BILL ANALYSIS                                                                                                                                                                                                    ”

                                                                    AB 2104

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          Date of Hearing:  April 19, 2016 

                            ASSEMBLY COMMITTEE ON HEALTH

                                   Jim Wood, Chair

          AB 2104  
          (Dababneh) - As Amended March 28, 2016

          SUBJECT:  California Health Facilities Financing Authority Act:   
          California Health Facility Construction Loan Insurance Law.

          SUMMARY:  Permits a for-profit skilled nursing facility (SNF)  
          when at least 60% of its patients are Medi-Cal beneficiaries to  
          access funding under the California Health Facilities Financing  
          Authority (CHFFA) Act and insurance under the California Health  
          Facility Construction Loan Insurance Program (Loan Insurance  
          Program) administered by the Cal-Mortgage Loan Insurance  
          Division (Cal-Mortgage).  

          EXISTING LAW:  

          1)Establishes CHFFA in the Office of the State Treasurer,  
            consisting of nine members, including the Treasurer who serves  
            as Chairman.

          2)Permits CHFFA to make loans from the continuously appropriated  
            CHFFA Fund to public or nonprofit health institutions for  
            financing or refinancing the acquisition, construction, or  
            remodeling of health facilities. 


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          3)Requires, for the purposes of CHFFA's loans, a nonprofit  
            health institution to include, but not be limited to:  general  
            acute care hospital; acute psychiatric hospital; SNF;  
            intermediate care facility (ICF); special health care facility  
            that provides medical, nursing, rehabilitation, dental, or  
            maternity services; clinic; adult day health center;  
            county-operated health facility; residential facility for the  
            elderly that is operated as a part of, or in conjunction with,  
            an ICF, SNF, or general acute care hospital; child day care  
            facility operated in conjunction with a health facility; ICF  
            for the developmentally disabled/habilitative, that is a  
            health facility; community care facility; accredited community  
            work-activity program; community mental health center; speech  
            and hearing center; or, blood bank. 

          4)Establishes Cal-Mortgage as a Division of the Office of  
            Statewide Health Planning and Development.  Cal-Mortgage  
            administers the Loan Insurance Program.  Cal-Mortgage provides  
            credit enhancement for eligible health care facilities when  
            they borrow money for capital needs. Cal-Mortgage insured  
            loans are guaranteed by the "full faith and credit" of the  
            State of California.  This guarantee permits borrowers to  
            obtain lower interest rates, similar to the rates received by  
            the State of California.

          5)Requires that health facilities eligible for the Loan  
            Insurance Program be owned and operated by private nonprofit  
            public benefit corporations or political subdivisions such as  
            cities, counties, health care districts, or joint powers  


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          FISCAL EFFECT:  This bill has not yet been analyzed by a fiscal  


          1)PURPOSE OF THIS BILL.  According to the author, California  
            continues to see 1,100 residents turn 65 years-old every day  
            and must appropriately plan and provide for this "Silver  
            Tsunami."  Meanwhile, one in three Californians are on  
            Medi-Cal and approximately two-thirds of patients in SNFs are  
            Medi-Cal beneficiaries. California SNFs are a needed  
            safety-net to provide quality and ever-changing long-term care  
            and rehabilitation services for this population.

          Unfortunately, the state has seen less than 10 SNFs built in the  
            past 10 years and our SNF bed capacity has remained stagnant.  
            Currently, the bed occupancy rate for California SNFs is about  
            88%.  The California HealthCare Foundation (CHCF) predicts the  
            demand for SNF beds in California will exceed supply by 2020.   
            This bill helps California prepare for this increased demand.

          2)BACKGROUND.  CHFFA was created in 1979 to be the state's  
            vehicle for providing financial assistance to public and  
            nonprofit health care providers through loans funded by the  
            issuance of tax-exempt bonds.  CHFFA's mission is to help  
            eligible and creditworthy non-profit and public health  
            facilities reduce their cost of capital, and promote important  
            California health access, healthcare improvement and cost  
            containment objectives by providing cost-effective tax-exempt  
            bond, low-cost loan, and direct grant programs.  To this end,  
            CHFFA administers the Bond Financing Program and the  
            Tax-Exempt Equipment Financing Program.  CHFFA also provides  
            direct loans to small and rural health facilities through the  
            Healthcare Expansion Loan Program II Financing Program and the  
            Medi-Cal Bridge Loan Program.  Additionally, CHFFA administers  
            two grant programs, the Community Clinic Grant Program and the  
            Children's Hospital Program, to provide funding to community  


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            clinics and 13 of the state's children's hospitals.

