AN ACT CONCERNING THE STRENGTHENING OF NURSING HOME OVERSIGHT.

This bill makes numerous changes in the law related to the financial oversight, management, operation, and licensure of nursing homes. It:

1. establishes new financial reporting requirements for nursing homes and nursing facility management services certificate holders;

2. allows the court to appoint a receiver of a nursing home upon a finding of “severe financial distress; ”

3. makes changes to the Department of Public Health's (DPH) certification process for management companies operating nursing homes;

4. requires nursing home property or building owners to comply with Public Health Code requirements concerning property maintenance and repair;

5. requires nursing home owners to annually submit to DSS along with their cost reports, proof of liability insurance coverage;

6. changes the certificate of need (CON) and licensure requirements when a nursing home changes ownership;

7. places certain restrictions on a nursing home operator's ability to acquire a nursing home if the operator violates nursing home laws in Connecticut or in another state or has nursing home problems related to Medicare and Medicaid;

8. makes changes to the membership and duties of the Nursing Home Financial Advisory Committee; and

9. places restrictions on nursing home indebtedness, rental payments, loan payments, and management fees.

(Different sections of the bill apply to different types of facilities. Some apply just to nursing homes, others apply also to residential care homes, rest homes, and intermediate care facilities for the mentally retarded. )

EFFECTIVE DATE: October 1, 2009, except for the provisions pertaining to CON; financial reporting requirements; the Nursing Home Financial Advisory Committee; liability insurance coverage; debt, rent, loan and management fee restrictions and allowable property costs for homes in receivership, all of which take effect upon passage.

The bill establishes new financial reporting requirements for nursing homes. Beginning July 1, 2010, it requires every home to obtain an annual independent audit and submit a copy of it to the DSS commissioner. The commissioner may also require homes to submit quarterly accounts payable reports in a format he prescribes. If the reports indicate a home is experiencing financial distress, the commissioner may require the home to report additional financial information, including debt agreements and interim financial statements.

The commissioner may also require any nursing facility management services certificate holder or any individual or entity that has at least a 10% beneficial ownership in the certificate holder or a nursing home to report financial information on any homes it owns, including those in other states. Under the bill, “beneficial ownership” includes ownership through any level or relationship of parent and subsidiary corporations or partnerships.

If, after reviewing the above financial information or the home's annual cost report (financial information submitted annually to DSS for the purposes of rate setting), the DSS commissioner determines that a home's financial condition has changed for the worse, he must notify the DPH commissioner. He may also require the nursing home to report (1) monthly on its cash availability, vendor payment status, and employee payrolls; and (2) additional financial information to help determine the home's financial condition. The bill also requires him 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.

The bill establishes criteria for the DSS commissioner to use to evaluate whether a nursing home's financial situation has deteriorated, including:

1. the frequency of Medicaid advances DSS grants to it as permitted by law;

2. unfavorable ratios of working capital 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 local taxes, state user fees, or payroll related costs;

5. minimal or decreasing equity or reserves;

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

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

Currently, nursing homes annually submit financial information to DSS for the purpose of rate setting. The information they submit includes expenditure, revenue, and balance sheet data. DSS audits this information but does not use it to determine the home's financial viability.

The bill allows the DPH commissioner when conducting an inquiry or investigation involving any healthcare institution to (1) issue subpoenas and (2) order the production of books, records, and documents. The law already allows the commissioner to do this when conducting a hearing. The law also allows him to inspect facilities, administer oaths, and take testimony under oath.

The bill allows the DSS commissioner, or his designee, to examine or audit the financial records of a nursing facility management certificate holder when the commissioner believes it is necessary or either the Office of Health Care Access or Nursing Home Financial Advisory Committee requests it. It requires nursing facility management certificate holders, as nursing homes must currently do, to (1) maintain all financial information, data, and records of operation for at least 10 years; and (2) maintain all financial information, data, and records relating to any real estate transactions affecting its operation for at least 25 years.

Finally, when conducting an inquiry, examination, or investigation of a nursing home or nursing facility management services certificate holder, the bill allows the DSS commissioner, or his agent, to (1) issue subpoenas; (2) order the production of books, records, or documents; (3) administer oaths; and (4) take testimony under oath. The commissioner may also ask the attorney general to petition the Superior Court to enforce any subpoena or order. Current law allows the commissioner to petition the court directly.

