Diversifying the financial resources of your private practice and owning the medical technology you use may seem like a good idea, but a federal law that was designed to protect consumers from corporate criminals could end up interfering with the best of plans—or at least require additional documentation.
The Corporate Transparency Act is a federal law that was enacted in 2021 and implementing regulations affecting some physician practices were set to take effect Jan. 1, 2025. But December saw a flurry of court rulings that ultimately put the law’s implementation on hold—for now.
On Dec. 3, a federal district court in the Eastern District of Texas granted a nationwide preliminary injunction to stay enforcement of the statute and any regulations implementing these beneficial ownership information-reporting requirements. The order—issued in the case of Texas Top Cop Shop Inc. et al. v. Garland et al.—also stayed all deadlines to comply with the law’s reporting requirements.
Then the Justice Department filed an appeal of the order Dec. 5, on behalf of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). On Dec. 23, a motions panel of the 5th U.S. Circuit Court of Appeals lifted the stay. Then the day after Christmas, a merits panel of the same appeals court reached a different conclusion, overruling its peer panel, and again putting a stay on the law’s implementation.
“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force,” said the agency in a Jan. 2 update. “However, reporting companies may continue to voluntarily submit beneficial ownership information reports.” Texas Top Cop Shop is just one of the lawsuits challenging the federal law, several of which have come to the exact opposite legal conclusions.
On Dec. 31, the U.S. Justice Department asked the U.S. Supreme Court to stay the injunction issued by the U.S. District Court for the Eastern District of Texas, as noted in an update from the well-known Polsinelli Law Firm. Supreme Court Justice Samuel Alito—who’s assigned to handle the matters arising from the 5th Circuit for the high court—asked the respondent-plaintiffs to file their motion to the Justice Department’s stay request by Jan. 10.
Purpose of the law
The Corporate Transparency Act is intended to combat the use of shell companies to launder money—particularly money related to bioterrorism, the drug trade and human trafficking—by requiring small businesses that might otherwise fly under the radar to disclose their beneficial owners.
A “beneficial owner” is defined as any individual who owns or controls at least 25% of the economic interest in the company. Beneficial owners also include individuals who may exercise substantial control over the company, even if they do not have an ownership interest, such as the president, CEO, chief operating officer and chief financial officer.
Physician private practices do not ordinarily skirt close to the criminal issues that drove the development of the law. However, they can and do invest in related business and doing so may bring them under the disclosure provisions of the law—if those provisions are ultimately upheld in court—according to lawyers Stephen Angelette and William Quick of Polsinelli.
Why do these businesses attract so much attention? Medicare.
The Centers for Medicare & Medicaid Services (CMS) and the Office of Inspector General (OIG) have long expressed concerns with the challenges of prospectively identifying “bad actors” who participate in Medicare, particularly through direct or indirect ownership in providers and suppliers enrolled in the services.
More compliance information for “small entities” is available from the Treasury Department’s Financial Crimes Enforcement Network.
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Management services may be vulnerable
For example, physician practices that accept Medicare and invest in management-service operations and medical services such as nursing homes that are supported by Medicare may be subject to this law, if it’s upheld in court. And while these service companies are legitimate entities, they have a history of introducing “bad actors “ into the practice and Medicare relationships, Angelette and Quick noted in an interview with the AMA.
In an essay for the American Health Law Association last year, Angelette described how these businesses have a history of misuse. Angelette noted that numerous suppliers of durable medical equipment, prosthetics, orthotics and other supplies, as well as home-health agencies with outstanding Medicare debts, may inappropriately receive Medicare payments by, among other means, operating businesses that are “publicly fronted by business associates, family members or other individuals posing as owners.”
Specifically, providers and suppliers would hide their true ownership, bill the Medicare program millions of dollars, then close down, take over another company and repeat the process, he explained.
As a result, the Corporate Transparency Act—if upheld—would require beneficial owners to identify themselves to avoid the prospect of fraud. The latest information on the status of the law’s requirements is available at the FinCEN website.
Casting a wide net
According to MagMutual, a medical liability insurer, “the law is designed to cast a wide net over entities that, except in the case of taxes, are not regulated by federal agencies, regardless of the degree to which they are regulated at the state level. It applies to millions of businesses across the U.S., including many medical practices that are incorporated.
“If you filed paperwork with your state to form your ancillary business, whether it be a corporation, professional corporation (PC) or limited liability company (LLC), the law most likely applies to you,” says an article on the carrier’s website. “This includes solo medical corporations. If you have a medical practice that is incorporated and its owners include solo medical corporations, both the practice and the solo medical corporations are required to file.”
That would not apply, however, to physicians practices structured as sole proprietorships or general partnerships not registered with a secretary of state or similar state office. The law, if upheld, also would not apply to 501(c) non-profit organizations or inactive entities, and may also not apply to medical groups that have more than 20 full-time employees and annual gross receipts of more than $5 million, the insurer’s website says.
