A proposed rule to make nursing home ownership more transparent could instead scare off private equity investments, leaving facilities without much-needed capital, experts warn as federal regulators enter the final polishing phase of the measure.

The public comment period on the proposal from the Centers for Medicare & Medicaid Services closed Friday, bringing some of its hot-button issues back to the fore. The rule would require facilities to disclose individuals or entities providing administrative or clinical consulting services. SNFs will also need to list entities from which they lease or sublease property. CMS will review comments and, if the agency decides to move forward, will release a final rule that will be effective after 60 days. 

The rule, proposed in early February, defines private equity companies as a “publicly traded or non-publicly traded company that collects capital investments from individuals or entities and purchases an ownership share of a provider.” A similar definition about being “publicly traded or non-publicly traded” is applied to real estate investment trusts in the CMS proposal. 

A problem is the definitions are so broad that it can be difficult for providers to understand what needs to be disclosed, said Greg Limoncelli, co-chair of Akerman LLP’s Senior Living & Care Sector team and partner in the corporate practice group.

“The federal government has a very legitimate responsibility to make sure that Medicare and Medicaid funds are not stolen, there’s no fraud, and they’re used wisely,” Limoncelli told McKnights Long-Term Care News on Friday. “But knowing how many tiers of private equity there are or who owns the brick-and-mortar (facility) … I’m not so sure that gets them anywhere.”

Limoncelli described the tone with which the regulations have been introduced as “demonizing” private equity. Finding solutions to staffing issues and older facilities that require significant capital for renovations and upgrades won’t be accomplished by scaring off investors, he said. 

“If you require more and more information only so you can hold them accountable so they can be sued, you have to sit there and say, ‘Why would I put my capital into this?’” Limoncelli said. “If you’re going to scare away capital, you’re not going to resolve the situation.”

He added that it almost feels as if regulators felt they had to “do something” rather than take a more targeted or pragmatic approach to such a regulation. 

Renewed pressure from Congress

But after at least 13 years of doing nothing, according to US Sen. Chuck Grassley (R-IA), CMS has let nursing homes’ “Byzantine corporate structures” proliferate and escape accountability. Grassley first petitioned the agency to require transparency on private equity holdings in the sector after a 2007 New York Times article that detailed “high numbers of serious health and safety deficiencies in nursing homes.” Grassley introduced the The Patient Protection and Affordable Care Act in 2010 that required healthcare organizations to disclose individuals or entities who have any level of control, lease property to them, or provide administrative services. 

Grassley sent a letter to US Health and Human Services Secretary Xavier Becerra and Centers for Medicare and Medicaid Services Administrator Chiquita Brooks-LaSure approximately a month after the rule was proposed, scolding them for CMS’ “overdue proposed rule that you have thus far failed to finalize and implement.”

“CMS’ thirteen-year delay is slow even by bureaucratic standards and especially egregious given that the number of nursing homes owned by private equity has significantly increased since then,” Grassley wrote.

CMS’ proposed rule would add regulations using the Affordable Care Act and expand the scope of current reporting. Ownership data would be collected at initial Medicare enrollment and updated every five years or when there is a change in ownership.

That expanded scope, though, could lead to more scrutiny and longer surveys by federal and state regulators, said K&L Gates partner Myla Reizen, who is part of the firm’s global Healthcare and FDA practice group. She also said the connotation of private equity throughout the studies CMS is using to justify its rule is overwhelmingly negative. 

“It does seem like there’s a negative bias toward private equity,” Reizen told McKnights on Friday, adding that the perception from regulators appears to be that such investment automatically leads to a decline in the quality of care. 

While some researchers have produced studies that indicate overall lower quality levels in some cases, it is an incorrect, sweeping assumption that diverts from more important regulatory and funding issues that government overseers should be concerned with, provider advocates have criticized during the most recent push for pressure on private-equity sources.