Civil Law

This month, the Centers for Medicare & Medicaid Services (CMS) has begun an off-cycle revalidation process directed at all Medicare-participating skilled nursing facilities (SNFs). The process is designed to implement provisions of the Affordable Care Act (ACA) that require facilities to detail their ownership structures and key managerial personnel.

CMS is seeking information about ownership of SNFs by private equity firms and real estate investment trusts (REITs). In September, CMS revised Form 855A to require a SNF to report those types of ownership interests. The agency has also released a guidance document detailing the requirements and how a SNF should go about filling out the form.

CMS indicated that it would seek this off-cycle revalidation process as part of its effort to implement the disclosure requirements of Section 1124(c) of the Social Security Act (42 U.S.C. § 1320a-3(c)) in a Final Rule issued in November 2023 (88 Fed. Reg. 80,141).

The new Form 855A includes a separate attachment specifically designed to capture not only this information but also the information that was previously entered into Sections 5 and 6 of the old Form 855A. Starting on October 1 and going forward, SNFs will not have to fill out Sections 5 and 6 and will instead only have to fill out the SNF-specific attachment. CMS has provided guidance to SNFs on how to fill out this new section.

In this post, we will go over the new information that is being sought, what organizations have to file the information and what the new forms mean for organizations that have Form 855As currently pending.

What new information is sought?

Under the statute, much of the governing structure of an SNF is already reportable to CMS on the Form 855A even under the older form. However, there are new aspects to this information now expected by CMS.

All governing body members

While all providers, including SNFs, have had to report their board of directors if owned by a corporation, this is different from previous years in that a SNF must now report all members of its governing body regardless of the business type. So, a partnership or LLC must report all of the governing members regardless of whether the SNF is considered for-profit or non-profit and regardless of the title of the governing body.

All owners of an LLC

If a SNF is an LLC, then all individual and organizational owners of the LLC must be reported regardless of their percentage of ownership interest. This differs from the previous requirement that only needed owners to be listed if their ownership interest exceeded five percent.

All trustees of a SNF

If a SNF is owned by a trust, then all of the trustees of that trust must be reported to CMS. However, a trust’s beneficiaries need not be reported unless they also qualify under another category.

All “Additional Disclosable Parties”

This category of reportable persons is the one that has generated the most interest and concern since its inclusion in the statute by the ACA. The statute broadly defines “Additional Disclosable Party” (ADP) to include a person or entity:

• who “exercises operational, financial, or managerial control” over the SNF in whole or in part, or “provides policies or procedures for any of the operations of the facility or provides financial or cash management services” to the SNF,

• who leases or subleases real property to the SNF, or owns a whole or part interest equal to or exceeding 5 percent of the total value of such real property, or

• “provides management or administrative services, management or clinical consulting services, or accounting or financial services to the facility.”

Persons or entities within the ADP

This category of reportable persons delves even deeper into the ADP and seeks information about the governing or controlling members of the ADP. Who that includes differs based on the corporate structure of the ADP.

• If the ADP is a corporation – it includes the officers and directors of the ADP or any person or entity with a five percent or greater direct or indirect ownership interest in the ADP.
• If the ADP is an LLC – it includes any person or entity that manages the LLC or has any direct or indirect ownership interest in the LLC.
• If the ADP is a general partnership – it includes all persons or entities with any partnership or ownership interest in the ADP.
• If the ADP is a limited partnership – it includes anyone with a general partnership interest or ownership as well as any persons or entities with a limited partnership of at least 10 percent.
• If the ADP is a trust – it includes the trustees of the trust but not the beneficiaries.

In its final rule and recent guidance, CMS details many examples and categories of individuals and entities that qualify, but the agency continually urges SNFs to err on the side of reporting if the corporate structure does not fit comfortably within the set examples or definitions.

Who has to file?

CMS is beginning an off-cycle revalidation, so eventually by the end of December 2024, every Medicare-participating SNF will have to fill out the new SNF Attachment to Form 855A. The revalidation notices will come through the Medicare Administrative Contractors (MACs). One third of SNFs will receive notices in October; the remaining two-thirds will receive notices in November and December.

However, there are a number of other instances that will require SNFs to fill out the attachment before they are called upon to do so as part of the revalidation process. Any SNF submitting an initial enrollment, scheduled revalidation, reactivation or change of ownership under 42 C.F.R. § 489.18 must fill out the new Form 855A. Additionally, any SNF making a change of information should use the new Form, but need not fill it out in full, only insofar as needed to make the change of information notice.

Finally, any SNF who filed a Form 855A prior to October 1 using the old form and whose application was pending with the MAC as of October 1, 2024, will be contacted by the MAC to complete the new Form 855A. The MAC should reach out to the SNF to obtain the new Form 855A and any SNF that submits a completed new form 855A will be excused from the off-cycle revalidation process.

What does this mean?

The Biden administration has been indicating for many months now that they are targeting private equity ownership in the SNF space, and this is the next step in that effort. As of now, there is no regulation or enforcement that prevents private equity ownership of a SNF, but with this new information, CMS will have much more data on the who and where in terms of the ownership structures for SNFs.

What the agency will do with that information is not quite clear yet. But given the animus against private equity ownership expressed at recent webinars and public statements by the Department of Justice and efforts that have been stirring in Congress to write legislation to restrict private equity ownership in Medicare-participating SNFs, it is possible that this information could lead to a larger regulatory enforcement database.

The new reporting requirements also raise the bar in terms of ongoing tracking and reporting of all department level, managing employees, and owners of the facility.  Because compliance with these reporting requirements is a condition of participation and a condition of payment, failure to timely update changes in personnel and ownership may lead to survey deficiencies and potentially denial of payment.  CMS’ longstanding position is that if a facility wishes to receive Medicare and Medicaid payment, it must comply with all the requirements for doing so, including these onerous disclosure obligations.

Reed Smith will continue to follow developments with regard to the regulation of SNFs by CMS. If you have any questions about this topic please do not hesitate to reach out to the Health Care Lawyers at Reed Smith.

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