The bill adds “severe financial distress” as a ground on which the court can appoint a receiver for a nursing home facility. (The law defines these as nursing homes, residential care homes, and rest homes with 24-hour nursing supervision (CGS § 19a-521). But, residential care homes do not provide nursing care. ) It defines “severe financial distress” as:

1. having more than 35% of the facility's vendor accounts overdue by more than 120 days,

2. having payment of required employee pension and health insurance contributions that are more than 60 days overdue,

3. maintaining an unfavorable ratio of working capital assets to liability for more than one fiscal year,

4. incurring significant operating losses or maintaining minimal equity or reserves for more than one fiscal year, and

5. any other criteria DSS defines in regulations.

The bill permits the DSS commissioner to implement policies and procedures to define other financial distress criteria while in the process of adopting them in regulation, provided notice is published in the Connecticut Law Journal no later than 20 days after they are implemented. The policies and procedures are valid until final regulations are adopted.

Currently, a court may appoint a receiver for a nursing home if the home (1) is operating without a license or its has had its license 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; or (4) substantially violates the Public Health Code, other state laws, or Medicaid or Medicare rules.

In addition to appointing a receiver for the home, the bill also allows the court to appoint a receiver for (1) any individual or entity providing nursing facility management services in the home, (2) any owner of the property on which the home is located or the buildings it uses, or (3) any legal entity owned or managed by a related party to the nursing home owner that provides goods or services to the home. The bill defines “related party” as an individual or organization related to a nursing home owner through an ability to control, ownership, family relationship, or business association including individuals related through marriage.

It allows the court to issue any necessary orders to a person that controls or possesses assets the receiver needs to fulfill his or her responsibilities.

Current law requires a court, in appointing a receiver for a nursing home, to choose a responsible individual who (1) the DSS and DPH commissioners propose and (2) is a Connecticut-licensed nursing home administrator with substantial experience in operating Connecticut nursing homes. The bill allows the court to appoint an unlicensed person if the individual has other experience and education the court deems satisfactory.

The bill allows the court to require the DSS commissioner, instead of the DPH commissioner, to pay a nursing home receiver's fees if it determines that the home's assets are insufficient to do so and no other payment source is available. The state has a claim on the home's assets for these payments. The bill gives the state a claim for any advance payments the state makes after the receiver's appointment. It adds these costs to the requirement that claims for receiver's fees have priority over all other creditors' claims, but it removes the limitation that these claims have priority to the extent allowed by state or federal law.

The bill prohibits a court, in certain situations, from setting property costs (rent, price, or interest rate) 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 costs for the receiver to pay. The bill caps these costs at the fair rental allowance DSS sets for the facility. Current law sets no limits on the amount the receiver may request.

The bill adds to the required information an applicant must submit to DPH to obtain a nursing facility management services certificate. It defines a “nursing facility management services certificate holder” as an individual or entity DPH certifies to provide nursing facility management services. The law defines “nursing facility management services” as services provided in a nursing home to manage the home's operations, including the provision of care and services.

By law, a “nursing home facility,” is a nursing home, residential care home, or rest home with 24-hour nursing supervision (CGS § 19a-521). But nursing facility management services do not serve residential care homes, thus it appears this section does not apply to these facilities.

The bill requires an applicant to provide the names of (1) its officers, directors, trustees, or managing and general partners and (2) anyone having 10% or more beneficial ownership interest in the applicant and a description of the person's relationship to the applicant. If the applicant is an out-of state corporation, it must also provide a certificate of good standing from the agencies in that state that oversee corporations and public health licensing.

Current law requires an applicant to provide only its name and business address and indicate whether it is an individual, partnership, corporation, or other legal entity.

The bill requires that each individual listed above, not just the applicants, sign the affidavits that current law requires applicants to submit disclosing the following:

1. any matter in which the person was convicted of or pleaded nolo contendere to a felony charge, or was held liable or enjoined in a civil action, if the felony or civil action involved fraud, embezzlement, fraudulent conversion, or misappropriation of property or

2. whether the person (a) has, within the past five years, had any state or federal license or permit suspended or revoked as a result of a government action related to heath care or business activity, including actions affecting the operation of a nursing, continuing care, or residential care home in Connecticut or elsewhere or (b) is subject to a current injunction, restriction, or remedial court order at the time of the application.

The bill requires an applicant to disclose the location and description of any out-of-state nursing home in which it currently provides management services or provided such services in the past five years.

The bill adds a condition under which DPH may wholly or partially refuse to issue or renew a certificate. It can deny certification to provide services at one or more facilities to an applicant that provided services in an out-of-state nursing home and failed to provide a certificate of good standing from the public health licensing agency in that state. The law already permits such denial for substantial noncompliance with the Public Health Code at a facility.

