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.