Significant Changes to SNF Disclosure Requirements Prompt Need for Regulatory Review

To enhance quality of operations and increase transparency in ownership within skilled nursing facilities (SNFs), the Centers for Medicare & Medicaid Services (CMS) issued its Final Rule for ownership disclosures for Medicare and Medicaid providers and suppliers on Nov. 15, 2023, and Form CMS-855A Attachment 1 on Oct. 1, 2024. The Final Rule and Form CMS-855A Attachment 1 implement significant changes that SNFs should monitor going forward. These changes mandate SNFs to provide detailed information regarding ownership and control, marking a shift in the regulatory landscape. Most notably, changes to SNF disclosure rules, and specifically private equity and real estate investment trust (REIT) disclosures, create a dramatic shift, as described below.

CMS published new guidance on Oct. 24, 2024, for Form SNF 855A Attachment 1, which answers preliminary questions about the added disclosure requirements. However, the guidance still leaves some questions unanswered as SNFs navigate the new Form 855A Attachment 1 requirements.

As of Nov. 5, 2024, CMS updated its initial guidance to allow more time for SNFs in all states to meet these new disclosure requirements. Now, regardless of when the SNF received its notice of revalidation letter (i.e., October, November or December), the revalidation application due date for ALL SNFs is May 1, 2025, irrespective of the state in which they are located.  Furthermore, the May 1, 2025, due date also applies to ALL SNFs that had a pending initial, revalidation or change in ownership application as of Oct. 2024, and were requested to submit the SNF attachment.

Disclosure Requirements for Mortgages and Security Interests

Under the new requirements, SNFs must disclose both individuals and entities that hold a 5 percent or greater mortgage or security interest in the SNF. The disclosure requirements vary depending upon whether the mortgage or security interest is held by an entity or an individual, discussed in turn below.

Where an entity has a 5 percent or greater mortgage or security interest in the SNF, the SNF must report that interest on Form CMS-855A Attachment 1. The disclosure must include the effective date of the interest, the percentage of the interest, and must identify whether the interest is a mortgage or a security interest. This disclosure requirement is not new to the updated CMS-855A Attachment 1.

Interestingly, the new rule changed the required disclosures for individuals with a 5 percent or greater mortgage or security interest in the SNF. The SNF must disclose the social security number, date of birth and tax identification number of such individuals. This disclosure is required regardless of the SNF's business structure. Notably, the SNF must report any changes related to persons with a 5 percent or greater security interest or mortgage in the SNF to CMS within 30 days. This is significant because for changes unrelated to ownership or control, SNFs have 90 days to report the change to CMS. These changes should be reported using the SNF Attachment 1 to the Oct. 1, 2024, version of Form CMS-855A Attachment 1. SNFs need to update only the information that is changing; there is no need to complete the entire SNF Attachment 1.

Disclosure Requirements for Additional Disclosable Parties

The new reporting requirements mandate increased disclosures about additional disclosable parties (ADPs). The definition of ADPs is broad, encompassing any individual or entity that:

• "Exercises operational, financial, or managerial control over the SNF or a part thereof, or provides policies or procedures for any of the SNF's operations, or provides financial or cash management services to the SNF
• 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
• Provides management or administrative services, management or clinical consulting services, or accounting or financial services to the facility."

Once an ADP is identified under the above definition, the SNF will have to report certain information about the ADP. The information required depends on the organizational structure of the ADP:

• If the ADP is a corporation, the SNF must disclose its officers and directors or any person or entity with a 5 percent or greater direct or indirect ownership interest in the ADP.
• If the ADP is a limited liability company (LLC), the SNF must disclose any person or entity that manages the LLC or any person or entity that has a direct or indirect ownership interest in the LLC, regardless of the percentage of that interest.
• If the ADP is a general partnership, the SNF must disclose all persons and entities, all persons and entities with a partnership/ownership interest in the ADP, regardless of the percentage of that interest.
• If the ADP is a limited partnership, the SNF must disclose all persons or entities with a general partnership or ownership interest in the ADP, regardless of the percentage of that interest. The SNF must also disclose all persons and entities with a limited partnership interest in the ADP that is 10 percent or greater.
• If the ADP is a trust, the SNF must disclose all trustees of the trust.

Given the broad definition of ADP, these disclosure requirements can prove laborious for some SNFs that will now have to disclose this additional information.

Disclosure Requirements for SNFs Organized as LLCs

Disclosure requirements for SNFs that are organized as LLCs have also increased. If the SNF is an LLC, all owners must now be disclosed on Form CMS 855A Attachment 1, irrespective of their percentage of ownership. This marks a significant change from previous disclosure requirements under which those owners with less than a 5 percent ownership interest in the LLC did not have to be reported. This includes reporting all members of the governing body of the SNF if it is structured as a partnership or LLC.

