The September 2022 Terms and Conditions for Phase 4 General Distributions and ARP Rural payments require recipients to notify HHS of a “merger with, or acquisition of, any other healthcare provider” during an applicable reporting period. The present guidance 1 describes the transactions that trigger a reporting requirement (“Reportable Ownership Changes”) and provides information about the effect of these ownership changes on the use and retention of General Distribution and/or ARP Rural payments.
I. Reportable ownership changes
Recipients of PRF distributions should observe the following two general rules in making reports concerning use of funds:
First, the individual or entity who received a distribution is required to report on the use of funds, regardless of changes in ownership described in this guidance. HRSA uses the taxpayer identification number (TIN) associated with the recipient entity to determine who is required to report. The entity holding that TIN (the “Reporting Entity”) remains obligated to submit required reports, even if it no longer owns the healthcare facility for which it received the payments.
Second, a Reportable Ownership Change occurs whenever, after the transaction concludes, a recipient’s healthcare facility is operated under a TIN other than the one associated with the entity that received the funds. Thus, if the assets of a healthcare facility are sold to a new operator who uses a new TIN, the change in ownership must be reported.
The following specific circumstances further describe how such reporting should be addressed.
A. Asset transfers, leases, and other transactions resulting in a new individual or entity owning the healthcare facility.
Reportable Ownership Changes occur when a business entity or individual that received a General Distribution and/or ARP Rural payment [(or which has applied for such a payment)] transfers its assets and/or operations to another individual or entity. Typically, the transferee (the new owner/operator) will operate the healthcare facility through a new business entity after the transfer, utilizing a new TIN. The Reporting Entity must report the transaction as a Reportable Ownership Change and should observe the guidance in Part II below regarding continued use of General Distributions and/or ARP Rural payments.
A Reportable Ownership Change also occurs when the right to operate a healthcare facility that existed under a lease is transferred to a new operator, for example, through a new lease or a sublease. In these circumstances, the new operator will use a new TIN. Thus, if the recipient of a General Distribution or ARP Rural payment operated its healthcare facility under a lease, but a new operator begins operations under a new lease during the Reporting Period, the Reporting Entity (the original lessee) would report the change as a Reportable Ownership Change.
A Reportable Ownership Change also occurs when a Reporting Entity that received a General Distribution and/or ARP Rural payment and utilized that payment for healthcare facilities operated by one or more subsidiaries or affiliated entities, transfers the operations of those healthcare facilities to new entities, either through a transfer of the subsidiary or the affiliate’s assets or equity. Thus, if Parent A receives a distribution and transfers that distribution for use by Subsidiary B, the transfer of Subsidiary B (or transfer of Subsidiary B’s assets) is a Reportable Ownership Change which must be reported by Parent A.
B. Transfers through the acquisition, merger or consolidation of the reporting entity
To determine whether a Reportable Ownership Change occurs through transfer of corporate equity (shares or membership interest, for example), providers generally should observe whether, after the transaction, the TIN associated with receipt of funds continues to be associated with the healthcare facility that has been transferred. Where a Reporting Entity itself is acquired through transfer of equity and continues to operate the healthcare provider using its existing TIN, no Reportable Ownership Change occurs.
There are limited exceptions to this rule. An entity may acquire a new TIN in some circumstances not involving a change in ownership, for example if it receives a new corporate charter or changes its status to a partnership or proprietorship. In such circumstances, if the prior TIN is no longer used, the Reporting Entity should report using its new TIN and should include in its reporting an explanation why its former TIN is no longer used. Although these circumstances are not Reportable Ownership Changes, explanation is necessary to permit HRSA to accurately track the use of funds by an entity which no longer uses its original TIN.
Likewise, a statutory merger is a Reportable Ownership Change, although in this instance it is generally the surviving corporate entity which must report even if it operates the healthcare facility under a new TIN.
If there was a change in a provider’s status (acquisition, merger, or divestiture) during the Period of Availability or the Payment Received Period, the provider can reflect it in their report. They must answer the questionnaire to indicate change, and will be prompted to enter additional information on acquired, merged, or divested subsidiaries, including TIN, effective date, percentage of ownership, and if the Reporting Entity holds controlling interest.
II. Effect of ownership changes on use of funds and reporting
Prior FAQ responses have described the effect of certain ownership changes on the use of General Distributions and ARP Rural payments. The chart below outlines common scenarios describing how recipients undergoing ownership changes should handle the use of funds. The scenarios differ based on whether the selling provider 1) received the payments before or after the ownership change, and 2) closed or transferred its TIN to the purchaser after the transaction.
