Health Law Highlights

The Corporate Transparency Act: Key Considerations for Health Systems and Practice Management Companies (MSOs/DSOs

From Proskauer – Health Care Law Brief, by Andrew Bettwy, Jeffrey Horwitz, David Manko, Jonian Rafti, Elanit Sno, Yuval Tal:

The Corporate Transparency Act (CTA), effective January 1, 2024, mandates the creation of a national registry of “beneficial owners” and “company applicants” of entities across the U.S. to counter illicit activities such as money laundering and terrorism financing. Reporting companies must disclose key information about these individuals, including legal name, date of birth, address, and government-issued identification details.

The CTA presents a compliance challenge for large healthcare enterprises due to their complex contractual arrangements with physician practices and facilities. Entities like health systems, practice management companies, and national telehealth companies, which may have numerous joint ventures and management agreements, need to determine the beneficial owners of their associated practices.

Several exemptions exist for healthcare entities under the CTA, including the Non-Profit Exemption, Large Operating Company Exemption, Subsidiary of Exempt Entity Exemption, and Inactive Entity Exemption. The applicability of these exemptions depends on factors such as tax status, employee count, gross receipts, and control over ownership interests.

A beneficial owner is defined as an individual who exercises substantial control over a company or owns or controls at least 25% of the company’s ownership interests. This could include senior officers, individuals with authority over appointments, and those with substantial influence over company decisions.

Non-compliance with the CTA can lead to significant penalties, including civil penalties of up to $500 per day and criminal penalties, including fines of up to $10,000 or imprisonment for up to two years. Federal and state law enforcement agencies may access reported information for law enforcement activities, including civil and criminal investigations and actions.

Health Law Highlights

The Corporate Transparency Act: A Reporting Guide for Medical Groups and MSOs

From Sheppard Mullin Richter & Hampton LLP, by John Golembesky, Jordan Grushkin, Leonard Lipsky, Kathleen O’Neill, Richard Rifenbark, and Carolyn Young:

  • The Corporate Transparency Act (CTA) of 2021 mandates that any “reporting company” must submit a Beneficial Ownership Information Report (BOIR) to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). This report includes identification details of the entity’s key owners and leaders, or “beneficial owners”. The CTA primarily targets non-publicly traded entities, including medical groups and management services organizations (MSOs).
  • Entities formed or registered on or after January 1, 2024, must also report information about the individual who oversaw the preparation of the certificate of formation and the person who filed the document with the Secretary of State. However, there are several exceptions to the reporting requirement, including larger, active companies, public companies, and entities that already report to the federal government.
  • Reporting companies registered prior to January 1, 2024, must submit their BOIR by January 1, 2025. Companies registered between January 1, 2024 and January 1, 2025, have 90 days post-registration to file, and those registered after January 1, 2025, have 30 days to file.
  • The CTA’s application to common corporate structures in the healthcare industry raises questions about whether individual leaders of an MSO should be reported as “beneficial owners” of an affiliated medical group. Each reporting company should consider the facts and circumstances of its existing relationships and assess its legal duties and degree of risk tolerance.
  • The BOIR must include information about the reporting company and any beneficial owners, and for companies formed after January 1, 2024, information on company applicants. Beneficial owner information includes each individual’s full legal name, date of birth, residential address, ID number and issuing jurisdiction of a non-expired US passport, driver’s license, or other government-issued ID, and an image/photocopy of such ID.