          By borrowing through CHFFA, health facilities can likely obtain  
            lower interest rates than they would through conventional  
            bonds.  Generally, nonprofit, licensed health facilities in  
            California, including adult day health centers, community  
            clinics, SNFs, developmentally disabled centers, hospitals,  
            and drug and alcohol rehabilitation centers are eligible for  
            CHFFA financing.  Proceeds from CHFFA financings may be used  
            for project-related costs, including: construction; remodeling  
            and renovation; land acquisition (as part of the proposed  
            project); acquisition of existing health facilities; purchase  
            or lease of equipment; refinancing or refunding of prior debt;  
            working capital for start-up facilities; costs of bond  
            issuance; feasibility studies; and, reimbursement of prior  
            expenses.  Under statute, savings resulting from issuance of  
            tax-exempt bonds for borrowers must be transferred to the  
            consuming public through lower or contained costs for delivery  
            of health services.  Since its inception, CHFFA has issued  
            over $31 billion in bonds.  In 2014, $894,100,000 in bonds  
            were issued.  

            According to the State Treasurer, there is no limit on the  
            total amount of bonds that CHFFA can issue.  However, OSHPD  
            reports that there is a $3 billion dollar ceiling on the total  
            amount of loans that can be insured by Cal-Mortgage.  Of the  
            $3 billion limit, Cal-Mortgage currently insures loans  
            totaling $1.76 billion, leaving $1.24 billion in available  
            capacity.  In response to questions regarding Cal-Mortgage  
            capacity, OSHPD states the following:  "While the available  
            capacity isn't currently spoken for, the amount varies based  
            on the demand in the market for construction financing through  
            the program versus repayments by existing insured borrowers.   
            Changes in the financial markets such as a rise in interest  
            rates could possibly make the Program a popular financing  
            option.   If for-profit SNFs became eligible for the Program,  
            this could eventually result in reduced capacity for other  


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          3)SUPPORT.  The California Association of Health Facilities  
            (CAHF), the sponsor of this bill,   argues this bill is needed  
            to meet the demand of an aging population and the increased  
            reliance on Medi-Cal for SNF care.  The rapidly aging  
            population has created a tremendous need for the California's  
            long-term care providers, both for profit and nonprofit, to  
            remodel and renovate existing facilities, and build new ones  
            in order to expand bed capacity and meet the increasing demand  
            for long-term care services. This bill utilizes existing  
            financing and insurance programs and expands those programs to  
            for profit SNFs that serve primarily Medi-Cal patients.   
            Medi-Cal beneficiaries utilize approximately two-thirds of  
            patient days in for profit SNFs which are a critical safety  
            net to provide patients quality long-term care.  CHCF predicts  
            demand for skilled nursing facility beds in California will  
            exceed supply by 2020.  It is crucial that California  
            appropriately plan and provide for this "silver tsunami".   
            Less than 10 skilled nursing facilities have been built in  
            California in the past 10 years and SNF bed capacity has  
            remained stagnant.  Reimbursement under the Medi-Cal program  
            does not provide the amount of excess dollars needed for SNFs  
            to afford to remodel or renovate their buildings using  
            conventional financing.  According to CAHF, this bill will not  
            negatively impact access by nonprofit and public health care  
            facilities to either CHFFA loan money or Cal-Mortgage loan  

          4)OPPOSITION.  California Advocates for Nursing Home Reform  
            (CANHR) argues that expanding CHFFA and the Cal-Mortgage  
            programs to for-profit SNFs will do nothing to promote the  
            mission of these programs which includes promoting health  
            access, healthcare improvement, and cost containment.  CANHR  
            states that this bill will not accomplish any of those  


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            objectives.  CAHNR argues that it will instead expand the  
            profits of already profitable entities. 


             a)   SB 315 (Monning and HernŠndez) of 2015 would have  
               authorized CHFFA to transfer up to $3 million from its  
               Hospital Equipment Loan Program Fund for use in a second  
               California Health Access Model Program competitive grant  
               selection process.  SB 315 died on the Assembly floor.

             b)   AB 272 (Monning) of 2012 would have permitted CHFFA to  
               award grants that in the aggregate did not exceed $1.5  
               million to projects designed to demonstrate new or  
               cost-effective methods of delivering health care services  
               to improve access to quality health care for vulnerable  
               populations or communities that are effective at enhancing  
               health outcomes, and improving access to quality health  
               care.  AB 272 died on the Senate floor.


             a)   This bill should have a sunset date and a requirement  
               that information on the bill's effectiveness and its impact  
               on nonprofit and public entities currently eligible for  
               CHFFA and Cal-Mortgage be tracked through existing  
               reporting requirements of both agencies.  

             b)   To encourage increased SNF bed capacity, should this  
               bill be limited to new construction and remodeling that  
               includes an increased number of beds?




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          California Association of Health Facilities (sponsor)


          California Advocates for Nursing Home Reform

          Analysis Prepared by:John Gilman / HEALTH / (916) 319-2097