When a skilled nursing facility changes ownership, the change is known in healthcare vernacular as a change of ownership or “CHOW.” Multiple regulatory implications surround a CHOW, one of the most critical being the revenue received by the facility under its Medicare provider agreement and the possible interruption of that payment.
Late last year, the Centers for Medicare & Medicaid Services announced in a policy memo that it will take longer for buyers to obtain new provider numbers compared to past year. The memo encouraged SNF acquirers to accept automatic assignments of their sellers’ Medicare provider agreements. However, there are some drawbacks to accepting an automatic assignment and depending on the situation, it may be within a provider’s best interest to apply for a new CMS certification number and apply to function under a new provider agreement, better known as the initial enrollment process.
That’s why it is imperative that more people understand the process, know the parties they’re involved with and develop better awareness of the regulatory issues involved.
CMS identifies three main types of CHOWs. Specifically, Program Integrity Manual, CMS Pub. 100-08 § 126.96.36.199.1, provides that a CHOW can occur through a purchase, an acquisition/merger (two or more entities combine leaving only one remaining certification number and provider agreement), or consolidation (merging two or more enrolled entities and creating a new entity).
For long-term care providers preparing for or going through a CHOW, it is critical to be mindful of a few state regulatory items:
1. Changes in types of transactions that constitute a CHOW and implications of a CHOW
2. Need for increased transparency, creating more disclosures
3. Financial data shown must contain details and provide changes in financial status
There are certain events that may trigger a CHOW, but they are often overlooked, resulting in an oversight by providers. To address these possible pitfalls, a provider should be familiar with the type of legal entity holding the license and understand there is a growing trend toward changes in control (e.g. stock transfer of more than 50%, changes at grandparent level, etc.) constituting a CHOW. Additionally, state agencies are using provisional licenses more often and are conducting more post-transaction surveys.
Next, it is necessary to fully disclose the entities or individuals in control. Reporting this information can be lengthy and more onerous than Medicare requirements, as driver’s license searches, criminal background checks, etc. are conducted. Such disclosure also will include other licensed facilities owned or controlled by disclosed entities and individuals, along with ownership of the real estate, lease terms, change in management company, medical director, administrator and director of nursing.
Finally, licensure applications often require providers to submit detailed financial data to show past financial performance, along with projected revenues, expenses and cash flow. Using the standard financial forms may be problematic (forms are long and time consuming as well) because budget line items demonstrated by the applicant/provider might not align with the categories. Also, financial forms tend to emphasize projection of revenues and expenses, but this focus steers away from evidence of past performance and financial viability.
Despite the level of details provided, all too often state regulations and policies may not address CHOW issues occurring at the parent or grandparent level or farther up the chain. This can be coupled with confusion by agency staff on how to interpret complex transactions and lack of understanding of CHOW standards under federal programs. As such, I strongly urge long-term care providers to seek legal counsel ahead of time to help navigate through a CHOW so that state agency challenges can be properly managed along the way.
Richard Y. Cheng is an attorney at Anderson Kill, based in its Dallas office. Prior to his legal career, Richard worked as a licensed occupational therapist in Dallas.