BILL ANALYSIS Ó AB 2104 Page 1 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. AB 2104 Page 2 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 authorities. AB 2104 Page 3 FISCAL EFFECT: This bill has not yet been analyzed by a fiscal committee. COMMENTS: 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 AB 2104 Page 4 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 AB 2104 Page 5 entities." 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 insurance. 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 AB 2104 Page 6 objectives. CAHNR argues that it will instead expand the profits of already profitable entities. 5)PREVIOUS LEGISLATION. a) SB 315 (Monning and Hernández) 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. 6)COMMENTS AND QUESTIONS. 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? REGISTERED SUPPORT / OPPOSITION: AB 2104 Page 7 Support California Association of Health Facilities (sponsor) Opposition California Advocates for Nursing Home Reform Analysis Prepared by:John Gilman / HEALTH / (916) 319-2097