Posted by Mallory Camerio on March 20, 2024
By: Jessie L. Bekker, Burr & Forman LLP
Market analysts reported a decline in mergers & acquisitions in the health care industry in
2023 as compared to pre-pandemic trends—a perhaps unsurprising development amid 7% or
higher interest rates. The federal government, however, is now taking notice of who’s behind the
ongoing trend toward health care consolidation.
On March 5, three federal departments—the Department of Justice (DOJ), Department of
Health and Human Services (HHS), and Federal Trade Commission (FTC)—published a request
for information seeking public input into the effects private equity transactions have on patients,
payers and providers, a request driven by a concern “that some transactions may generate profits
for those firms at the expense of patients’ health, workers’ safety, quality of care, and affordable
health care for patients and taxpayers.”
The DOJ/HHS/FTC request for information is just the latest in a line of federal inquiries
into the ownership and control of providers and suppliers across the health care industry. The
Centers for Medicare & Medicaid Services (CMS) published a request for information in January
related to Medicare Advantage data, including data regarding “the impact of mergers and
acquisitions” and “the effects of vertical integration.” In December, President Joe Biden
announced the publication of ownership information regarding Medicare-enrolled federally
qualified health centers and rural health clinics. November brought new requirements regarding
nursing home ownership and control reporting through a new final rule published by CMS.
And of course, the Corporate Transparency Act, which took effect on January 1, 2024,
requires that nearly all business entities within and outside of the health care industry report their
ownership and control interests to the Department of Treasury’s Financial Crimes Enforcement
Network, a requirement that reflects the agency’s effort to track down fraudulent money
laundering activity.
Despite plateauing merger and acquisition activity in 2023, analysts predict 2024 could
be the year of physician practice acquisitions and health system consolidation. Reports indicate
that physician specialties including dermatology, cardiology, orthopedics and plastic surgery
may see an increase in investor interest. Others predict investor interest in behavioral health
providers. In any event, it’s unlikely the federal government’s interest in merger & acquisition
activity will wane. In its request for information, the DOJ, HHS and FTC requests public input
related to both direct acquisitions by private equity funds and “transactions structured to
facilitate private equity investment, circumventing applicable corporate practice of medicine
restrictions.” The agencies’ request also seeks information regarding vertical integration, where a
health system buys up health providers across the care continuum, from ambulatory surgery
centers, to nursing facilities.
The agencies are not just interested in who is behind the transaction, but how it affects
patients, payers, providers and employers on a variety of metrics including the cost and quality
of care, reimbursement rates, provider compensation models and changes in facility choice.
The DOJ/HHS/FTC request for information is open to public comment until May 6, 2024. Comments can be submitted at https://www.regulations.gov/docket/FTC-2024-0022.
While the requests from CMS and the DOJ, HHS and FTC don’t create affirmative
requirements of providers today, both the Corporate Transparency Act and CMS’ latest final rule
on nursing home ownership and control reporting generate new reporting obligations.
The Corporate Transparency Act will require most physician practices existing as of
January 1, 2024 to report certain information to the federal government by the end of the year,
including reporting of a practice’s ownership interests and the individuals who control the
entity’s decision-making. Among other required reports, the Financial Crimes Enforcement
Network, or FinCEN, seeks information regarding an entity’s beneficial owners—those who own
or control at least 25% of ownership interests of a reporting company, and those who exercise
“substantial control” over a reporting company. Entities that form in 2024 will be required to
make reports to FinCEN within ninety (90) days of formation. Practice managers and administers
are encouraged to seek counsel from their accountants and attorneys regarding the new reporting
requirements under the Corporate Transparency Act. FinCEN’s Small Entity Compliance
Guidance, which details the reporting requirements, can be found at
https://www.fincen.gov/boi/small-entity-compliance-guide.
For nursing facilities, new ownership and control reporting requirements will be reported
on a revised version of the Form CMS-855A, the Medicare enrollment application for
institutional providers, which CMS has yet to publish. The revised form is expected to reflect the
final rule’s new mandated reporting requirements. Skilled nursing facilities (SNF) and Medicaid-
enrolled nursing facilities should expect to report information regarding their governing bodies,
officers, directors and managing employees, including SNF medical directors and administrators.
The new rule also requires reporting of “additional disclosable parties,” including, but not
limited to, people and entities who: exercise financial control over the facility; lease or sublease
real property to the facility; and provide management, administrative, clinical consulting and
financial or accounting services to the facility. Facilities should discuss the new requirements,
including the timing of the report, with their advisors.
Jessie L. Bekker is an attorney at Burr & Forman LLP practicing exclusively in the firm’s
healthcare practice group. Jessie can be reached at jbekker@burr.com or (205) 458-5275.
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