Federal agencies are honing in on ownership transparency and corporate-level compliance, most recently with the Office of Inspector General (OIG) citing concerns about certain practices that allow nursing homes to hide profits.

OIG’s latest guidance focuses on the practice of “tunneling,” which refers to the misrepresentation or concealment of profitability in payments to related parties, oftentimes ancillary businesses. The watchdog agency said individuals tied to related-party transactions may be engaging in tunneling, enriching nursing home owners, operators and investors while resident care suffers.

To that end, the Nursing Facility Industry Segment-Specific Compliance Program Guidance (ICPG) issued by OIG in November serves as the agency’s updated and centralized source of voluntary compliance for nursing homes. And while the OIG guidance doesn’t carry regulatory weight, it still outlines priorities for OIG and should serve as a warning for nursing home leaders when it comes to future mandates, experts said.

“Providers would do well to use this guidance as a resource in reviewing and implementing their Compliance and Ethics program and Quality Assurance and Performance Improvement (QAPI) program,” Jodi Eyigor, director of nursing home quality and policy at LeadingAge told Skilled Nursing News.

OIG’s guidance that nursing homes provide more transparency on the role of ancillary businesses, for example, largely reflects the agency’s historical agenda around facility compliance, with some new “twists and turns,” Mark Reagan, managing shareholder at Hooper Lundy & Bookman, told Skilled Nursing News.

“The most remarkable departures from previous elements include its embrace of the so-called ‘tunneling’ narrative as a compliance issue and singling out investors as potential targets for compliance failures,” noted Reagan. “The embrace of the ‘tunneling’ narrative advanced by opponents of the profession speaks volumes as to OIG’s current political views.”

And efforts are underway by advocacy groups too to facilitate OIG’s guidelines on the matter.

Courtney Bishnoi, vice president of quality and programs at the American Health Care Association and National Center for Assisted Living (AHCA/NCAL), said the association is working on additional educational training to support providers’ understanding and application of OIG guidelines.

OIG’s guidance also comes on the heels of the Centers for Medicare and Medicaid Services (CMS) requiring Medicare revalidation to enhance accuracy and transparency of enrollment. Now, facilities must collect detailed ownership, management and related-party transaction data.

Guidance isn’t mandatory, but operators should be proactive

There are two major takeaways for operators: guidance isn’t mandatory, and OIG wants facilities to be more proactive when it comes to potential issues that could lead to resident harm or an enforcement action, Craig Conley, shareholder at law firm Baker Donelson, told SNN.

As for related-party transactions, the guidance indicates that these types of transactions are on CMS’ radar and may be scrutinized more closely in the future. The OIG recommends that mentions of related-party transactions be straightforward and in keeping with the revalidation procedure’s focus on ownership, Conley said.

“The Nursing Facility ICPG should be used to complement an operator’s mandatory compliance measures for CMS that are in place and to potentially improve upon those measures,” said Conley.

Conley said other key areas identified by OIG for improvement, besides related-party transactions, include quality of care, quality of life, Medicare and Medicaid billing requirements, and federal anti-kickback statute.

“Operators should pay particular attention to those areas with a focus on quality of care and quality of life, in my opinion,” said Conley. “The Nursing Facility ICPG provides a number of examples and offers recommendations in terms of mitigation of risks that an operator should focus on as well.”

Tunneling and corporate compliance

ICPG is meant to be used as a supplement to OIG General Compliance Program Guidance which applies to all individuals and entities in health care. A warning regarding ancillary payments, especially if OIG can later make the case that owners, operators or investors “unjustly profit” from such payments, means owners, operators and investors should be constantly documenting time spent on compliance and safety.

Tunneling typically appears in real estate transactions, OIG said in the guidance, when a facility sells its building and land to a commonly owned company or real estate investment trust (REIT), who then leases the property back at higher than fair market rates.

Another example of tunneling includes arrangements of outsourcing administrative or management services – ancillaries – with commonly owned companies under which the facility pays higher than fair market rates for services.

State and federal officials have pushed for more transparency with ancillary businesses in the past. Connecticut Gov. Ned Lamont in March introduced legislation that would use forensic audits when reviewing operator annual financial reports in an effort to highlight areas of risk or fraud, and concerns that operators are funneling government funding into limited liability companies or ancillaries in which they own a share.

The federal government has been taking steps to increase financial disclosure among nursing homes, with the new requirements for Medicare revalidation seeking more information on ownership structures.

Moreover, a recent study which explored the practice of money being diverted to operator-owned ancillary businesses, also highlighted a disturbing trend.

Health economist Ashvin Gandhi of UCLA and financial economist Andrew Olenski of Lehigh University found that tunneling concealed 63% of margins in one state, and only 37% of actual nursing home profits were reported to regulators.

Between OIG guidance and Medicare revalidation requirements, it’s clear that federal agencies are expanding the definition of responsible individuals tied to ancillary payments to include investors.

Overall, OIG guidance is part of enhanced and coordinated efforts on the part of the agency, along with CMS and the Department of Justice (DOJ) to pursue nursing facilities that provide grossly substandard care or subject residents to dangerous or unhealthy living conditions,” according to the Nursing Facility ICPG.

Such guidance can help facilities proactively detect, assess, and remediate quality and safety concerns before resident harm or enforcement action, OIG said.

The OIG guidance, as a voluntary compliance program, may have an indirectly positive impact on a facility’s five-star rating, that is if it succeeds in assisting a facility in preventing noncompliance and negative survey findings and outcomes, said Conley.