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Introduction

When it comes to new disclosure laws, the government is not stopping at the Corporate Transparency Act (CTA). Recently, the Center for Medicare & Medicaid Services (CMS) released new regulations for REIT’s and private equity firms who own, control, or manage nursing home facilities.

These new regulations go a step further than the CTA. This is because when these entities report their information, it will become available to the public one year after they submit it. Not only will this add an additional burden for nursing home investors, but it will also compromise these investors privacy.

However, the CMS listed several reasons for issuing these regulations that target REIT’s and private equity firms. Some of them include the staffing conditions, quality of care, uptick in Medicare costs, and the increasing sales of nursing homes by these entities.

The CMS argues that this increase in sales has led to a decrease in ownership transparency. In turn, these ownership changes have been a concern for the patient’s family members. This is because they are unsure as to who owns the facility and who provides care to their loved ones. As well, as the government fights Medicare fraud, perhaps the public disclosure will give the bad boys pause.

What data must be reported?

With all of these concerns in mind, the CMS now requires any nursing facilities enrolled in Medicare and Medicaid to report even more data relating to the ownership and management of each nursing facility. This additional data includes the following:

 

 

  1. The name, title, and period of service of each governing body’s member.

 

  1. The name, title, and period of service of each person (or entity) who is an officer, director, member, partner, trustee, or managing employee of the facility.

 

  1. The name of each person or entity who is an “additional disclosable party” of the facility.

 

  1. The organizational structure of each “additional disclosable party” of the facility.

 

  1. A relationship description of each “additional disclosable party” to both the facility; and to one another.

 

 

As you can see, these new regulations will require individuals and “additional disclosable parties” to report detailed information.

Additional Disclosable Parties

What is an “additional disclosable party?” This definition has a very broad reach, as it encompasses many different people and entities. These “additional disclosable parties” are any person or entity that:

 

 

  • Exercises operational, financial, or managerial control over the facility (or a part thereof), or provides policies or procedures for any of the facility’s operations, or provides financial or cash management services to the facility,
  • Leases or subleases real property to the facility, or owns a whole or part interest equal to or exceeding 5% of the total value of such real property, or
  • Provides management or administrative services, management or clinical consulting services, or accounting and financial services to the facility.

     

    This definition also applies to real estate investing companies who either lease the property or have any management control over the nursing homes. Because of this, every one of these “additional disclosable parties” must have an up-to-date organizational chart on hand to provide to CMS.

    As discussed earlier, these charts will also become publicly available one year after being reported. And if any of the information changes on these organizational charts, the “additional disclosable parties” will need to resubmit a new organizational chart as soon as possible. This information will also be available to the public after one year.

    Companies that are Additional Disclosable Parties

    If a company is an “additional disclosable party,” what organizational structures must they report? This depends on the type of company.

     

     

    • If the entity is a corporation, they must report its officers, directors, and shareholders who own 5% or more of the company.
    • If the entity is an LLC, it is required to report all members and managers, as well as the ownership percentages of each.
    • If the entity is an LP, it must report all general partners, and any limited partners who own 10% of more of the LP.
    • If the entity is a GP, it must report all general partners.
    • For trusts, they must report the trustee of that trust.
    • Individuals must report their contact information.
    • As for any other person or entity not listed above, they must report any “information that the secretary deems appropriate.”

       

      Effects of these new Regulations

      These new CMS regulations will certainly place an additional hardship on investors who invest in these nursing homes. And this may cause a chilling effect on these investments. There are a lot of sensible investors who do not want their personal information disclosed to the public. This is especially true if they run the risk of being directly contacted by angry family members. Because all their personal information will be available to the public, this may reduce investment into nursing homes altogether.

      This begs another question: Will the government stop here? Or will they require more people to disclose their private information to the public? Only time will tell.

       

       

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