A new law intended to make nursing home ownership more transparent in Connecticut is likely to slow down mergers, although leading sector advocates remain in a wait-and-see mode.
The new law, which took effect Oct. 1, comes amid a push by state attorneys generals and federal lawmakers to increase transparency around facility ownership structures.
In April, 18 state AGs asked the Centers for Medicare & Medicaid Services to move ahead with a proposal to define private equity and real estate investment trusts, which regulators said would set the stage for the disclosure of whether those types of owners or investors play a role in a specific nursing home. US Sen. Charles Grassley (R-IA) has long pushed for enhanced transparency rules for nursing homes.
Several states have already moved to add more oversight, with some including Minnesota and California, requiring their attorneys general or health departments to give direct approval of certain deals.
In Connecticut, the biggest change takes away an exemption governing changes of ownership to relatives, Todd J. Selby, an attorney with Hall, Render, Killian, Heath & Lyman, told McKnight’s Long-Term Care News on Monday. Required filings dealing with change of ownership now include anyone related by blood or marriage.
“Now that this exemption is gone, these types of ownership transfers require the beneficial owner to complete the new application process for licensure,” Selby said.
Change of ownership applications must be submitted at least 120 days before any change occurs, and that is likely to bog down the process of mergers or sales as the state Department of Health has to review everything, Selby said.
Facilities undergoing changes in ownership in Connecticut also must now provide a description of the proposed transaction and the name of all current owners; affidavits that no new owner, administrator, medical director and other high-level staff have been convicted of a felony or been held liable in civil fraud or embezzlement; the relevant business experience of the owner and administrator; organizational charts of the new owner and any wholly-owned subsidiaries; and from where the funds to make the purchase came.
“This law is aimed at providing transparency that identifies all owners and entities affiliated with the proposed ownership of a nursing home,” he added. “While it does not specifically say the intent of the law is to discourage private equity ownership of nursing homes, this is almost certainly the case. CMS is highly distrustful of private equity ownership of nursing homes. Laws like this one in Connecticut are likely targeted at ferreting out private equity ownership of nursing homes.”
The transparency rules were rolled into a larger legislative package that also included requiring a “plain language” explanation of how Medicaid rates are set, notifying the state’s Long-Term Care Ombudsman on the day of involuntary transfers or discharges, and requiring nursing homes to submit annual cost expenditure narratives to the state’s Department of Social Services.
At the time of passage, both LeadingAge Connecticut and the Connecticut Association of Health Care Facilities supported the package. Both organizations’ executives told McKnight’s on Monday that it remains too early to tell how the new ownership laws will affect the landscape.
“LeadingAge Connecticut was supportive of the concept of the bill and appreciated the establishment of some clarity and consistency to the change of ownership application process, but we were concerned about the breadth of the requirements,” said Mag Morelli, president LeadingAge Connecticut. “Now that the new law is in place, we are hopeful that the new change of ownership process will be better understood by both the selling entities and the potential buyers and that there will not be any unnecessary hurdles in the way of appropriate ownership of healthcare facilities.”
Matthew Barrett, president of Connecticut Association of Health Care Facilities, said that his group will keep a close eye on transactions.
“The association will be monitoring future transactions on the question of whether stricter change of ownership requirements and disclosures is undermining transactions,” he said.