments from individuals or entities and purchases an ownership share of a provider.

Real Estate Investment Trust (Medicare only – for now): means, for purposes of this subpart only, a publicly-traded or non-publicly traded company that owns part or all of the buildings or real estate in or on which a provider operates.

CMS intends to add data elements to the CMS 855A through which owning and managing entities of Medicare SNFs would have to disclose whether they are either a PE company or a REIT (using the proposed definitions above). The agency recognizes that these definitions may be “modestly” different from definitions of the same terms used in other settings and is soliciting comments on the propriety of these proposed definitions. CMS specifically seeks comment on whether its proposed definition of PE company should include publicly traded PE companies. CMS also seeks comment on whether it should consider any other types of private ownership besides PE companies and REITs from which to collect information from SNFs as part of the enrollment process.

With respect to Medicaid, CMS is proposing that states will not be required to mandate providers report the data more than once on the same enrollment application, but CMS is making this provision optional. As it explains, the state could, but would not be required to, mandate the reporting of the 42 C.F.R. § 455.104(e)(1) data more than once on the same application submission. It uses the following example: a particular state's enrollment application may currently require the corporate directors of each enrolling provider (regardless of type) to be disclosed in one section. Its proposal would permit the state either to use this application section alone to collect such data from NFs per proposed 42 C.F.R. § 455.104(e)(1) or to, for example, require NFs to again submit this data on a separate application attachment exclusive to NFs. CMS notes that, consistent with the general deference it has long afforded states regarding the operation of their Medicaid provider enrollment programs, it does not seek to overly restrict the logistical means by which states collect the information in question. If the proposed rule is finalized as currently drafted, state Medicaid programs would have significant flexibility in implementing CMS’ reporting requirement suggestions, which could result in vastly different reporting requirements for PE companies and REITs depending on the state.

Public posting of data

The Affordable Care Act mandates that after final regulations are promulgated, the agency shall make the information reported per the regulations available to the public. Consistent with section 6101(b) of Affordable Care Act, if the rule is finalized, CMS intends to make data reported in accordance with section 1124(c) of the Act publicly available within 1 year after the final rule is published. CMS would consider making this data available on data.cms.gov and notes that further information regarding the format and scope of the published information would be provided via future sub-regulatory guidance.

Certification statements – knowledge standards

In the proposed rule, CMS chose not to implement the knowledge requirement under Section 1124(c)(3)(A) of the Act, which states, in part, that the facility certifies (as a condition of participation and payment under Medicare and Medicaid) that the information the facility reports “is, to the best of the facility's knowledge, accurate and current.” (Emphasis added). CMS describes this as a “lesser” knowledge standard than the current certification standard set forth on the Form CMS-855A application and in 42 C.F.R. § 424.510(d)(3).

The current Form CMS-855A requires the authorized or delegated official to attest to the following: “By my signature, I certify that the information contained herein is true, correct, and complete, and I authorize the Medicare fee-for-service contractor to verify this information. If I become aware that any information in this application is not true, correct, or complete, I agree to notify the Medicare fee-for-service contractor of this fact in accordance with the timeframes established in 42 CFR 424.516(e).” (Emphasis added). CMS explains that this “true, correct, and complete” standard has been part of Medicare provider enrollment applications for many years, and it believes its lack of associated qualifying language (such as “to the best of my knowledge”) has helped ensure that the provider and its signatory fully understand the need to submit accurate data. Thus, instead of implementing a unique knowledge standard under section 1124(c)(3)(A) of the Act for nursing facility information, CMS is proposing to apply the existing “true, correct and complete” standard under Form CMS-885A to the new proposed disclosures. However, CMS may consider implementing the “to the best of the facility’s knowledge” standard for nursing facility information in future rulemaking.CMS notes that these same issues could arise with Medicaid enrollment, since some state Medicaid provider enrollment applications may have knowledge standards different from that identified in section 1124(c)(3)(A) of the Act. For the time being, CMS will make the certification statement language applicable to the entire Form CMS-855A enrollment application and that this certification statement would apply to the information described in proposed 42 C.F.R. § 424.516(g).

What happens next

If finalized, this proposed rule would add yet another layer of complexity onto an already intricate landscape of reporting requirements for Medicare SNFs and Medicaid NFs. Non-compliant providers (even if inadvertent) could face harsh consequences through denial or revocation of enrollment if this data is not properly reported or characterized.

Further, some of the definitions described above (eg, managing employee) differ slightly between Medicare and Medicaid and CMS is not mandating that state Medicaid programs undertake the same reporting requirements as Medicare.

Thus, these reporting requirements would vary between Medicare and Medicaid enrollment rules and even among the various states’ Medicaid reporting requirements. Even with the best intentions, distinguishing amongst various states’ provider enrollment requirements and Medicare would be a considerable task if this proposed rule is finalized. Finally, CMS intends to make this ownership information public; disclosable parties (as proposed to be defined above) will want to consider and understand any potential impact of this requirement.

This proposed rule is part of a broader focus on transparency and regulatory review of private ownership of healthcare facilities. Efforts by the Biden Administration to increase transparency of corporate owners and operators and to examine the role of PE and REITs and other investment ownership in the nursing home sector were introduced over a year ago. States like New York have also proposed additional regulatory approval of health care transactions with private equity investment. See our previous alert on the New York Governor’s proposal to require regulatory review of certain healthcare transactions. Interested parties should carefully monitor the various regulatory developments on this front.

Specifically for this proposed rule, comments are due April 14, 2023. Interested parties should consider providing feedback on important questions such as the definitions of PE and REITs and whether CMS has the statutory authority to impose a higher knowledge standard than those expressly stated under Section 1124(c)(3)(A) of the Act. For more information about these developments, please contact your DLA Piper relationship partner, the authors of this alert, or any member of our healthcare industry group.