Provides for the rate of payment for certain residential health care facilities which are in receivership and have agreed to improve their facilities

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.