U.S. CMS Finalizes Rule Requiring Nursing Facility Disclosure of Private Equity and REITs Ownership

On November 17, 2023, the U.S. Centers for Medicare & Medicaid Services (CMS or the Agency) published a final rule (the Final Rule) requiring the disclosure of certain ownership, managerial, and other information from Medicare skilled nursing facilities (SNFs) and Medicaid nursing facilities (collectively, Nursing Facilities) upon enrollment, renewal, reactivation, revalidation, change of ownership, and change of enrollment information. Effective January 16, 2024, the Final Rule implements portions of Section 6101 of the Affordable Care Act (ACA) and aligns with the Biden administration’s efforts to address concerns about the standard of care and quality of operations of Nursing Facilities. Ownership data reported by Nursing Facilities will be made publicly available within one year of submission. CMS stated its position that these new reporting requirements for Nursing Facilities are a condition of both participation and payment.

The final rule hews closely to the proposed rule, which was issued on February 15, 2023, and which we addressed here.

Ownership Reporting Requirements for Nursing Facilities

As finalized, the rule requires Nursing Facilities to report the following information:

1. each member of the governing body of the facility, including the name, title, and period of service for each such member
2. 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
3. “additional disclosable parties” such as people or entities that
   • exercise financial control over the Nursing Facilities;
   • lease or sublease real property to the Nursing Facilities;
   • own a whole or part interest equal to or exceeding 5% of the total value of such real property; or
   • provide administrative services, clinical consulting services, accounting or financial services, policies or procedures for any of the operations, or cash management services
4. the organizational structure of disclosable parties as well as a description of the relationship of each such additional disclosable party to the facility and to one another

   CMS finalized the definition of “organizational structure” to include

   • for a corporation, shareholders with a 5% or greater ownership interest
   • for a limited liability company, all members (regardless of the ownership percentage) and managers
   • for a partnership, all general partners and all limited partners with a 10% or greater ownership interest

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

CMS also finalized its proposal to require all owning and managing entities of Nursing Facilities to disclose whether they are a private equity company or a REIT. While CMS finalized the rest of its proposed definitions without modification, such as the definitions of “organizational structure,” “additional disclosable parties,” and “managing employee,” the finalized definitions for “private equity company” and “REIT” have been revised in the following manner.

• Private Equity Company: CMS finalized the definition of “private equity company” 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” (emphasis added). The proposed rule’s definition of “private equity company” did not contain the “direct or indirect” language.
  • This change significantly expands the scope, picking up private equity companies that are only indirect owners of Nursing Facilities.
• REIT: CMS initially proposed to define “REIT” 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 operates.” The Final 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 likely significantly reduces the scope of the entities subject to the disclosure requirements. The proposed 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.

Because the level of ownership of Nursing Facilities required to be disclosed is a factual question, investors and stakeholders should carefully review the disclosure requirements and assess their applicability.

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 interests. 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 provider fines and/or 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 whistleblowers to seek to enforce the Final Rule through the federal False Claims Act.