The bill requires applicants to submit information in their renewal applications showing that the homes they serve comply with certification requirements and any other applicable state laws and regulations.

The bill allows DPH to conduct an inquiry or investigation concerning the issuance or renewal of a nursing facility management services certificate.

It also permits DPH, when the attorney general advises it, to conduct an investigation and seek an injunction or other action against an uncertified nursing facility management services agency. (The bill does not define this term). Current law allows this for unlicensed health care institutions.

Under current law, if DPH finds substantial noncompliance with the certification requirements, the commissioner can initiate disciplinary action against an agency. The bill permits DPH to take disciplinary action if it receives information from an out of state public health licensing agency that an out-of-state nursing home for which the certificate holder has provided services has substantially failed to comply with that state's applicable laws and regulations.

The bill also allows the commissioner to impose a civil penalty on the management services agency of up to $ 5,000 per violation for any class A or class B violation that occurs at a nursing home at which it provides management services. (A class A violation is one that presents an immediate danger of death or serious harm to a nursing home patient; a class B violation is one that presents a probability of death or serious harm. ) If the home receives any other civil fine relating to its licensure, the combined fines cannot exceed $ 5,000 per violation.

If the fine is not paid within 15 days, or the last day for appealing the penalty, or 15 days after a final Superior Court judgment on an appeal, the DPH commissioner must notify the DSS commissioner, who may immediately withhold the amount of the civil penalty from the nursing home's next Medicaid payment.

The bill also allows the DPH commissioner to impose a civil penalty of up to $ 1,000 per day against an individual or entity operating without a certificate.

The bill establishes certain restrictions on rent, debt, loan, and management fees a nursing home pays. It applies to any indebtedness or lease entered into or any management fees that take effect on or after April 1, 2009.

It defines “related party” as an individual or organization related to a nursing home owner through an ability to control, ownership, family relationship, or business association, including individuals related through marriage.

The bill prohibits a nursing facility management services certificate holder related to a nursing home owner from being paid fees, including expenses from a facility for which it provides services, that exceed the management fee DSS sets for the home, unless DSS sets a higher fee after conducting a financial review of the agency.

It also requires a nursing home owner to use the proceeds of a loan secured with nursing home assets solely for the home's operation and improvement unless approved by the DSS commissioner.

The bill requires the DSS commissioner, in consultation with the banking commissioner and the Connecticut Health and Educational Facilities Authority (CHEFA) executive director, to establish reasonable rates of indebtedness and property lease payments for nursing homes. It prohibits nursing homes or any related party that owns the property on which the home is located from increasing their property lease payments or their indebtedness beyond the established levels without the DSS commissioner's permission. DSS must approve, deny, or modify a home's request within 60 days after the home submits any information the commissioner asks for, but may do so only if it determines the request will not adversely affect the home's financial viability or quality of care.

The bill allows the DPH commissioner to take certain enforcement actions for violations, including revoking or suspending the home's license, and restricting its acquisition of other facilities. It also allows the DSS commissioner to impose a civil penalty of up to $ 25,000 for loan and rental payment violations. For management fee violations, the penalty is $ 15,000 plus the amount by which the fee exceeds the DSS-approved fee. DSS may refer its finding to the DPH commissioner for appropriate action.

An individual may appeal a penalty through DSS's rate-setting appeal process. By law, health care facilities can appeal the Medicaid rates DSS sets for them and DSS must hold “rehearings. ” If the issue is not resolved at a rehearing, either DSS or the facility can request binding arbitration (CGS § 17b-238(b)).

The bill requires a nursing home, intermediate care facility for the mentally retarded (ICF-MR), or a residential care home to apply to DSS for a 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, nursing homes can assume ownership of existing beds only through such a transfer. Therefore, DSS is not currently issuing CONs for such transfers.

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. It consequently extends to any facility 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. It exempts all proposed transfers from the requirement that the letter of intent include the capital costs, location, and project description.

The bill adds the following factors for DSS to consider when it reviews a CON transfer application:

1. the applicant's financial condition and viability,

2. the impact of the transfer on the home's payment rate,

3. any real property lease or debt instrument, and

4. any nursing facility management services agreement.

The law already requires DSS to consider the applicant's financial responsibility and business interests and whether the facility is able to continue to provide needed services.

Finally, the bill exempts from the CON requirements, a transfer of ownership if the facility is in receivership and is closed by a Superior Court order. It is unclear how such an ownership transfer would occur if the facility is closed. It appears the bill intends to exempt a transfer of ownership ordered by Superior Court for a facility that is in receivership. By law, if a court-appointed receiver determines within the first six months that the facility is unable to continue to operate in compliance with state and federal law, he or she must seek proposals to purchase the facility. If the facility is not purchased within six months of the receiver's appointment, he or she must request an immediate court order to close the facility and make arrangements for the residents' orderly transfer (CGS § 19a-545).

