You asked for a preliminary analysis of SB 32, An Act Concerning the Financial Condition of Nursing Homes.

All of the provisions are effective upon passage.

Section 1 requires a nursing home to apply to the Department of Social Services (DSS) for a certificate of need (CON) whenever a transfer of its ownership or control is proposed, not just when this occurs before the home is first licensed. Because of the current moratorium on new nursing home beds, an entity can assume ownership of existing beds only through such a transfer. Therefore, DSS is not currently issuing CONs to these entities.

The bill applies to all proposed transfers the current requirement that a CON applicant submit a letter of intent to DSS before submitting the CON application. And it consequently extends to any home proposing an ownership or control transfer the current requirement that it notify the Office of the Long Term Care Ombudsman that it has submitted a letter of intent.

The bill adds the following factors for DSS to consider when it reviews a CON application for a transfer of ownership or control: the applicant's financial viability, the impact of the transfer on the facility rate, and the

financial condition of the applicant. Current law requires DSS to consider the applicant's financial responsibility and business interests and whether the applicant is able to continue to provide needed services.

The bill makes DSS CON requirements similar to the CON requirements for health care facilities under the Office of Health Care Access's (OHCA) jurisdiction. OHCA must review CON applications for the transfer of ownership or control of a health care facility's license at any time, not just before initial licensure (CGS § 19a-638). Nursing homes and other facilities under DSS's CON jurisdiction are exempt from this requirement (CGS § 19a-639a).

In addition, current law requires the Department of Public Health (DPH) to give its prior approval if there is a change in ownership or beneficial ownership of 10% or more of the stock of a corporation that owns or operates a nursing home (CGS § 19a-493). The applicant must meet all DPH licensure requirements, submit to a criminal background check of its officers and directors, provide additional information, and formally agree to comply with the Public Health Code. And the home must pass a DPH inspection.

Sections 2 and 9 prohibit DPH, starting July 1, 2008, from issuing or renewing a nursing home license unless both the nursing home business and the real estate on which the home is operated are owned by a single entity. The bill allows the DPH commissioner to make an exception if, after consultation with the DSS commissioner, he finds that the license is necessary to protect the health and safety of the nursing home residents.

The bill does not define “single entity,” and it is unclear whether it would allow separate ownership by affiliates of the same parent corporation. It is also unclear whether real estate means the land only or both the land and the facility. Some nursing homes may own the facility but lease the land on which the facility is located.

Section 3 prohibits a court, in certain situations, from setting allowable property costs for nursing homes in receivership that exceed the fair rental allowance DSS sets for the facility.

By law a receiver may not be required to honor a nursing home's lease or mortgage agreement if a court finds (1) the payment is due to someone who was an owner or controlling stockholder of the home when the agreement was made, or their affiliate or (2) the rent or property costs were substantially higher than what was reasonable at the time the contract was made. If the court grants such an exception but the real estate is necessary to continue to operate the home, the receiver can ask the court to set reasonable property costs (rent, price, or interest rate) for the receiver to pay. The bill caps these property costs at the fair rental allowance DSS sets for the facility. Current law sets no limits on the amount the receiver may request.

Section 4 removes three members from the Nursing Home Financial Advisory Committee: the director of the Office of Fiscal Analysis or his designee and one representative each from the nonprofit and for-profit nursing home industries. The DSS and DPH commissioners or their designees, the secretary of OPM or his designee, and the executive director of the Connecticut Health and Educational Facilities Authority (CHEFA) or his designee remain committee members.

The bill requires the committee to recommend appropriate action to the DPH commissioner as well as the DSS commissioner when it receives a report relating to nursing homes' financial solvency and quality of care. And, starting January 1, 2010, it requires the committee to report annually on its activities to the Appropriations Committee, as well as the Human Services, Public Health and Aging committees.

Section 5 establishes new financial reporting requirements for nursing homes and residential care homes. The bill requires every such home to submit a quarterly report to the DSS commissioner on its accounts payable by vendor and by days outstanding. If the report indicates a facility is experiencing financial problems, the commissioner (1) must obtain its annual audited financial statements and (2) may require the facility to report additional financial information including debt agreements and interim financial statements. If a nursing home is owned by an entity with multiple facilities, the commissioner may require the entity to report financial information on any of its facilities.

The bill establishes criteria for the commissioner to use to evaluate the financial condition of a nursing home, including:

1. the frequency of Medicaid advances granted in accordance with PA 7-01 JSS;

2. unfavorable working capital ratios of assets to liabilities;

3. a high proportion of accounts receivable or payable for more than 90 days ;

4. significant increases in accounts payable, unpaid state or municipal taxes, state user fees, or payroll related costs;

5. minimal or decreasing equity or reserves;

6. high levels of debt and high borrowing costs or significant increases in these; and

7. significant operating losses for two or more consecutive years.

If, after reviewing financial information, the commissioner determines that a facility's financial condition is changing for the worse, he must notify the DPH commissioner and require the nursing home to submit monthly reports on cash availability, vendor payment status, and employee payrolls. The commissioner may ask a home to submit additional financial information to make that determination.

The bill also requires the DSS commissioner to report to the Nursing Home Financial Advisory Committee if he finds that a home is in financial distress and may not meet its operating costs.

Currently, nursing homes annually submit financial information to DSS for the purpose of per-diem rate setting. Information submitted includes expenditures, revenue, and balance sheet data and is audited by DSS. But, this information is not used to determine the home's financial viability.

Section 6 requires nursing home management companies annually to report their costs to DSS.

Section 7 requires the DSS commissioner to establish reasonable rates of indebtedness for nursing homes in consultation with the banking commissioner and CHEFA's executive director. It prohibits nursing homes or any property owners related to a home from increasing their property lease payments or their indebtedness beyond the established levels without the DSS commissioner's permission. It is unclear how this provision relates to Section 2 of the bill, which requires homes to be owned by a single entity. DSS must approve, deny, or modify a home's request within 60 days after the home submits any information the commissioner asks for.

Section 8 adds a new ground on which the court can appoint a receiver for a nursing home: the DSS commissioner's determination that the facility has inappropriately used state or federal funds in a way that may jeopardize the financial solvency of the facility. The bill does not define inappropriate use.

Currently, a court may appoint a receiver for a nursing home if the facility (1) is operating without a license or its license has been suspended or revoked, (2) intends to close and has not made adequate arrangements to relocate its residents at least 30 days before closing, (3) experienced or is likely to experience a serious financial loss or failure that jeopardizes the health and safety of its residents and (4) substantially violates the Public Health Code or other state laws or Medicaid or Medicare rules.

Section 10 repeals a law (CGS §17b-4 (c)) authorizing DSS, in conjunction with DPH, to adopt regulations to establish reporting requirements regarding nursing homes' financial solvency and quality of care. The purpose of the regulations is to determine the financial viability of nursing homes and to identify those homes experiencing financial distress. It requires these reports to be submitted to the Nursing Home Financial Advisory Committee.

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