The SNF is required to report not only its managing employees but also all ADPs and their organizational structures. This is particularly applicable to SNFs that are LLCs. The disclosure must include a chart identifying the organizational structures of all its owners, including those with less than 5 percent direct or indirect ownership. Some specific information, however, such as social security numbers, dates of birth and tax identification numbers, are only required for those with at least 5 percent ownership.

Disclosure Requirements for Private Equity Companies and REITs

Significantly, the Final Rule specifically requires disclosing whether any owning or managing entity of a SNF, or any disclosed party, is a private equity company or REIT. The definitions for these entities have been refined in the Final Rule, and bear significance because any party fitting the updated definitions must now be disclosed.

Under the Final Rule, a "private equity company" is defined 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). This broad definition aims to encompass a wide range of investment structures, including private equity companies that are indirect owners of SNFs, and necessitates disclosures about even these indirect owners. The significance of this definition is perhaps best illustrated by comparison to the U.S. Securities and Exchange Commission definition of "private equity fund," which does not include indirect ownership.

The Final Rule adopts the definition of a REIT as detailed in Section 856 of the Internal Revenue Code (IRC), with particular emphasis on entities that own real estate used by SNFs and meet the precise criteria established in the IRC. 26 U.S.C. 856 defines a REIT as "a corporation, trust, or association: (1) which is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidence by transferrable shares, or by transferrable certificates of interest; (3) which (but for the provisions of this part) would be taxable as a domestic corporation; (4) which is neither (A) a financial institution referred to in section 582(c)(2), nor (B) an insurance company to which subchapter L applies; (5) the beneficial ownership of which is held by 100 or more persons; (6) subject to the provision of subsection (k), which is not closely held (as determined under subsection (h)); and (7) which meets the requirements of subsection (c)."

Private equity and REIT disclosures are required for organizations identified under Section 5 of Form CMS-855A Attachment 1. When disclosing such ownership and/or managing control information, it is notable that an organization may simultaneously qualify as two types of business, and both must be identified in the disclosure. For example, an ownership or managing control organization may be considered both a consulting firm and private equity company, in which case both must be identified on Form CMS-855A Attachment 1. In other words, it is not possible to avoid disclosing as a private equity company simply by instead disclosing as another type of organization that for which the company satisfies the definition.

Operational, Managerial and Financial Control

The Final Rule and subsequent subregulatory guidance provide clarity on what constitutes operational, managerial and financial control within SNFs with definitions that broaden the scope of each of the three areas of influence with an SNF.

Operational Control

Operational control refers to the oversight and responsibility for the SNF's daily activities and transactions. Critically, operational control is not limited to individuals in supervisory roles. Any degree of responsibility for daily operations, even if not by way of a formal management position, may trigger the disclosure requirements under the Final Rule. Operational control includes, among other examples:

• Medical Records Management. Individuals within SNFs that ensure confidentiality, accuracy and accessibility of patient records.
• Patient Care. Individuals who oversee the delivery of care, including, among other areas, nursing and rehabilitation services.
• Dietary/Food Operations. Individuals who oversee nutritional services and execute dietary plans for patients.

Managerial Control

Managerial control includes a broad scope of authority and oversight within the SNF. Subregulatory guidance states that not every employee responsible for any action within the SNF needs to be reported, but instead, there must be a significant degree of oversight and decision-making involved. Managerial control includes:

• Supervisory Roles. Individuals with direct oversight of operations, staff, clinical work and administrative functions.
• Decision-Making Authority. Individuals in non-supervisory roles that nonetheless possess decision-making authority over aspects of an SNF's operations.

Financial Control

Financial control includes having authority or interest in the financial operations of an SNF. Subregulatory guidance emphasizes a broad interpretation of financial control, going beyond ownership or equity interests. New reporting also requires disclosure of individuals or entities that have any significant financial influence over the SNF. This can include:

• Management of Finances. Individuals with oversight of the SNF's budget, expenditures, and financial planning.
• Approval Authority. Individuals with the ability to approve the expenditure of SNF funds or make significant financial decisions.
• Funding Sources. Individuals or entities that provide significant financial support to an SNF, including investors or banks with lines of credit.

Next Steps

The immediate action step for SNFs is to watch for their Medicare Administrative Contractor (MAC) to send a notice regarding revalidation. All SNFs will receive a notice between October and December 2024. Note, however, regardless of when notice is received, all SNFs now have until May 1, 2025, to complete the revalidation process or to submit Attachment A under a pending application.

The landscape of SNF ownership and control disclosure is evolving. The introduction of new disclosure requirements requires a thorough review of current practices and the development of internal processes for compliance. SNFs are advised to consult with legal counsel to navigate these changes effectively, ensure compliance, and stay alert to potential new developments going forward.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.