On November 15, 2023, the Centers for Medicare & Medicaid Services (CMS) issued a Final Rule that will require skilled nursing facilities (SNFs) to disclose an expanded array of ownership, managerial, and control information required for participation in Medicare and Medicaid. In addition to the expanded disclosure obligations, the Final Rule also defines the types of ownership interests held by private equity companies (PECs) and real estate investment trusts (REITs) that must be flagged. These new definitions apply to all Medicare and Medicaid institutional providers and suppliers.

New Reporting Requirements

As part of the enrollment, revalidation, and change of ownership process, CMS is requiring SNFs to disclose certain management and control interests including: (1) the name, title, and period of service of each member of the SNF’s governing body, or any person who is an officer, director, member, partner, trustee, or managing employee of the SNF; and (2) each person or entity who is an “additional disclosable party” of the facility.

An additional disclosable party is broadly defined to include a person or entity that:

• Exercises operational, financial, or managerial control over the SNF or a part thereof, provides policies or procedures for any of the SNF’s operations, or provides financial or cash management services to the SNF
• Leases or subleases real property to the SNF or owns 5% or more of the aggregate value of such real property
• Provides management or administrative services, management or clinical consulting services, or accounting or financial services to the SNF

For each additional disclosable party, the SNF will be required to report: (1) the organizational structure (i.e., officers, directors, and shareholders with a 5% or more ownership interest) and (2) a description of the relationship of each such additional disclosable party to the SNF and to one another.

CMS Defines PEC and REIT

The Final Rule also defines — for the first time — what it means to be a PEC and a REIT. CMS previously revised the Medicare enrollment application (Form CMS-855A) such that all providers and suppliers (including SNFs) must disclose whether a particular owning or managing entity reported is a PEC or REIT, but the application did not define those terms.

In the Final Rule, CMS chose to define a PEC 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.” While commentors urged CMS to adopt a narrower definition — such as that used by the Securities and Exchange Commission to classify a “private equity fund” — CMS rejected that request and opted for a construction that captures a wider net of organizations so that it can “assess the extent of private equity involvement amount in skilled nursing homes.”

CMS’s definition of a REIT is far less controversial; the agency adopted the existing construction of a REIT included in the Internal Revenue Code at 26 US Code 856.

Data to Be Publicly Disclosed

The information collected under the Final Rule is expected to be publicly reported within one year. CMS will issue additional guidance on how collected data will be posted and further explain the new requirements and provide examples of the types of data that must be disclosed.

CMS already makes ownership information available through the Nursing Home Compare website, and its data.cms.gov website publicly posts information on SNFs’ officers, directors, managing employees, and direct and indirect owners, so CMS may use the same medium to publicly report the additional information required by the Final Rule. For Medicaid nursing facilities, the data will be reported as required by the corresponding state Medicaid program.

Timing for Implementation

The new rules become effective January 16, 2024, provided that for Medicare SNFs, the CMS-855A is revised to collect the newly required data, and for Medicaid nursing facilities, that the applicable state Medicaid agency has established a means to collect the data.

Why the Final Rule Matters

CMS enrollment and ownership disclosure is a trap for the unwary. Even before the Final Rule, ensuring accurate disclosure of information related to SNF owners or other managing or controlling parties on the CMS-855 Enrollment Application was complex. The Final Rule significantly increases the level of difficulty for SNF providers to capture ownership and information on additional disclosable parties. During transactions, buyers will need to conduct diligence to ensure that the target’s prior enrollment information was accurate and complies with the Final Rule, and buyers will need to ensure that after closing, the SNF’s enrollment application is appropriately updated.

CMS continues to single out private equity. The Final Rule is the latest example of numerous federal and state initiatives that create additional burdens for or cast a spotlight on healthcare entities owned or backed by private equity sponsors. We fully anticipate that CMS will use information disclosed about a Medicare provider’s ties to PECs or REITs so that it can conduct targeted audits of PEC or REIT-backed providers. This additional scrutiny may lead to more investigations of those providers should CMS conclude that such data may indicate potential abusive transactions or violations of federal healthcare laws.

CMS is scrutinizing relationships between SNFs and related parties. SNFs often enter into contracts with or receive services from individuals or companies that have identical or similar ownership to the SNF. The Final Rule will require detailed information about those related-party contractual or financial relationships (because they are additional disclosable parties). CMS or other agencies can use the disclosed information for a multitude of purposes, including examining SNFs Medicare or Medicaid Cost Reports and the SNF’s compliance with federal requirements around related party transactions; evaluating whether any of the contractual or financial relationships raise possible concerns under federal healthcare fraud and abuse laws (such as the Stark Law or Anti-Kickback Statute); and determining whether the SNF should be subject to enhanced scrutiny during the enrollment, revalidation, or change-of-ownership process.

Are you a PEC? Given CMS’s extremely vague and broad construction of what constitutes a PEC, individuals or entities that do not typically view themselves as private equity entities may still fall within the Final Rule’s ambit. Any investors and the SNFs in which they invest should carefully consider the Final Rule’s definition and relevant subregulatory guidance to ensure that they appropriately report ownership information to CMS.

SNFs today, other providers tomorrow. The Final Rule and related commentary makes clear that CMS’s concerns around PEC and REIT ownership in SNFs extends to other provider types. Although the additional disclosure requirement is specific to SNFs and is a result of Congress’s passage of the Affordable Care Act, it is likely that Congress, CMS, and/or state regulators will continue to find ways to impose disclosure obligations on hospitals, hospice and home health companies, and other institutional providers.

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