Financial Transparency Legislation May Impact Nursing Home M&A, Operations

Five states are making efforts to improve financial transparency among skilled nursing facilities, in some cases requiring financial records to be accessible to the public and in other cases dictating where revenue can go, to ensure funds are going to residents first.

For some compliance experts, the timing is right to shine a light on financial expenses and “opaque forms of ownership,” according to Brian McGovern, health care lawyer and partner at Crowell & Moring in New York, while the industry is top-of-mind due to the pandemic.

Legislators and governors need to demonstrate now that they are acting on behalf of residents and their families, McGovern said, a trend that might make new ownership through private equity more difficult.


“There’s a lot of literature tying private equity ownership with lower quality of care,” explained McGovern. “This becomes a matter of public record, about who is proposing to acquire an interest in nursing homes or in the underlying real estate of nursing homes. There could be objections to the approval of the transaction.”

McGovern, with 25 years of experience representing long-term care providers in New York, said state requirements to disclose financial data or specify where revenue can go may be seen as a disincentive to proprietary facilities to invest, if they’re subject to strictures on how they spend their revenue.

“It’s going to be mostly on the transactional end spectrum where the impact will lie, but it also could impact operations going forward, at least where they are requiring more disclosure on the website or through other public sources,” added McGovern. “That could compromise ability to attract new residents and get referrals from hospitals.”


Most recently added to the list was Florida — House Appropriations Committee Chair and Republican State Rep. Jay Trumbull filed a bill Monday requiring nursing homes to submit audited financial statements within 120 days of an operator’s fiscal year.

The legislation is supported by the Florida Health Care Association and LeadingAge Florida and comes days after the state allocated $100 million to local nursing homes.

California’s Corporate Transparency in Elder Care Act

California Gov. Gavin Newsom signed similar legislation into law last month — the Corporate Transparency in Elder Care Act, or Senate Bill 650 — requiring operators to report their finances to the state and the public.

An organization that operates, conducts, owns, manages or maintains a skilled nursing facility will need to prepare and file an annual financial report with the Office of Statewide Health Planning and Development.

“I’m hopeful that, especially as we start to spend more and more money for Medicare and MediCal in this space, that we just make sure it’s going where it’s supposed to go,” said Democratic Senator Henry Stern of Los Angeles, who introduced the measure in February. “As we expand care and invest in more care in nursing homes specifically, are we getting what we’re paying for?”

Stern said he hopes the law shines a “bright light” on large, for-profit SNF chains that use complex ownership structures to increase profitability, while excess money is kept in the “dark recesses” of the corporate structure.

“We felt like, especially this year, that the political climate was such that people might actually listen to our story, because the spotlight was on skilled nursing facilities and nursing homes, and maybe we could get a little political traction,” said Stern. “Typically, this stuff tends to fizzle out as a kind of tough go in years past — we’ve got momentum on our side; we have to go big here.”

McGovern echoed Stern’s thoughts on timing. It’s unclear how much further other states or the Centers for Medicare & Medicaid Services (CMS) will go once the “dust settles,” McGovern said, and nursing homes are no longer in the media hotseat as they have been for the last year-and-a-half.

“It’s obviously high on the priority list on Capitol Hill and in state legislatures, but whether that attention remains as heightened as it is now, that I just don’t know,” said McGovern.

Stern hopes federal partners take notice and want to move on more financial transparency in the skilled nursing industry, considering what he calls the ”largest injection ever in social infrastructure,” referring to the Biden administration’s Build Back Better bill.

“This is the kind of thing that is a bigger structural reform, that may work in some ways invisibly, or less obviously, where you see the industry start to change tactics without even having to be asked to do so to avoid having an uncomfortable audit or finding out transactions on, say, real estate or medical supplies that wouldn’t hold up to public scrutiny,” noted Stern of California’s Corporate Transparency in Elder Care Act.

By putting financial records up for public access, operators may change spending habits to look better in the eyes of prospective residents and their families, meaning less real estate acquisitions and more spending on direct care.

“It could end up restructuring the industry somewhat. We’ll see how far it goes,” added Stern.

Stern refers to a possible shift to more nonprofit models of care if the “profits aren’t as great,” he said, or expediting the existing shift to a more cost effective home care model.

New York, New Jersey and Massachusetts Cross From Disclosure into Regulation

What Stern considers the next step in holding skilled nursing facilities financially accountable, mandates dictating where revenue can be spent have popped up in New York, Massachusetts and New Jersey.

These states set limitations on how much nursing homes can spend for executive salaries, advertising, administrative expenses and how much can be considered profit, according to an article published by Kaiser Health News (KHN) last month.

At the same time, nursing homes in these states must spend a certain percentage of revenue on resident care: 70% in New York, 75% in Massachusetts and 90% in New Jersey — all three governors promise a boost in Medicaid payments for facilities that comply with the new requirements.

The states are going “beyond disclosure to actual direct regulation,” Stern said, adding he has yet to kick the tires on how thorough California regulations are in spotting gaps in a facility’s expense breakdown.

These mandates mark the first time nursing homes will be told how to spend revenue from Medicare, Medicaid and private pay, the KHN report said, although the idea is not new to health care — the Affordable Care Act requires health insurers spend at least 80 cents of every dollar in premiums on resident care.

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