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Volume XII, Number 27

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What Price Transparency?: California SB 650 Shines Light on Skilled Nursing Facility Ownership while creating New Reporting Burdens for California Skilled Nursing Facilities

On October 4, 2021, the California Senate Bill 650 (“SB 650”), also known as the Corporate Transparency in Elder Care Act of 2021, was signed by Governor Gavin Newsom. As described below, SB 650 is designed to provide the public with greater transparency as to skilled nursing facility (‘SNF”) ownership and finances.

Currently, an organization that operates, conducts, owns, or maintains a SNF, and the officers thereof, is required to file with the Office of Statewide Health Planning and Development (“OSHPD”) specified reports relating to the organization’s finances, including, among other things, a balance sheet detailing the assets, liabilities, and net worth of SNF at the end of its fiscal year.

Pursuant to SB 650 and commencing on fiscal years ending on or after December 31, 2023, the SNF reporting requirements are greatly expanded such that a California-licensed SNF owner and operator is required to file a single consolidated financial report that not only includes SNF owner/operator information but also includes data from all related parties in which the SNF owner/operator has an ownership or control interest of 5% or more and that provides any service, facility, or supply to the SNF.

Background

The large number of COVID-19-related deaths and massive outbreaks in California nursing homes last year have led the state legislators to heavily focus on long-embedded issues in the nursing home industry.  In an effort to specifically address issues on healthcare funding and corporate profiting in nursing homes, multiple legislators joined together to introduce a package of bills, collectively referred to as the Priorities Responsible Ownership, Treatment, Equity and Corporate Transparency (PROTECT Plan).[1]  Among this series of measures, SB 650 was introduced by Democratic Senator Henry Stern of Los Angeles on February 19, 2021 [2] and is co-sponsored by the California Advocates for Nursing Home Reform (CANHR), SEIU California, and AARP California.[3] Other Bills introduced as part of the PROTECT Plan include:

  1. AB 279 (Muratsuchi): Prohibiting Resident Eviction During the Pandemic. AB 279 prohibits intermediate care homes or nursing homes from terminating services to residents or from transferring a resident to another facility without consent during a declared state of emergency relating to COVID-19.

  2. AB 323 (Kalra): Nursing Home Citations. Increases nursing home citation penalties and updates the criteria for AA citations (those that cause the death of a resident) from the old “direct proximate cause of death” standard to a  “substantial factor” standard.

  3. AB 749 (Nazarian): Certification of Nursing Home Medical Directors. Requires nursing home medical directors to be certified by the American Board of Post-Acute and Long-Term Care Medicine.

  4. AB 849 (Reyes): Nursing Home Resident Rights. Restores facility liability to up to $500 for each violation of a resident’s rights.

  5. AB 1042 (Jones Sawyer): Related Party Accountability. Establishes shared liability for entities that share ownership or control of nursing homes.  Related parties will be liable for unpaid state monetary penalties for citations and unpaid Quality Assurance Fees.

  6. AB 1502 (Muratsuchi): Nursing Home Ownership and Management Reform. Establishes suitability standards for persons and entities seeking to run nursing homes and ends nursing home squatting, where persons or entities run nursing homes with no approval from the state.

Sponsors’ Concerns as Reflected in SB 650

The sponsors of Section 650 argue that large, for-profit SNFs are using complex ownership structures to increase profitability by shielding funds behind the corporate family so that these funds cannot be fully considered by the state when it sets rates and reimbursements for care.  According to Stern, a UCSF research study has shown that “83.6% of SNFs were operated by for-profit owners in California and 74.7% were owned by chains, or operating more than one facility.”[4]

Moreover, the sponsors of Section 650 also believe that transparency is urgently needed to improve quality of care and SB 650 would close the transparency loophole in existing laws.  “This shines the bright light of day on this practice by requiring nursing home chains to place consolidated financial reports on each individual facility’s website,” Stern stated.[5]  The sponsors argue that the information required by SB 650 will allow the state and the public to evaluate whether large corporate entities owning and operating SNFs are using all available financial resources for patient care, rather than diverting revenues into related entities.

SB 650 Highlights

Among other things, SB 650 would require:

  1. As noted above, an organization that operates, conducts, owns, manages, or maintains a SNF must prepare and file with the OSHPD an annual consolidated financial report that includes data from all operating entities, license holders, and related parties in which the organization has an ownership or control interest of 5% or more and that provides any service, facility, or supply to the SNFs;

  2. Such an organization must also provide documents outlining a visual representation of the organization’s structure as attachments to the consolidated financial report;

  3. A duly authorized official of the organization must certify the report; and

  4. OSHPD must develop policies and procedures to outline the format of information to be submitted, determine if the annual consolidated financial report is complete, and post those reports and related documents to its internet website.[6]

Moving Forward

Given the delay in enforcement, SNFs and other stakeholders will likely voice their concerns as to the new responsibilities created by SB 650.  It remains to be seen as to whether such concerns result in changes in the law or the issuance of implementing regulations that alleviate some of the SNF burden created by SB 650.

Co-authored by Kara Du, a law clerk in Sheppard Mullin’s Century City office.

FOOTNOTES

[1] CANHR Legislation, “2021 Nursing Home Reform Protect Plan,” March 23, 2021, PROTECT PLAN – CANHR Legislation

[2] Open States SB 650 2021-2022 Regular Session, SB 650 – California Senate (20212022) – Open States

[3] Press Release, “Stern’s SB 650, The Corporate Transparency in Elder Care Act of 2021, Clears Senate Health Committee,” April 27, 2021, One Step Closer to Protecting California’s Most Vulnerable | Senator Henry Stern

[4] Id.

[5] Id.

[6] SB-650 Skilled Nursing Facilities (2021-2022), California Legislative Information, September 14, 2021, Bill Text – SB-650 Skilled nursing facilities. (ca.gov)

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 280
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About this Author

Kenneth Yood Healthcare Attorney SheppardMullin
Partner

Ken is a partner in the Corporate practice group in the firm's Los Angeles office. Chambers USAranks him highly for Healthcare, where he was commended for his "broad-based ability in the regulatory area." Clients appreciate that "his explanations are clear, and he understands the business side of things," notes Chambers 2016.

Areas of Practice

Ken represents a wide range of healthcare providers and healthcare companies, including specialty and general acute hospitals (including local district, nonprofit and...

310-228-3708
Associate

Hector M. Grajeda is an associate in the Corporate Practice Group in the firm's Century City office and is a member of the firm’s healthcare practice team. 

Areas of Practice

Hector advises clients on a variety of general corporate matters, including mergers and acquisitions, private placements, securities offerings and securities law compliance, entity formation, corporate governance and general contract negotiations.

424-288-5342
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