The Biden Administration has expressed a deep concern about nursing home owners and related parties excessively profiting off of the residents they serve to the detriment of quality care. To address this concern, President Biden has asked Congress to implement laws that will empower federal agencies such as the Centers for Medicare and Medicaid Services (CMS) to increase accountability for facility ownership and expand enforcement authority at the ownership level. In addition, the federal agencies that regulate and oversee nursing homes (and some states[1]) have or plan to take action to ensure more transparency, compliance and enforcement regarding nursing facility ownership. Indeed, the U.S. Department of Health and Human Services’ Office of Inspector General (OIG) announced last week that it will undertake an audit of skilled nursing facility Medicare payments to related parties. Facility owners and operators should heed these developments, which as discussed below, focus on several fronts, and ensure that their relationships and operations are in accord with existing federal and state related party laws and regulations.
The Biden Administration’s Actions to Increase Transparency, Oversight and Enforcement
Earlier this year, President Biden asked Congress to give CMS new authority to require minimum corporate competency to participate in Medicare and Medicaid, with the aim of enabling CMS to prohibit an individual or entity from obtaining a Medicare or Medicaid provider agreement for a nursing home (new or existing) based on the Medicare compliance history of their other owned or operated facilities (previous or existing). President Biden has also asked Congress to expand CMS enforcement authority at the ownership level, which would enable CMS to impose enforcement actions on the owners and operators of facilities even after they close a facility, as well as on owners or operators that provide persistent substandard and noncompliant care in some facilities, while still owning others.
The Administration has also proposed that Congress raise per-instance financial penalties levied on poor-performing facilities, from $21,000 to $1,000,000. This enhanced enforcement effort follows action CMS took last year to rescind a Trump Administration change that had lowered penalty amounts on substandard nursing homes by imposing only a one-time fine, instead of prior and more weighty per-day fines that penalize nursing homes for each day they are out of compliance with federal requirements of participation.
Targeting Private Equity
The Biden plan also focuses on the recent upsurge in private equity ownership of nursing homes. Citing research that indicates such ownership increasingly points to worse outcomes for residents and increased costs to federal health care programs (e.g., Medicare and Medicaid), federal agencies have announced their intention to examine the role of private equity, real estate investment trusts (REITs) and other investment ownership in the nursing home sector.
Moreover, the Department of Justice (DOJ) and the attorneys representing whistleblower plaintiffs in False Claims Act (FCA) cases have also recently targeted private equity ownership of nursing homes, a perceived deep-pocket in such cases. DOJ and plaintiffs attorneys have adopted the position that private equity firms are responsible for causing the submission of false claims made by their portfolio companies, e.g., nursing homes. In particular, DOJ has stated that compliance issues raised during pre-sale diligence reviews are enough to hold private equity firms liable under the FCA, if the private equity firm fails to stop such conduct. DOJ is not required to establish that the private equity firm file, or encourage the filing, of false claims in order to establish a violation of the FCA.
OIG to Review SNF Medicare Payments to Related Parties
On August 17, 2022, the U.S. Department of Health and Human Services’ Office of Inspector General (OIG) announced it was adding to its current Work Plan[2] an audit of “Skilled Nursing Facilities’ Medicare Payments to Related Parties.” Under federal regulation,[3] the cost of services, facilities, and supplies furnished to a nursing home by an organization related to it by common ownership[4] or control[5] may be included in the nursing home’s allowable costs. However, those costs must not exceed the price of comparable services, facilities, and supplies that could be purchased elsewhere, i.e., the market price. The purpose of this regulation is to remove any profit based on these transactions among related parties.
In addition to determining whether nursing homes are properly reporting their related-party costs, OIG’s audit will also focus on whether nursing homes’ allocation of Medicare funds have any impact on resident care, particularly whether overhead costs might have increased while allocations for patient care decreased, potentially reducing care.
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As noted above, as governmental scrutiny of related party transactions intensifies, nursing home owners and operators would be wise to ensure they are aware of the governing laws and regulations and examine their relationships and transactions to ensure compliance.
FOOTNOTES
[1] New York, for example, enacted statutes in 2021 requiring nursing homes to make certain disclosures regarding (i) proposed changes in ownership; and (ii) common or familial ownership of any entity providing services to the nursing home or its operator.
[2] The OIG’s Work Plan is updated monthly and identifies high-risk areas for which OIG plans to undertake audits and evaluations. For more information see: https://oig.hhs.gov/reports-and-publications/workplan/index.asp.
[3] See 42 C.F.R. §413.17.
[4] “Common ownership” exists if an individual or individuals possess significant ownership or equity in the provider and the institution or organization serving the provider.
[5] “Control” exists if an individual or an organization has the power, directly or indirectly, significantly to influence or direct the actions or policies of an organization or institution.