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Governor’s Budget Includes Potentially Significant Nursing Facility Penalty

This article was written and produced by Kathleen Angelone, Principal and Margaret Lally, Healthcare Consulting Manager at The Bonadio Group. Looking to get in touch with Kathleen or Margaret? Reach out today: kangelone@bonadio.com, mlally@bonadio.com.

Both the Senate (Bill S.4336-A) and the Governor’s budget proposal include very similar plans to impose penalties on nursing facilities for failure to achieve specific staffing and expense targets. The plans both require nursing homes to spend at least 40% of its revenue on direct care salaries and benefits and 70% of revenue on the direct care of residents. If those targets are not achieved the facility will owe the State a rebate for the difference. In addition, the Governor’s budget includes a third target which comes into play if the other two targets are met, which would require the facility rebate to the State profit in excess of 5% of the expense.

Our preliminary analysis based on 2018 cost report data indicates a statewide impact to nursing facilities of $439,330,000. This is a game changer for nursing facilities at a time when they are already stretched to their limit with reimbursement cuts, staffing shortages, and the COVID-19 pandemic. The analysis shows 63% of all NYS nursing facilities will be impacted by at least one of the three targets. Individual facility impacts range from $0 to $12 million.

The analysis indicated the following estimated impacts:

  • Downstate/Upstate: 70%/30%
  • Voluntary/Proprietary/Public: 18%/82%/<1%

Please note this analysis utilized the budget language currently available and included some assumptions based on what we know of the plan’s intent. The expenses considered “direct care” exclude all capital costs and support services including mortgage/bond payments, equipment, cash receipts assessment, activities, and social work. Also excluded are related party transaction costs that exceed the fair market value of such services and “compensation for employees not actively engaged in providing services at the facility”. Direct care contract services can be included in meeting the target however they will by discounted to 85% of the total.

The plan would be effective starting January 1, 2022. If facilities do not meet the required spending targets, they would have the opportunity to spend up to the target in the following year. If targets are still not achieved by October 1st, rebates would be due to NYS by November 1st.

Revision to the language is possible as it makes its way through the budget process. We will revise our analysis as necessary to keep the impacts up to date. We recommend facilities engage their statewide associations in their efforts to work on your behalf.

If you would like to know more or would like your facility’s estimated impact please contact us.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.