PRF M&A Reporting Won’t Have ‘Chilling Effect’ on SNF Dealmaking

When the federal government announced the availability of $25.5 billion in COVID-19 relief funding earlier this month, it specifically noted that Provider Relief Funds should not be used for M&A activity.

“To help ensure that these provider relief funds are used for patient care, PRF recipients will be required to notify the HHS Secretary of any merger with, or acquisition of, another health care provider during the period in which they can use the payments,” the U.S. Department of Health and Human Services (HHS) warned.

In particular, department officials said that providers who report a merger or acquisition may be more likely to be audited to confirm their funds were used for coronavirus-related costs, consistent with an overall risk-based audit strategy.


Despite unprecedented operational challenges, the current skilled nursing market has stayed hot. The total price per bed for nursing homes rose almost 22% year over year for the first quarter of 2021, reaching the second-highest price point for the industry ever recorded, according to a JLL Senior Housing & Care Investor Survey and Trends Outlook report released in May.

Bankers have seen buyers willing to pay $17,000 more per bed compared to 2020 in terms of evaluation, according to data presented during an Evans Senior Investments data webinar last month.

And this is also not the first time HHS officials have requested that Provider Relief Fund recipients alert the government of any transactions made, according to Hedy Rubinger, a partner at Atlanta-based Arnall Golden Gregory LLP.


The distribution of relief funds has been carried out by the Health Resources & Services Administration (HRSA).

Rubinger told Skilled Nursing News that she does not believe the PRF reporting requirement will slow down what has been a busy acquisition market.

“I don’t anticipate that HRSA’s comment with respect to increased likelihood of an audit following a merger will have a chilling effect on the industry,” she said. “I think that the parties are well versed at this point in the pandemic in dealing with provider relief funds and will be able to appropriately apportion and account for the funds that they apply for and receive. Folks in our industry are very accustomed to audits.”

The Provider Relief Fund portal application is expected to open on Sept. 29. The $25.5 billion made available for health care providers will include $17 billion from Phase 4 of the Provider Relief Fund. An additional $8.5 billion from the American Rescue Plan will assist providers who serve rural Medicaid, Children’s Health Insurance Program (CHIP) and Medicare patients.

What Rubinger has seen as of late are providers working under a bridge structure and delaying the change of ownership “so that there is no ambiguity as to which party the provider relief funds should be attributed.”

It remains to be seen whether HRSA’s request for change of ownership documentation will include an “upper-tier merger that would not necessarily qualify as a change of ownership under Medicare requirements.”

“We’re very anxious to see what the details with respect to Phase 4 funding will look like,” Rubinger said.

Laca Wong-Hammond, managing director and head of M&A at Lument, similarly said the latest reporting requirement would have a “de minimis impact” to the acquisition market.

“While an additional round of stimulus dollars may delay providers on the ‘cusp of deciding to exit’ (a minority of providers we know), drivers of M&A include current capital markets conditions such as interest rates, buyer capitalization, and valuation – all which are favorably aligned to the seller’s benefit,” she said.

“Additionally the dearth of M&A deals has driven up acquisition premiums, creating incentives for sellers to exit even if not at peak performance. These are the reasons our M&A pipeline is so strong,” she added.

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