Unlike the reporting requirements described in Section I, the obligations triggered in these scenarios are applicable to all recipients of General Distribution and ARP Rural payments that experience ownership changes.
| Type of Transaction | Scenario | Can the Recipient Continue to Use the Funds? 2, 3 | Can New Entity Use the Funds? | Who is required to report? |
|---|---|---|---|---|
| Asset transfer and transfer of operations by Recipient. | New Entity receives assets and will operate under a new TIN. | Yes, the Recipient may use funds. | No, the New Entity may not use the funds, and the Recipient may not transfer funds to the New Entity. | The Recipient is required to report on the use of funds, even if it no longer owns the healthcare facility for which it received the payments. |
| Lease of healthcare facility and transfer of operations to New Entity. | New Entity acquires right to operate healthcare facility under sublease or replacement lease. New Entity will operate under a new TIN. | Yes, the Recipient may use the funds. | No, the New Entity may not use the funds, and the Recipient may not transfer funds to the New Entity. | The Recipient is required to report on the use of funds, even if it no longer owns the healthcare facility for which it received the payments. |
| Transfer of Equity of Recipient. | Recipient receives a PRF payment; its shares or membership interests are transferred to a new owner. The Recipient continues to operate using its TIN. | Yes, the Recipient may use the funds. | There is no New Entity in the scenario. The Recipient may continue to use the funds. | The Recipient is required to report on the use of funds. |
| Statutory Merger involving Recipient | Recipient receives a PRF payment; it is later involved in a statutory merger in which its equity shares are extinguished; the New Entity operates using a new TIN. | No, the Recipient ceases to exist. | Yes, the New Entity may continue to use PRF funds. | The New Entity is required to report on the use of funds and should describe the transaction and note it is reporting under a new TIN. |
| Change of business structure of Recipient | Recipient receives a PRF distribution; it changes its structure from a corporation to a limited partnership, and the beneficial owners of the entity remain substantially identical. The entity acquires a new TIN. | No, the Recipient is considered to have become a New Entity (i.e., ceases to exist). | Yes. The New Entity may use the PRF funds. It should note on its reporting that it is reporting under a new TIN. | The New Entity is required to report on the use of funds and should describe the transaction and note it is reporting under a new TIN. |
| Asset transfer of subsidiary Recipient | Recipient receives PRF distributions and transfers to parent for use; Recipient then transfers its assets to a New Entity not owned by the same parents. | Yes, the Recipient or its parent may use the funds. | No, the New Entity is not owned by the same parent as the Recipient and may not use PRF funds. | The Recipient is required to report on the use of funds, even if it no longer owns the healthcare facility for which it received the payments. |
| Equity transfer of subsidiary Recipient | Recipient receives PRF distributions and transfers to parent for use; Recipient is then transferred to new parent, maintaining its TIN. | Yes. Recipient may use PRF funds; Parent must return to Recipient any PRF funds unused prior to transfer. | There is no New Entity in the scenario. | The Recipient is required to report on the use of funds. |
| Asset transfer of Recipient’s subsidiary | Recipient receives a PRF distribution and transfers funds to a subsidiary for use. The subsidiary transfers its assets to a New Entity that is not owned by the same parent. | Yes, the Recipient may use the PRF funds. | No, the New Entity must return to Recipient any PRF funds unused prior to transfer. | The Recipient is required to report on the use of funds. |
| Equity transfer of Recipient’s subsidiary | The Recipient receives a PRF distribution and transfers funds to a subsidiary for use. The subsidiary is transferred to a new parent (through an equity transaction), maintaining its TIN. | Yes. The Recipient may use the PRF funds. | No, the transferred subsidiary must return unused PRF funds to the Recipient prior to transfer. | The Recipient is required to report on the use of funds. |
- This guidance revises prior guidance concerning mergers and acquisitions posted here by HRSA. Because only the Terms and Conditions applicable to Phase 4 and ARP Rural payments specify a reporting requirement, only those who received such payments are required to apply this guidance when reporting Reportable Ownership Changes. Recipients of distributions other than Phase 4 and ARP Rural payments may, but are not required to, apply the same definitions for reporting on funds in other Reporting Periods.
- In each scenario, it is understood that the entity must be in compliance with the Terms and Conditions of the payment (e.g., allowable uses of funds and providing services on or after January 31, 2020).
- In each scenario, the Recipient’s application for funding includes tax returns or other supporting documentation that shows the healthcare facility was being operated by the Recipient.