BILL ANALYSIS Ó
AB 2104
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Date of Hearing: May 18, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2104 (Dababneh) - As Amended April 26, 2016
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
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
facility.
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
beneficiaries.
FISCAL EFFECT:
1)Cal-Mortgage:
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.
2)CHFFA:
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.
COMMENTS:
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
maintained?
Analysis Prepared by:Lisa Murawski / APPR. / (916)
319-2081
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