New York State Clamps Down on Nursing Home Revenue

Farrell Fritz, P.C.
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In recent months, there has been a lot of attention on decisions made during the height of the COVID-19 pandemic in New York State in regard to nursing homes.  Some of that attention has focused on an order issued in the early days of the pandemic requiring nursing homes to readmit COVID-positive residents previously referred to hospitals, at a time when one of the State’s primary concerns was potential hospital overcrowding.  Even more attention has been paid to the fallout from that order, including not only the consequent outbreaks in impacted nursing homes and resulting deaths, but also on whether or not regulators attempted to hide that information and its potential linkage to the readmission order.

But regulators have not been the only target of this retroactive scrutiny.  Nursing home operators themselves have faced suspicion in regard to such readmissions.  In particular, policymakers have questioned whether they readmitted COVID-positive residents when they knew they could not safely care for them, and whether they provided sufficient staff and equipment to do so even when they could.  The merits of these accusations are arguable – and even if true, are not necessarily true for every provider who accepted a COVID-positive resident.  Notwithstanding, they have resulted in new legislation that fundamentally changes the landscape for nursing home operators.

The 2021-22 New York State Budget includes a change to permanent law limiting nursing home profit margins.  Specifically, effective January 1, 2022, a minimum of 70% of nursing home revenue must be spent on direct resident care, including 40% for resident-facing staffing.  Fifteen percent of costs associated with resident-facing staffing by a registered nurse, licensed practical nurse, or certified nurse aide that is contracted out by a facility shall be deducted from the calculation of the amount spent on resident-facing staffing and direct resident care.  Any nursing home that, on an annual basis, fails to comply with these rules, or whose total operating revenue exceeds expenses by more than 5%, must remit the difference between required spending and actual spending or such excess revenue to the State by November 1 the following year.  Such funds will be used to support the Nursing Home Quality Pool.

Some nursing homes are exempt from these requirements, including continuing care retirement communities and nursing homes primarily serving medically fragile children, people with HIV/AIDS, people requiring behavioral intervention, people requiring neurodegenerative services, and other specialized populations identified by the Commissioner of Health.  The Commissioner is also empowered on a case-by-case basis to waive all these requirements with respect to a nursing home that experienced “unexpected or exceptional circumstances that prevented compliance,” or exclude from revenues and expenses extraordinary revenues and capital expenses incurred due to a natural disaster or other circumstances identified by the Commissioner.  Notice of such waiver must be given to the Long-Term Care Ombudsman and the Chairs of the Senate and Assembly Health Committees and posted on the Department of Health website at least 30 days prior.  The Commissioner of Health is required to issue regulations, seek amendments to the Medicaid State Plan, seek any necessary Medicaid waivers, update applicable forms, and take any other actions necessary to implement these changes.

And this is only the first step.  As of the date of this writing, additional legislation in this area is making its way through the Legislature.  The bill – which is the latest version of legislation that has been debated in Albany for several years – would require the Commissioner of Health to establish minimum staffing levels for nursing homes.  Nursing homes that are out of compliance would be subject to a range of civil penalties reflecting a variety of mitigating factors, including extraordinary circumstances, the frequency and nature of non-compliance, and the existence of an acute labor supply shortage.  At the same time, the Senate Aging Committee chair has announced she is planning a hearing on long term care workforce issues in the near future.  And other legislative activity targeting nursing homes can be expected.

In the months ahead, policymakers will continue to review the State’s response to COVID-19 and enact reforms that are intended to address problems revealed by the pandemic.  These reforms will likely extend far beyond just nursing homes, and have the potential to fundamentally change healthcare delivery in New York State, for better or worse.  The long-term effects of these measures, whether positive or negative, remain to be seen.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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