CMS’ New Transparency Rule Can Help ‘Weed Out a Few Bad Actors’ but Won’t Impact Deals Much, Other Factors at Play

Nursing home ownership changes have largely been embraced by the industry and will have little impact on deal activity, with the new transparency rule from the Centers for Medicare & Medicaid Services (CMS) having very little impact on the sector.

Instead, the new rule will force nursing homes to report ownership details during critical junctures like Medicare or Medicaid applications and recertification, according to executive managing director of VIUM Capital, Steven W. Kennedy. And if anything, the new transparency rule will eliminate any bad actors on the real estate and operating side because these might cause them “discomfort,” and that’s certainly better for the industry, he said.

“Every industry no matter where you are has some bad actors,” he said. “I think in general, skilled nursing has very few bad apples, but if they’re out there, this can help weed them out.”


The statistics on the industry don’t show that there are a majority of REITs owning and operating facilities.

“The numbers just don’t show it,” he said. “[REITs] don’t own much. And if they do, they’re largely not in charge of the operations. The focus is absolutely in the wrong area.”

As of last year, REITS had ownership in 9% of nursing homes, while private equity firms had ownership in 5%, according to a report issued by the Department of Health and Human Services (HHS).


Industry reactions

In a recent column for Forbes, Howard Gleckman, a senior fellow at The Urban Institute, noted that the effectiveness of the federal government’s initiative for transparency would be limited in its effectiveness unless prospective residents and their families have easy access to this ownership information.

“The federal government wants to know more, and wants consumers to know more, about who owns nursing homes,” Gleckman wrote. “It is about time. And it may help identify some of the worst actors who pollute the nursing home industry. However, without easier access to this new information, I’m not sure how helpful it will be for prospective residents and their families.”

Gleckman noted that their market share has stayed relatively consistent since 2019, and they share comparable quality concerns with facilities owned by private equity.

“The other challenge is the ownership or operating structure itself,” Gleckman noted. “Often, chain facilities are controlled by limited partnerships that are owned by one or more other partnerships. That makes it extremely difficult to know who is in charge.”

The more recent bid to increase the transparency of ownership in the sector can be traced back to President Biden’s State of the Union address last year. But Kennedy said that for the most part, the industry has already embraced the call for improved ownership transparency.

“The transparency thing just hasn’t been taken as much of a threat by the sector,” he said.

Focus on ‘the wrong area’

A larger threat to the industry was the minimum staffing requirement, Kennedy said.

Kennedy delved into the industry’s response to minimum staffing requirements, recognizing the sector’s unanimous stance against the impracticality of sudden staff increases without adequate funding.

“The industry has been really in unison, loud and clear, saying that we can’t pull 80,000 to 100,000 nurses and other staff out of nowhere,” he said. “If it’s not funded, I think people kind of get the theory, but it’s just not realistic. It was good to see upwards of 20,000 individual unique letters were sent to the government about this rule.”

Similarly, Mark Parkinson, president and CEO at AHCA/NCAL, said that while he supports the rule, it is taking focus away from the staffing crisis.

“We support transparency and appreciate the Administration’s efforts to assist families in making more informed decisions,” Parkinson wrote in a statement. “However, focusing on ownership and private equity is a red herring. Less than 5% of nursing homes are owned by private equity firms and roughly 12% are owned by a REIT, an entity that typically has no influence on daily operations.”

Parkinson sees the transparency rule as a distraction from the real issues that are confronting a majority of providers and impacting quality, including Medicaid underfunding and workforce shortages.

“If we truly want to improve America’s nursing homes, we need policymakers to prioritize investing in our caregivers and this chronically underfunded health care sector. Together, we should focus on meaningful solutions that can strengthen delivering the quality of care and services that our nation’s seniors deserve.”

For their part, large REITs in the sector are welcoming transparency in ownership.

Rick Matros, CEO of Sabra Health Care REIT, who has long been an advocate for disclosing ownership of nursing homes, told Skilled Nursing News that he favored the transparency rule.

“The REIT’s have never hidden their ownership. Others have opaque ownership structures and I think it is beneficial for it to be clear as to who owns what,” Matros said.

Matros and other industry leaders have emphasized the importance for CMS to differentiate between various forms of ownership. Previously, private equity firms, private capital firms, and REITs were often used interchangeably, despite being distinct entities with markedly different structures and operational influence capabilities.

While many experts believe that the transparency rule might drive transactions activity, forcing private equity players and REITs to sell off nursing homes, Kennedy said he thinks deals will be driven by other factors.

“I do think M&A activity will be driven, you know, over the next 12 to 18 months with the continued change in interest rates … as well as the state-to-state rebasing of Medicaid rates that’s now starting to flow through the income statement,” he said. “And occupancy is pretty close in the nursing home world to pre-pandemic levels. That’s going to drive some M&A activity.”

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