Devil in the Details: Inside the Government’s Push for Nursing Home Financial Transparency

While industry leaders have bashed many of the proposals laid out in the Biden administration’s nursing home reform package, improving public transparency of SNF ownership may be the White House’s best plan to curb who they see as “bad actors.”

However, the details will be important to get right, with concerns about the impact that transparency measures will have on investment in the space — and consumer access to skilled nursing care — moving forward.

New Jersey, California, Florida and Illinois are among states that have proposed their own nursing home financial transparency bills in the last year, even before the White House’s proposal. The topic has become an area lawmakers and lobbyists alike have looked to address.

California Gov. Gavin Newsom signed the Corporate Transparency in Elder Care Act, or Senate Bill 650 back in October of last year — requiring operators to report their finances to the state and the public.

Biden’s nursing home reform calls for the Centers for Medicare & Medicaid Services to create a database that will track and identify owners and operators across states to better highlight some of the problems associated with care.

Using information collected through provider enrollment and health and safety inspections, the registry will provide more information about prospective owners and operators.

CMS will also be directed to implement Affordable Care Act requirements regarding transparency in corporate ownership of nursing homes. This initiative is intended to improve transparency by collecting and publicly reporting more robust corporate ownership and operating data. It will also make this information easier to find on the nursing home care compare website.

Brian McGovern, health care lawyer and partner at Crowell & Moring’s New York office, feels that any disclosure requirements that result in more exposure for the buyers and operators in the space could have wide-ranging implications.

“If they identify [private equity investors] that could be at least a basis to hold them accountable both from a regulatory standpoint as well as from a litigation standpoint,” he said.

The role of private investors is one the White House intends to explore further. The Biden administration plans to investigate the increasing role private equity firms are playing in the nursing home sector, with their ownership now up to 11% of the sector per recently released data by MedPAC. Some studies have pointed to PE ownership leading to worse patient outcomes.

While some in the SNF space see this crackdown as misguided, others worry about how pushing for more scrutiny and transparency will impact investment in the space moving forward.

CON process may hold clues for national financial transparency push

While Sabra Health Care REIT (Nasdaq: SBRA) and Summit Healthcare REIT have both stated their intent to remain active in the skilled nursing space despite potentially having a new target on their back, not every investor in the space may be as forthcoming.

McGovern remains concerned that focusing on financial transparency will steer investors away from skilled nursing, particularly in certificate of need states. With margins shrinking for nursing homes and more nonprofits exiting the space entirely, the timing may not be right for such an overhaul.

McGovern thinks “the devil is in the details” in how the financial transparency elements of the nursing home reform package will play out.

On the plus side, McGovern thinks holding more investors accountable through either regulation or litigation is much needed as there may be some investors that are essentially not exposed to litigation because they aren’t the licensed operator.

He said previous investigations by the Department of Justice into private equity firms that have been actively involved in management decisions in violation of the False Claims Act may set “a precedent” for how greater transparency and disclosure could lead to better accountability.

“One remedy for that is through the licensure process at the state level. Depending upon how stringent the certificate of need laws are, that’s one way to expose the underlying investors in these nursing homes and make them more vulnerable to either litigation or regulation,” he said.

Private equity ownership is likely going to be more common in states that don’t have certificate of need (CON) laws or licensure requirements for disclosing ownership, according to McGovern.

“Some states don’t even have certificate of need laws in place but the federal government can ratchet up the disclosure requirements to expose the ownership of nursing homes that are now disguised in some states and make them more accountable,” he said.

McGovern felt the CON process, or a similar licensure requirement process, could help the process.

“But in states with no CON laws, it’s more like the Wild West,” he said.

CON applications can be denied if the principles behind the ownership have poor quality performance at other facilities, McGovern added, but in states with no CON there’s no way to screen out those “so called bad actors” in the licensure process.

McGovern worried the pendulum could swing too far to the other side and increased scrutiny could discourage investing and opening new facilities in the sector.

