BILL ANALYSIS                                                                                                                                                                                                    

                                                                    AB 2104

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          Date of Hearing:  May 18, 2016


                               Lorena Gonzalez, Chair

          2104 (Dababneh) - As Amended April 26, 2016

          |Policy       |Health                         |Vote:|18 - 0       |
          |Committee:   |                               |     |             |
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          Urgency:  No  State Mandated Local Program:  NoReimbursable:  No


          This bill allows for-profit skilled nursing facilities (SNFs)  
          that meet certain Medi-Cal participation criteria to access  
          low-interest financing 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). Specifically, this bill:

          1)Adds for-profit SNFs to the list of institutions eligible to  
            participate in both programs. 


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          2)Applies, until January 1, 2024, a prioritization scheme that  
            requires CHFFA and Cal-Mortgage to provide funding in the  
            following order of priority, when providing funding to  
            for-profit SNFs: 

               a)     To skilled nursing facilities for which at least 95  
                 percent of their patients are Medi-Cal beneficiaries.
               b)     To skilled nursing facilities that will construct a  
                 new facility or increase bed capacity at an existing  

               c)     If funding is available and all skilled nursing  
                 facilities described in paragraphs (1) and (2) have been  
                 provided funding, to skilled nursing facilities for which  
                 at least 65 percent of their patients are Medi-Cal  


          FISCAL EFFECT:

               a)     Based on the complexities of this new business  
                 structure and the volume of for-profit loan applications  
                 received, additional personnel at a cost exceeding  
                 $100,000 may be needed to process the applications and  
                 manage the program's expanded portfolio (Health Facility  
                 Construction Loan Insurance Fund).  
               b)     This bill would create an unfunded cost pressure on  
                 the Health Facility Construction Loan Insurance Fund and  
                 the GF, should these higher-risk loans default.  Insuring  
                 loans for for-profit SNFs creates a new business based on  
                 a different corporate and financing structure than the  


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                 existing Cal-Mortgage Program, posing unknown fiscal risk  
                 associated with default.  

               a)     Costs for vetting interested providers and providing  
                 technical assistance would depend on the amount of  
                 interest and number of applications, but additional  
                 personnel at a cost exceeding $100,000 could be necessary  
                 (CHFFA Fund).
               b)     Allowing additional applicants also creates a  
                 pressure on the fund balance in the Health Expansion Loan  
                 Program II (HELP II Loan Program).  CHFFA notes many  
                 current users of this program cannot get loans from  
                 traditional borrowers and are at risk of closing.  The  
                 program helps facilities build a credit history  
                 sufficient to allow access to private loans.  Due to  
                 economic conditions in the health care market, there is  
                 currently a significant fund balance available, and  
                 recent program changes have made the program more  
                 attractive.  Allowing additional applicants to access the  
                 revolving loan fund could eventually constrain supply of  
                 loans available to public and nonprofit entities that are  
                 currently eligible.  


          1)Purpose. This bill seeks to expand state programs that assist  
            health facilities to make low-cost capital improvements to  
            for-profit skilled nursing facilities. 

          2)CHFFA Programs. The CHFFA Bond Financing Program provides a  
            borrower with access to low-interest rate loans through the  
            issuance of tax-exempt revenue bonds. Proceeds from the loan  
            may be used by eligible borrowers to fund  


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            construction/renovation projects and related costs. Given the  
            cost of issuing bonds, this is the option usually pursued by  
            borrowers with capital projects in excess of $5 million.  

            The HELP II Loan Program provides low-interest loans to  
            California's non-profit small or rural health facilities. HELP  
            II loans may be used to purchase or construct new facilities,  
            remodel or renovate existing facilities, purchase equipment or  
            furnishings, and refinance existing debt.  Facilities with  
            gross annual revenues of up to $30 million are eligible for  
            loans under this program. District hospitals and rural health  
            facilities are eligible without any revenue limitations.  
            Applications are accepted on a rolling basis.

          3)Cal-Mortgage.  Cal-Mortgage is a Division of the Office of  
            Statewide Health Planning and Development (OSHPD) that  
            administers the California Health Facility Construction Loan  
            Insurance Program.  This program insures loans to public and  
            non-profit health care facilities for construction,  
            renovation, and expansion projects. According to OSHPD, it  
            facilitates access to private capital at no cost to taxpayers  
            and has helped health care providers enhance the delivery of  
            health care throughout California since 1972. 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.
          4)For-Profit SNFs and Medi-Cal. SNFs care for individuals who  
            are elderly, recovering from illness or injury, or have  
            special needs such as developmental or mental disabilities.   
            The majority of SNFs in California are for-profit. Among  
            health facilities, SNFs are unique in their intimate  


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            relationship with Medi-Cal, which pays for about two-thirds of  
            SNF bed days in the state.  Because Medi-Cal reimbursement is  
            so critical to the viability of the SNF business model, rates  
            for SNFs are developed using a complicated, facility-specific  
            cost-based reimbursement structure with the intent to  
            recognize certain cost categories and provide adequate funding  
            to ensure a high quality of care. 

            This bill could have an indirect impact on Medi-Cal rates.   
            Pursuant to Welfare and Institutions Code 14126.023,  
            recognized cost categories include labor costs, indirect care  
            nonlabor costs, administrative costs, capital costs, and a  
            direct passthrough of proportional Medi-Cal costs for certain  
            taxes, fees, and other costs.  The capital cost category is  
            based on a "fair value rental system" that recognizes the  
            value of the capital related assets necessary to care for  
            Medi-Cal residents. The capital cost category includes  
            mortgage principal and interest, leases, leasehold  
            improvements, depreciation of real property, equipment, and  
            other capital related expenses. The methodology is based on a  
            formula developed by the department that assesses facility  
            value. Capital investment and improvement expenditures  
            included in the formula are documented in cost reports or  
            supplemental reports required by the department.  Thus, it  
            appears to the extent a facility has lower capital costs for  
            an improvement project than it otherwise would for needed  
            improvements, Medi-Cal rates could be lower as well.  The  
            extent to which this would impact rates is unknown.  


          5)Support and Opposition.  California Association of Health  
            Facilities, the sponsor, supports this bill, stating it will  


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            allow facilities to make needed improvements and expand  
            capacity in order to care for the coming "silver tsunami" of  
            aging baby boomers.  California Advocates for Nursing Home  
            Reform and other advocacy groups oppose this bill, citing  
            their belief that allowing for-profit facilities to access  
            this funding will only expand the profits of  
            already-profitable facilities.

          6)Staff Comments. Due to the rolling nature of the applications  
            for assistance through the programs, it is unclear how a  
            tiered prioritization scheme can be effectively implemented.   
            In addition, the sunset applies only to the prioritization  
            scheme, not to the ability of for-profits to access assistance  
            through the programs.  If the opening of these programs to  
            for-profit entities is to be reassessed in several years  
            pursuant to the required report, provisions allowing  
            for-profit entities to access these programs should also  
            include a sunset.   Finally, the requirement to have a certain  
            percentage of a facility's population enrolled in Medicaid is  
            a point-in-time requirement for loan application, but many  
            loans are over a long time horizon, of potentially decades.   
            Is there monitoring required to ensure the threshold is  

          Analysis Prepared by:Lisa Murawski / APPR. / (916)  


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