News, Skilled Nursing Facility

SNF M&A: The Provider Number Trap

Editorial Note: This post has been republished with permission from the author, Reg’s blog.

Over my career, I have done a fair amount of merger and acquisition (M&A) work, including:

  • Continuing care retirement communities (CCRC)
  • Skilled nursing facilities (SNF)
  • Home health agencies (HHA)
  • Physician practices
  • Hospice

While each deal has many nuances and issues, none can be as confusing to navigate as the federal payer issues; specifically, the provider number. For SNFs, HHAs, and hospices, an acquisition that is not properly vetted and structured can have severe repercussions post-closing, if provider liabilities existed pre-close and were unknown and/or unknowable. Even the best due diligence cannot ferret out certain provider number related liabilities.

The Medicare provider number is the unique reference number assigned to each participating provider. When initially originating as a provider, the organization must apply for provider status, await accreditation, (for SNFs it is via a state survey and for HHAs and hospice, it is via private accreditation), and then get ultimate approval by Medicare/DHHS. As long as the provider that has obtained the number remains in good standing with the Centers for Medicare & Medicaid Services (CMS) (i.e. hasn’t had its provider status/agreement revoked), the provider may participate in and bill, Medicare and Medicaid (as applicable).

Provider numbers are assignable under change of control, providing the assuming party is eligible to participate in the Medicare program. Change of control requires change of ownership or control at the provider level, not the facility or building level. The building in the case of a SNF is not the provider – the operator of the SNF is. For example, if Acme SNF is owned and operated by Acme, Inc., then Acme, Inc. is the provider so long as the SNF license in Acme’s state is to Acme, Inc. If Acme decides to sell the SNF property to Beta REIT and in turn, Beta leases the facility back to Acme, then Acme no longer owns the building but remains the provider as it continues to hold the license, consistent with the operations of the SNF. Carrying this one step further, Acme decides it no longer wants to run the SNF but wishes to keep the building. It finds Zeta, LLC, a SNF management/operating company, to operate the SNF and leases the operations to Zeta. Zeta receives a license from the state for the SNF and now Zeta is the provider, even though Acme, Inc. continues to own the building.

In the example above regarding Zeta, the typical process in such a change of control involving the operations of a SNF is for Zeta to assume the provider number of Acme. The paperwork filed with CMS is minimal and occurs concurrent to the closing, creating change of control (sale, lease, etc.). What Zeta has done is avoid a lengthier, more arduous process of obtaining a new provider number, leaving Acme’s number with Acme and applying as a new provider at the Acme SNF location. While taking this route seems appealing and quick, doing so comes with potential peril and today, the peril is expansive and can be business altering.

When a provider assumes the provider number of another entity at change of control, the new provider assumes all of the former provider’s related liabilities, etc., attached to the number. CMS does not remove history or “cleanse” the former provider’s history. The “etc.” today is the most often overlooked:

  • Star ratings
  • Quality measures including readmission history
  • Claim error rate
  • MDS data (submitted)
  • Federal survey history
  • Open ADRs
  • Open or pending probes and RAC audits

The above list is in addition to any payments owed to the federal government and any fines, forfeitures, and penalties. The largest liability is, or relates to, the False Claims Act and/or allegations of fraud. These events likely preceded the change of control by quite some time and are either impossible to know at change of control or discoverable with only thorough due diligence. The former in my experience such as whistleblower claims may not arise or be known until many months after the whistleblower’s allegation. During the interim, silence is all that is heard. Under Medicare and federal law, no statute of limitation exists for fraud or False Claims. While it is possible via indemnification language in the deal to arrest a False Claims Act charge and ultimately unravel the “tape” to source the origin and control at the time of the provider number, it is not quick and not without legal cost. Assuming the former provider is even around or can be found (I have seen cases where no such trail exists), winning an argument with CMS that the new provider is blameless is akin to winning the Battle of Gettysburg – the losses are incalculable. Remember, the entity that a provider is dealing with is the federal government and as such, responsive and quick action isn’t likely to happen. Check the current status of the administrative appeals backlog as a reference.

Assuming no payment irregularities occur, the list preceding is daunting enough for pause. Assuming an existing provider number means assuming all that goes with it. On the federal side, that includes a lot. The assuming party gets the compliance history of the former provider, including the star rating. (The rating is not on the SNF facility, but on the provider operating the SNF.) As I have written before, star ratings matter. Inheriting a two-star rating means inheriting a “dog that doesn’t hunt” in today’s competitive landscape. It also means that any work that is planned to increase the star rating will take time, especially if the main downside is survey history. The survey history comes with the provider number. That history is where RAC auditors visit and surveyors start whenever complaints arise and/or annual certification surveys commence.

The Quality Measures of the former provider beget those of the assuming provider. This starts the baseline for Value Based Purchasing. It also sets the bar for readmission risk expectations, network negotiations, and referral pattern preference under programs such as Bundled Payments. Similarly, all of the previous MDS data submissions come with that same provider number, including those that impact case-mix rates under Medicaid (if applicable).  And, not exhaustively last but sufficient for now, all claims experience transfers. This includes the error rate that, if perilously close to the limit, can trip with one more error to a pre-payment probe owned by the assuming provider. Only extreme due diligence can discover the current error rate.

To avoid the peril of all the above, obtain a new provider number. It is time-consuming (it is a government process) but in comparison to what can (and does) happen, a small price to pay. In every transaction I have been directly involved with, I have obtained a new provider number. In more than one, it has saved a fair amount of hassle, particularly on the compliance end of things. Today, I would not proceed without a new provider number as the risks of doing so are enormous, particularly in light of the impact of star ratings, quality measures, and survey history. Additionally, the government has never been more vigilant in scrutinizing claims and generating ADRs. Inheriting someone else’s documentation and billing risks genuinely isn’t smart today.