Health Care Alert
June 2010
Authors:
Health Care Reform Client Alert Series
Ruth E. Granfors
ruth.granfors@klgates.com
717.231.5835
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
On March 23, 2010, President Obama signed into law the comprehensive health care
overhaul known as the Patient Protection and Affordable Care Act ("PPACA"), Pub.
Law 111-148. 1 This wide-ranging law has far-reaching implications on the
financing and delivery of health care in the United States. In addition, it contains
substantial changes to federal health care program requirements, including health
care fraud and abuse provisions. The following K&L Gates LLP client alert is one in
a series of alerts directed to the health care provider and supplier community that are
focused on particular implications of PPACA as to the payment and regulation of
health care providers and suppliers.
New Mandated Nursing Facility Reporting of
“Additional Disclosable Parties”
Under PPACA, Congress has sought to broadly expand transparency regarding
health care providers and suppliers in a continuing effort to insure quality and fight
health care fraud and abuse. One large focus of PPACA in this regard is keeping
identified bad actors out of federal health care programs. In furtherance of that goal,
PPACA implements new and expanded reporting on nursing and skilled nursing
facilities related to persons or entities that own, manage, or otherwise impact the
quality of care or fiscal integrity of such facilities.
Background
Medicare and Medicaid providers, including nursing and skilled nursing facilities,
are required under the integrity provisions of the Social Security Act to disclose
persons and entities that have a direct or indirect ownership or control interest in the
provider entity, and to provide notice when a change in ownership or control
occurs. 2 Since the passage of OBRA-87, nursing homes also must comply with the
notification of change in ownership or control requirements as a condition of
Medicare and Medicaid certification. 3
In recent years, private equity control and complex corporate ownership of nursing
facilities has concerned Congress and the Department of Health and Human Services
(“HHS”). The Office of Inspector General (“OIG”) for HHS stated in its 2009 “Top
Management and Performance Challenges Report” to the Secretary of HHS:
1
On March 30, 2010, President Obama signed the reconciliation bill (H.R. 4872, the “Health Care
and Education Reconciliation Act of 2010” or “Reconciliation Bill”), which amended PPACA.
2
42 U.S.C. § 1320a-3; 42 C.F.R. §§ 420.200 et seq. and 455.100 et seq.
3
42 U.S.C. §§ 1395i-3(d)(1)(B), 1396r(d)(1)(B); 42 C.F.R. § 483.75(p).
Health Care Alert
Complex ownership arrangements that
include multiple layers of entities present a
particular challenge for holding nursing
home owners accountable for substandard
care. OIG investigations have found
instances in which nursing home owners
have used such arrangements to avoid
accountability for failing to provide
necessary and required care. Through these
complex corporate structures, owners divert
funds from resident care. While
investigating nursing homes for substandard
care, OIG found 1 facility with as many as
17 limited liability companies that played a
role in the facility’s operations and
ownership.
The OIG’s concerns appear to have led to the
heightened disclosure provisions for nursing
facilities enacted in PPACA.
Definition of Additional Disclosable
Parties
Section 6101 of PPACA amends the integrity
provisions of the Social Security Act to require
skilled nursing facilities as defined in Medicare law
and nursing facilities as defined in Medicaid law to
disclose more information than is currently required
of any other provider type.
The law requires nursing facilities to continue to
comply with current ownership and control
disclosure requirements and also to report:
1. each member of the facility’s governing body,
by name, title and period of service;
2. each person or entity who is an officer, director,
member, partner, trustee or managing employee
of the facility, by name, title and period of
service to the facility; and
3. each person or entity who is “an additional
disclosable party of the facility.”
Under PPACA, “additional disclosable parties” are
defined to include any person or entity who:
1. exercises operational control over the facility or
any part of the facility;
2. exercises financial control over the facility or
any part of the facility; or
3. exercises managerial control over the facility or
any part of the facility; or
4. provides policies or procedures for any of the
operations of the facility; or
5. provides financial or cash management services
to the facility; or
6. leases or subleases real property to the facility,
or owns a whole or part interest equal to 5
percent of the total value of such real property;
or
7. provides management or administrative
services, management or clinical consulting
services, or accounting or financial services to
the facility.
While persons and entities who exercise
operational, financial or managerial control over the
facility may already be covered under existing law,
the new law appears to cover persons and entities
that control only a particular service of the facility,
such as dietary services or pharmacy management.
Since the requirement includes “a part” of the
facility, it may require not only disclosure of senior
management, but also outside vendors or internal
personnel who manage various “parts” of the
facility. What is unclear to date is exactly what “a
part” of the facility means.
Also, “additional disclosable parties” includes any
person or entity that “provides policies or
procedures for any of the operations of the facility.”
Thus, nursing facilities will need to disclose persons
in charge of policy and procedure development.
The statute does not define what is meant by
persons or entities that “provide policies and
procedure for any of the operations.” Therefore, the
most conservative approach may be to look at
policies and procedures of the various facility
operations and determine who had a role in
development of each area. Facilities may be
required to retain information on membership of
internal committees who draft policies and
procedures, in the event that this information is
requested as part of the reporting responsibility. In
addition, facilities may be required to provide such
information as to any consultant or outside vendor
who assists with development or provides the
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Health Care Alert
facility with policies and procedures. Furthermore,
if a facility is part of a chain organization that
develops policies and procedures at a central office,
it will likely need to supply information on who was
responsible at the corporate level.