The law prohibits a nursing home operator who has violated nursing home laws or had problems related to Medicare and Medicaid from acquiring a nursing home for five years. It applies to an operator with any civil penalties for nursing home violations imposed by DPH or another state over two years. The prohibition also applies to operators who have received Medicare or Medicaid sanctions or had their provider agreements for these programs terminated or not renewed.

The bill limits the prohibition (1) for civil penalties, to those imposed during the two years before submitting the application, rather than any two-year period and (2) for Medicare and Medicare sanctions, to those other than civil penalties under $ 10,000. (Current law imposes the acquisition prohibition for any intermediate Medicare or Medicaid sanctions. ) The application must also include any additional information the DPH commissioner deems necessary. Under the bill, if any of these conditions is present, the five-year prohibition on further acquisition continues to apply.

Notwithstanding these limitations, the law allows the DPH commissioner, for good cause, to approve a potential licensee's or owner's application to acquire a nursing home before the five-year period expires.

Current law requires DPH to give its prior approval for a change in ownership or beneficial ownership of 10% or more of the stock of a corporation that owns, operates, or maintains a nursing home, residential care home, or rest home. The bill specifies that beneficial ownership includes ownership through any level or relationship of parent and subsidiary corporations and partnerships.

It also requires the owner to provide to DPH the identities of, and any additional information DPH requires regarding, individual shareholders, partners, or members who have a beneficial interest in the facility or any healthcare institution, such as a hospital, home health care agency, assisted living services agency, or homemaker-home health aide agency.

Under current law, nursing home, residential care home, or rest home property or building owners that are not the facility's license holder must submit a copy of the lease agreement to DPH indicating the person or entity responsible for maintenance and repair. The lease must be submitted whenever the facility's license is renewed and whenever the property owner changes.

If a DPH investigation reveals any Public Health Code violations, the law allows the commissioner to require the owner to sign a consent order to bring the facility into compliance. The bill allows the commissioner, alternatively, to impose a civil penalty of up to $ 1,000 for each day the owner violates the code or the consent order. It also permits the consent order to include the appointment of a temporary manager to complete any required improvements or repairs. It allows the attorney general, at the DPH commissioner's request, to petition the Superior Court for an injunction to ensure compliance with the consent order.

The bill requires nursing homes to annually submit to DSS along with their cost reports, proof of liability insurance coverage on a form prescribed by DSS. A home must show its coverage for negligence or medical malpractice and property damage and the coverage amounts. (The bill does not establish minimum coverage amounts. )

Starting January 1, 2010, the bill requires DSS to report annually to the Human Services and Nursing Home Financial Advisory committees, information concerning nursing homes' liability insurance coverage.

By law, nursing home owners must submit certificates of malpractice and public liability insurance coverage to DPH as a condition of licensure; the law does not specify minimum coverage amounts.

The bill 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. It adds the comptroller or her designee to the committee's membership. The DSS and DPH commissioners, the secretary of OPM, and the executive director of the Connecticut Health and Educational Facilities Authority (CHEFA) or their designees remain committee members. It also removes the current requirement that vacancies be filled by the appointing authority.

The bill requires the committee to recommend appropriate action to the DPH commissioner, as it must currently do for the DSS commissioner, when it receives a report relating to nursing homes' financial solvency and quality of care. It removes the requirement that the committee's recommendations be limited to improving the financial condition of homes in financial distress. The DSS commissioner must also notify the committee of any nursing home's interim rate request.

Starting January 1, 2010, the bill requires the committee to report annually on its activities to the Appropriations Committee, as well as the Human Services, Public Health, and Aging committees. And starting October 1, 2009 the committee must also meet quarterly with the chairs and ranking members of the Appropriations, Human Services, and Public Health Committees and the long-term care ombudsman to discuss its activities relating to nursing homes' financial solvency and quality of care.

The bill repeals DSS' authority, in conjunction with DPH, to adopt regulations to establish requirements for the reports on nursing homes' financial solvency and quality of care that are submitted to the Nursing Home Financial Advisory Committee (CGS § 17b-4 (c)).

The Nursing Home Financial Advisory Committee examines nursing homes' financial solvency, supports DSS and DPH's oversight mission, and recommends appropriate action for improving the financial condition of any home in financial distress.