“The pendulum can swing that way where there could be a need for beds but because the CON process is so laborious, and if they require disclosure, it may deter investors. There could be an unmet need going forward to meet the long-term care needs for the aging population who are going to peak in 2030,” he predicted.

So, the financial reporting and transparency may become too stringent to the point that the market doesn’t respond to the emerging needs of long-term care going forward.

Still, some active investors in the space, such as Summit Healthcare REIT, would get behind some financial transparency improvements.

“I’m all for transparency,” Elizabeth Pagliarini, Summit Healthcare REIT COO and CFO, told SNN. “But I do think, within that transparency, that there should be a clear outline of who owns the facility and who runs the facility.”

She added that clarity and explaining who the landlord is and who is involved in the facility’s operations may clear up some of the administration’s confusion of the role of REITs versus private equity.

Worst staffed state prioritizes transparency

Some legislators have already made increasing scrutiny of nursing home ownership a priority in 2022.

In Illinois, the Compromise Nursing Home Rate Reform Bill (House Bill 4678) seeks to require notification of any change in ownership as a way to broaden reporting requirements for Illinois long-term care facilities.

High-Medicaid, for-profit nursing home facilities comprise 95% of all understaffed facilities in the state, according to a recent report from the Department of Healthcare and Family Services.

Staffing levels for Q3 2021 dropped 7.8% since the first quarter of 2021, and no state had worse staffing levels than Illinois, according to a national report from the Long-Term Care Community Coalition (LTCCC).

At 2.98 total nurse staff hours per resident day (HPRD), Illinois nursing homes ranked last in the country, according to the report.

While Angela Schnepf, LeadingAge Illinois executive vice president, admitted that staffing shortages continue to be the pressing issue nursing home operators face, Department of Healthcare and Family Services (HFS) data reinforces LTCCC’s findings and shows that it varies greatly depending on facility ownership.

Schnepf has been working with HFS to look back at years of data as it relates to RNs and CNAs in the state. Illinois has typically been last in being able to secure and keep CNAs, as the LTCCC report indicates.

What LeadingAge Illinois found was that staffing is far worse at for-profit nursing homes, which in fact “brought down” the entire state’s numbers.

According to the HFS data, Illinois nonprofit and government-owned facilities had 4.10 hours per resident per day, compared to 2.84 nurse staff hours per resident day. The numbers are adjusted to include CNAs, LPNs and RNs.

“Illinois has much better numbers when you’re looking at just the nonprofit and government-owned entities but when you go to for-profits, we’re dead last and this is indicative across the whole state,” she said.

For nurse aides, Illinois nonprofit and government-owned nursing homes still struggled to compete with other states at 2.29 aide staff hours per resident day, but for-profit facilities dropped to 1.61 aide staff hours per resident day, the HFS data shows.

At the national level, LeadingAge represents more than 5,000 nonprofit aging services providers and Schnepf said that when it comes to the transparency piece in Biden’s reform package, she’s in support “of the general concept.”

“We believe that as nonprofits we put our audited financial statements out there and we believe everyone being held to the same standard would be helpful to have a better understanding of costs and the revenue associated with operating nursing home communities,” Schnepf said.

“We think it’s nothing that an organization should feel they need to hide or not share,” she added.

As a for-profit provider operating in Illinois and a member of the Illinois Health Care Association board, John Vrba, CEO of Burgess Square Healthcare and Rehabilitation Centre, would welcome new financial reporting requirements for nursing homes.

“If you’re trying to hide things or cheat the system or make more money without providing quality care, then that’s a problem and I’m all for those entities going out of business,” he said.

Richard Mollot, executive director of the LTCCC, said the general public would benefit from having more information about where money is going and how it is being used to better ensure a level playing field for providers.

“For consumer groups such as ours, we’d be much more willing to support and work with providers to increase funding if we knew where that money was really going,” he said.