“Additional disclosable party” also means any
person or entity that provides financial or cash
management services to the facility. This
requirement goes beyond existing law that requires
disclosure of those persons or entities with financial
control and would appear to include internal and
external parties that assist with management of
accounts payable, accounts receivable or cash flow.
This disclosure appears to be intended to uncover
who might be capable of diversion of cash outside
the facility.
With respect to a facility’s bricks and mortar, the
new law requires disclosure of any person or entity
that leases or subleases property to a facility. In
addition, the law calls for disclosure of any person
or entity who owns a “whole or part interest in 5
percent or more of the total value of the real
property.” This definition may include a property
management company acting as landlord, a real
estate holding company that owns the real estate for
the facility or a real estate investment trust, as well
as any individuals with landlord or ownership roles.
Lastly, “additional disclosable parties” includes any
person or entity that provides:
1. management or administrative services;
2. management or clinical consulting services; or
3. accounting or financial services to the facility.
This last category appears to be the catchall
provision to cover any other person or entity inside
or outside the facility’s organizational structure that
has responsibility for running the central functions
of the facility. However, due to the tremendously
broad scope of this section, it may require even
disclosure of such entities as a facility’s external
auditors.
Scope of Disclosure
For each disclosable party, the facility must provide
the “organizational structure” and the relationship of
the party to the facility as well as the relationship, if
any, of the various disclosable parties to each other.
The obligation to report the “organizational
structure” of third parties that fall within any of the
categories of disclosable parties outlined above will
require the facility to report (1) how such entity is
legally organized, i.e., corporation, general
partnership, limited liability company, limited
partnership, or trust, and (2) the owners and
managers of that entity. The law specifies the
information that needs to be disclosed for each type
of organizational entity. For example, if the entity
is a corporation, the facility would be required to
disclose the officers and directors of the corporation
and the shareholders with an interest of 5 percent or
more in the corporation.
Significantly, for limited liability companies only,
the law requires these entities to identify both
members and managers and their applicable
ownership interest. Under existing law and for all
other organizational structures under Section 6101
only the names of five percent or greater owners,
but not the actual ownership interest must be
disclosed. As to individuals the facility is required
to report the individual’s contact information, which
is generally not required under existing law.
Particularly as to additional disclosable parties that
are identified for an historical role, e.g. in drafting
the facility’s policy, it is not clear to what extent a
facility will be obligated to maintain current contact
information for such individuals who may no longer
be associated with the facility.
Effective Date of New Requirements
As of the effective date of PPACA, March 23, 2010,
facilities are now currently required to make this
information available, upon request, to HHS, the
OIG, the state in which the facility is licensed, or
the long-term care ombudsman for that state. The
law does provide that during this period to the
extent the information is already available in
another form, e.g. on an IRS Form 990 filed by a tax
exempt provider or a SEC filing prepared by a
publicly traded provider, the facility may provide
the information in that form.
The Secretary of HHS is required to promulgate
regulations no later than March 23, 2012, for
reporting the information in a standardized format
that is required to be available under the
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Health Care Alert
amendment. The final regulations are to be effective
90 days after publication. Ultimately, HHS is
required via such rulemaking to establish how the
information will be made available to the public no
later than one year after publication of the final
regulations.
Potential Penalties
The law directs that in promulgating regulations
associated with these disclosure requirements, HHS
shall “ensure that the facility certifies, as a condition
of participation and payment under the program
under title XVIII or XIX, that the information
reported by the facility in accordance with such final
regulations is, to the best of the facility’s knowledge,
accurate and current.” This provision is particularly
significant insofar as generally courts have held that
billing Medicare and Medicaid in conjunction with
false certifications as to matters that constitute a
condition of payment are grounds for action under
the federal False Claims Act. In other words, the
government could arguably take the position that a
knowing failure to provide accurate and current
disclosure under the new PPACA requirements in
conjunction with continued billing of Medicare or
Medicaid could subject a provider to refund of all
such billings and potential treble damages under the
False Claim Act.
Next Steps
In light of the fact that HHS, OIG, state surveyors
and ombudsman may currently request the
disclosable information outlined herein, facilities
should review these new disclosure rules carefully in
the context of their organization, identify the
relevant persons and entities in each category, and
gather the necessary information now so that they
are prepared to respond to an authorized request,
without significant delay. In addition, nursing and
skilled nursing facilities should establish policies
and procedures to regularly track and update
changes in persons or entities meeting the disclosure
criteria so that they are able to provide current and
accurate information on a going forward basis.
Finally, such facilities should stay tuned for
implementing guidance or regulations that may
provide further clarity or new or additional
requirements to the disclosure requirements set forth
in Section 6101 of PPACA.
For additional information, please contact:
Boston
Paul W. Shaw
617.261.3111
paul.shaw@klgates.com
Harrisburg
Ruth E. Granfors
717.231.5835
ruth.granfors@klgates.com
Miami
William J. Spratt
305.539.3320
william.spratt@klgates.com
Newark
Stephen A. Timoni
973.848.4020
stephen.timoni@klgates.com
Pittsburgh
Edward V. Weisgerber
412.355.8980
ed.weisgerber@klgates.com
Research Triangle Park
Mary Beth Johnston
919.466.1181
marybeth.johnston@klgates.com
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Los Angeles Miami Moscow Newark New York Orange County Palo Alto Paris Pittsburgh Portland Raleigh Research Triangle Park
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Washington, D.C.
K&L Gates includes lawyers practicing out of 36 offices located in North America, Europe, Asia and the Middle East, and represents numerous
GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market
participants and public sector entities. For more information, visit www.klgates.com.
June 2010 4
Health Care Alert
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