BILL NUMBER:S5739

TITLE OF BILL:  An act to amend the public health law, in relation to
rates of payment to residential health care facilities based on the
historical costs to the owner

PURPOSE OR GENERAL IDEA OF BILL:  This legislation would make a very
narrow exception to provisions of Public Health Law section 2808 (2-a)
(d), to permit the receipt of Medicaid capital cost reimbursement that
includes the real property purchase price of a residential health care
facility granted an operating certificate on or after March 10, 1975
when there is a change in ownership following period of a
court-ordered receivership.

SUMMARY OF PROVISIONS:

Section 1: Amends Public Health Law section 2808(2-a) (d) as it
relates to establishing a limited capital reimbursement exception for
a nursing facility which is sold or transferred that recognizes, in
addition to the interest payments, the purchase price of real property
when calculating Medicaid capital cost reimbursements, but only when
each of the following conditions are present:

1. The facility must be purchased and transferred immediately
following the operation of such facility under a court-ordered
receivership.
              

2. The facility must have been continuously operated and occupied
primarily with persons who are in receipt of Medicaid benefits from
the time that the receivership was established until the time of
purchase or transfer.

3. The Public Health and Health Planning Council (Council) has
considered the application for transfer of the facility and approved
the application as an addition of "net new beds";

4. The Commissioner of Health has required significant upgrade to the
facility's physical plant in consideration of the transfer.

5. The Commissioner has determined each of the following conditions is
true:

(a) there is a continuing need for the beds at their current location:

(b) the estimated total project cost for new construction of a
facility of the same bed capacity in the area would substantially
exceed the combined purchase price and total project cost for approved
renovation costs of the revalued facility;

(c) the purchase price is reasonable and the revaluation will be based
upon the lower of the appraised fair market value or the purchase
price; and

(d) the sale of the facility is in the public interest.

JUSTIFICATION:  In the early years of the Medicaid program,
residential health care facilities received Medicaid real property


reimbursement consisting of interest expenses of mortgage debt and
depreciation for buildings based on the cost of new construction or
the purchase price. Over time, it appeared that sales of some nursing
facilities may have been unrelated to facility operations, but rather
were intended to increase the "basis" upon which depreciation was
calculated to increase reimbursements. This resale, or so-called
"churning" of nursing home real property raised concerns of the former
Public Health Council (PHC) because of the escalation of Medicaid
costs, without improving patient care.

As a result, the PHC made recommendations for reform that culminated
in a revision of the Public Health Law (PHL) Section 2808, to limit
the Medicaid capital cost reimbursement by prohibiting the rebasing or
revaluing of real property after the sale of an existing nursing
facility, based upon the facility purchase price.

However, as applied, this statutory provision can result in unintended
consequences, higher costs to the State, and poor public policy.
Specifically, in 2014, the Public Health and Health Planning Council
approved a Certificate of Need (CON) application for the purchase and
renovation of a Bronx nursing facility. The CON approval was for "net
new beds" because DOH had revoked the operating certificate of the
previous owner in 2009 and the facility has been subsequently operated
by a court ordered receiver (The proposed purchaser of this facility
was appointed as its new receiver on February 1, 2015). The approved
CON reduced the approved capacity of the facility from 400 to 385
beds, and required the purchaser to make significant renovations
intended to greatly improve conditions at the facility and to reflect
substantial compliance with current codes, including handicapped
accessibility standards.

The proposed purchase price of this facility is $30 million (net of
seller credit for liability assumption) and the estimated cost of
renovations required by DOH is $27.4 million. Under current PHL
section 2808, the $27.4 million renovation costs, or $71,169 per bed,
can be reimbursed under the Medicaid capital cost reimbursement rules.
However, the full $30 million purchase price cannot be reimbursed. If
the purchase price and renovations ($ 57.4 million) were to be
reimbursable, the cost per bed would be $149,000.

By contrast, the currently effective (2010) nursing home capital
reimbursement bed cap for new nursing facility beds in the Bronx is
$352,000 per bed. Therefore, if a new facility of 385 beds were to be
built and reimbursed at the bed cap, it would cost a total of $135.5
million. In fact, DOH has stated that there would be no impediment
under PHL section 2808 to having these full costs reimbursed. This
allowable cost for newly constructed beds is more than double the cost
per bed for the proposed Bronx project ($352,000 vs. $149,000 per
bed), even if the net purchase price of $30 million were to be
reimbursed.

In addition, a competing CON application that was subsequently
withdrawn, proposed a new replacement facility of 320 beds at a total
project cost of $102 million, or $318,750 per bed, more than double
the proposed cost of the renovated facility.


This legislation would make a very limited exception to the general
rule prohibiting capital cost reimbursement of the purchase price
after the sale of a nursing facility.

Clearly, these nursing facility beds are needed, and without the
option afforded by this legislation the cost to the State for
construction of a new facility would be far greater. At the permitted
bed cap, the additional cost would be ($135.5 M vs $57.4 M) or an
additional $78.1 million.

PRIOR LEGISLATIVE HISTORY: New Bill

EFFECTIVE DATE:Immediate.

