HHS proposal aims to ‘shine a light’ on nursing home ownership

The rule, proposed by the Department of Health and Human Services (HHS) on Feb. 15, would require nursing homes to disclose more information to the Centers for Medicare and Medicaid Services (CMS) about their ownership and operations, particularly concerning private equity ownership and any relationships with real estate investment trusts (REITs).

“The policy started from the assumption that there is a problem with REITs and private equity and corporate-owned nursing homes,” said J. Malcolm DeVoy, a partner at law firm Holland & Hart.

Skilled nursing facilities also must report information about individuals or entities that provide administrative services to facilities, according to the proposal. The HHS is accepting comments on the rule until April 14.

Information about any entities that rent or sublease property to nursing homes would have to be disclosed. “[T]he facilities and property owners may be set up as different corporate entities even though the entities work hand-in-hand,” the HHS remarked in a press release.

The rule aims to “shine a light” on nursing homes in an effort to improve the quality of care for seniors, HHS Secretary Xavier Becerra said in the release.

The information gathered would be posted for the public at Medicare’s Care Compare website, an online tool that lists providers, including nursing homes, and rates them for quality of care.

The data collected would be analyzed by the CMS to help discern any relationship between corporate ownership and poorer outcomes for patients, the administration said.

Future antitrust actions?

The rule might show any trends toward increasing corporate ownership, which could reduce competition, the HHS said. The largest 10 nursing home chains own more than 10 percent of nursing homes, which concerns the agency.

This indicates the Biden administration might “have an eye toward future antitrust enforcement” in the skilled nursing facility market, DeVoy said.

Nursing homes already are required to disclose ownership of more than 5 percent. Under the proposed rule, the CMS is “trying to dig down a little deeper to see who these corporations are,” said Susan Fradenburg, a partner at law firm Fox Rothschild.

The CMS is using a “dragnet approach,” through which it is proposing to collect a lot of data it can “comb through and look for patterns” that link corporate ownership and underperforming entities, for example, DeVoy said.

Broad definitions

The proposed rule itself is “fairly minimal,” but the definitions included, such as a person or entity involved with operational, sublease, or administrative services, are broad and many entities would fall under them, DeVoy said.

The definition of private equity is also broad and doesn’t match the traditional, more narrow definition used by the Securities and Exchange Commission, DeVoy said.

The proposed rule “would capture a lot of entities we usually don’t think of as equity,” he said.

Similarly, REITs are “a creature of tax law,” but the definition is much broader under the proposed CMS rule, DeVoy said.

Early compliance efforts

The proposal is too vague to fully prepare for now, but entities that don’t like what they see should exercise their right to comment, DeVoy said.

Facilities also can create a roadmap for how they will gather the information about any REITs or private equity involvement in their operation. It’s important to tell any relevant contractors or management company you will be disclosing information to the CMS and it will become publicly available, DeVoy said.

“If they don’t know it’s going to be disclosed, they may be very upset about it” when they find out, he added.

It isn’t a good idea for facilities to gather the disclosures until the rule is finalized and deadlines provided because personnel and contractors might turn over by then, Fradenburg said.

This is especially true if the CMS decides to require disclosure of the data when facilities “revalidate” with the agency, a type of application renewal that must be done every five years, she said.

Skilled nursing facilities would have to disclose the required information accurately and completely. “If not done, that could cause you to lose your funding” from Medicaid and Medicare, Fradenburg warned.