Nursing Home Industry Group Recommends Policy Change Aimed at Ownership Transparency and Accountability

A group of individuals with ties to the nursing home industry recently published a commentary in the journal Health Affairs and opined that complex ownership structures used by many nursing home operators make it difficult to assess nursing home finances and performance. The article, entitled “These Administrative Actions Would Improve Nursing Home Ownership And Financial Transparency In The Post COVID-19 Period,” notes that complex nursing home ownership structures make it difficult for policymakers to properly oversee how nursing homes spend Medicare and Medicaid payments.

The authors highlight the increase in complex nursing home ownership arrangements.  Additionally, the authors note that many nursing facilities separate their operating companies from their property companies in an effort to “shield parent companies from liability and reduce regulatory oversight.”  The commentary also accuses corporations of hiding profits in related-party transactions, such as management services, nursing and therapy services, and lease agreements and loans.

The commentary acknowledges prior government efforts to increase ownership transparency as a result of legislation that was incorporated in the Affordable Care Act (ACA) in Section 6101, but notes that CMS has not established a mechanism to audit the accuracy and completeness of the information reported by nursing homes.  The commentary also accuses the federal government of failing to review ownership changes, using Skyline Healthcare as the example whereby the company collapsed and was allowed to purchase and operate more than 100 facilities in 11 states.  The authors note that the federal government does not have specific quality and financial standards for approving changes in ownership.

The commentary also notes that CMS lacks oversight of nursing home chains as a whole and instead, focuses on individual facilities.  The authors note that while the “Department of Health and Human Services (HHS) Office of Inspector General uses corporate integrity agreements to address fraud and worthless services provided by nursing home chains…. owners are rarely removed from participating in Medicare and Medicaid.”

The group also criticized Medicare cost report data and noted that it is seldom audited and penalties and are not imposed for providers that fail to report.

The recommendations provided by the group include the following:

• Creation of an interagency Early Detection Task Force to identify and monitor nursing homes that need more focused attention. The task force would analyze Provider Enrollment, Chain and Ownership System (PECOS) data in addition to information about staffing and medical director administrative time from the Payroll-Based Journal (PBJ) database, data from the survey and certification inspection program, and spending patterns from Medicare cost reports.

• CMS should augment PECOS reporting to include all parent, management, and property companies, and other related-party entities and ensure enforcement of Section 6101 of the ACA, including that companies provide a complete organizational chart. Failure to provide such complete and accurate data should result in specified financial penalties until the information is provided.

• CMS’s Care Compare website should present information that is searchable not only by individual facilities but also by chain and common ownership, and an annual compendium should be published on the quality of care in nursing home chains.

• CMS should promulgate federal regulations specifying minimum criteria for the purchase (or change of ownership) or management of any nursing home. The criteria should prevent individual or corporate owners from purchasing, operating, or managing additional facilities if they have a history of owning or operating other facilities with chronically low staffing and poor-quality care in any state. Companies with corporate settlements for fraud or for “worthless services” should be barred from purchasing new nursing homes for five years.

• CMS should establish a prior approval process for changes in ownership or management.

• Cost report requirements should be amended to require each nursing home to provide annual consolidated financial reports that include data from operating entities (license holders) and all organizations and entities related by common ownership or control.

• A combined financial and oversight system should be established by CMS to conduct annual joint Medicare and Medicaid audits.

The authors note that President Joe Biden has already proposed measures that would require audits of nursing home cost reports and ownership data. The full text of the commentary is available here.

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The Arnall Golden Gregory Change of Ownership (CHOW) team leads all regulatory aspects of healthcare transactions for investors, operators, managers, capital partners, and developers of every size in all 50 states.  The team streamlines the regulatory process so that clients close their transactions on or ahead of schedule. Whether obtaining licensure and Medicare/Medicaid approvals, structuring transactions to expedite closing, anticipating issues to minimize cash flow disruption, negotiating regulatory terms in deal documents, creatively resolving diligence issues, or advising on CHOW guidelines and compliance, the team provides extensive experience and practical solutions. To date, the CHOW team has served as primary regulatory counsel in transactions valued at more than $25 billion.​