                                 BILL NUMBER:  S5739B

 TITLE OF BILL :

An act to amend the public health law, in relation to rates of payment
to residential health care facilities based on the historical costs to
the owner

 PURPOSE OR GENERAL IDEA OF BILL :

This legislation would make a very narrow exception to provisions of
Public Health Law section 2808 (2-a) (d), to permit the receipt of
Medicaid capital cost reimbursement that includes the real property
purchase price of a residential health care facility granted an
operating certificate on or after March 10, 1975 when there is a
change in ownership following period of a court-ordered receivership.

 SUMMARY OF PROVISIONS :

Section 1: Amends Public Health Law section 2808(2-a) (d) as it
relates to establishing a limited capital reimbursement exception for
a nursing facility which is sold or transferred that recognizes, in
addition to the interest payments, the purchase price of real property
when calculating Medicaid capital cost reimbursements, but only when
each of the following conditions are present:

              

1. The facility must be purchased and transferred immediately
following the operation of such facility under a court-ordered
receivership.

2. The facility must have been continuously operated and occupied
primarily with persons who are in receipt of Medicaid benefits from
the time that the receivership was established until the time of
purchase or transfer.

3. The Public Health and Health Planning Council (Council) has
considered the application for establishment of a new operator of a
residential health care facility at the site of the facility;

4. The Commissioner of Health has required significant upgrade to the
facility's physical plant in consideration of the approval of the
construction of a residential health care facility at the site of the
facility.

5. The Commissioner has determined each of the following conditions is
true:

(a) there is a continuing need for the beds at their current location:

(b) the estimated total project cost for new construction of a
facility of the same bed capacity in the area would substantially
exceed the combined purchase price and total project cost for approved
renovation costs of the revalued facility;

(c) the purchase price is reasonable and the revaluation will be based
upon the lower of the appraised fair market value or the purchase
price; and

(d) the sale of the facility is in the public interest.

Section 2: Amends Public Health Law section 2808 in exactly the same
way as it was done in bill section 1 above. This provision was added
so that in case the underlying law contained in bill section 1
sunsets, that the provisions of this bill will be included in the
underlying law as it was amended by the laws of 1978. Hence, this is
the only change between the "A" and "B" print of this bill.
 JUSTIFICATION :

In the early years of the Medicaid program, residential health care
facilities received Medicaid real property reimbursement consisting of
interest expenses of mortgage debt and depreciation for buildings
based on the cost of new construction or the purchase price. Over
time, it appeared that sales of some nursing facilities may have been
unrelated to facility operations, but rather were intended to increase
the "basis" upon which depreciation was calculated to increase
reimbursements. This resale, or so-called "churning" of nursing home
real property raised concerns of the former Public Health Council
(PHC) because of the escalation of Medicaid costs, without improving
patient care.

As a result, the PHC made recommendations for reform that culminated
in a revision of the Public Health Law (PHL) Section 2808, to limit
the Medicaid capital cost reimbursement by prohibiting the rebasing or
revaluing of real property after the sale of an existing nursing
facility, based upon the facility purchase price.

However, as applied, this statutory provision can result in unintended
consequences, higher costs to the State, and poor public policy.
Specifically, in 2014, the Public Health and Health Planning Council
approved a Certificate of Need (CON) application for the purchase and
renovation of a Bronx nursing facility. The CON approval was for "net
new beds" because DOH had revoked the operating certificate of the
previous owner in 2009 and the facility has been subsequently operated
by a court ordered receiver (The proposed purchaser of this facility
was appointed as its new receiver on February 1, 2015). The approved
CON reduced the approved capacity of the facility from 400 to 385
beds, and required the purchaser to make significant renovations
intended to greatly improve conditions at the facility and to reflect
substantial compliance with current codes, including handicapped
accessibility standards.

The proposed purchase price of this facility is $30 million (net of
seller credit for liability assumption) and the estimated cost of
renovations required by DOH is $27.4 million. Under current PHL
section 2808, the $27.4 million renovation costs, or $71,169 per bed,
can be reimbursed under the Medicaid capital cost reimbursement rules.
However, the full $30 million purchase price cannot be reimbursed. If
the purchase price and renovations ($ 57.4 million) were to be
reimbursable, the cost per bed would be $149,000.

By contrast, the currently effective (2010) nursing home capital
reimbursement bed cap for new nursing facility beds in the Bronx is
$352,000 per bed. Therefore, if a new facility of 385 beds were to be
built and reimbursed at the bed cap, it would cost a total of $135.5
million. In fact, DOH has stated that there would be no impediment
under PHL section 2808 to having these full costs reimbursed. This
allowable cost for newly constructed beds is more than double the cost
per bed for the proposed Bronx project ($352,000 vs. $149,000 per
bed), even if the net purchase price of $30 million were to be
reimbursed.

In addition, a competing CON application that was subsequently
withdrawn, proposed a new replacement facility of 320 beds at a total
project cost of $102 million, or $318,750 per bed, more than double
the proposed cost of the renovated facility.

This legislation would make a very limited exception to the general
rule prohibiting capital cost reimbursement of the purchase price
after the sale of a nursing facility.

These nursing facility beds are needed, and without the option
afforded by this legislation the cost to the State for construction of
a new facility would be far greater. At the permitted bed cap, the
additional cost would be ($135.5 M vs $57.4 M) or an additional $78.1
million.

 PRIOR LEGISLATIVE HISTORY :

New Bill

 EFFECTIVE DATE :
Immediate.