Reed Smith Client Alerts

At the beginning of this month, the New York State Assembly and the State Senate approved the state’s Budget for Health and Mental Hygiene (A3007C/S2507C), which was signed into law by Governor Andrew Cuomo (D) on April 19, 2021. This legislation provides for significant changes in the nursing home industry in the State of New York. The legislation’s principal provisions require reinvestment of revenue into each facility and a cap on the profit the facility can make calculated on an annual basis.

With respect to the revenue reinvestment provision, the legislation requires that every residential health care facility spend a minimum of 70 percent of revenue on direct resident care. Furthermore, such facilities shall spend a minimum of 40 percent of revenue on resident-facing staffing; provided, that the amounts spent on resident-facing staffing may be included in the amounts spent on direct resident care. The legislation goes on to provide that any residential health care facility whose total revenues exceed its total operating costs by more than five percent or which fails to reinvest the required percentage must pay the applicable amount in excess or by which the facility failed to meet the percentage, as the case may be, to the State of New York for deposit into the nursing home quality pool. The legislation authorizes the New York State Department of Health to collect the amounts by deductions and offsets in Medicaid reimbursements to the facility or by lawsuit.

The formal provisions of the nursing home reforms are added to the New York State Public Health Law as Section 2828. For purposes of determining the revenue reimbursement requirement, the terms “Revenue”, “Direct resident care” and “Resident-facing staffing” are defined. One important note is that “Direct resident care” specifically excludes, at a minimum and without limitation, administrative costs (other than nurse administration), capital costs, debt service, taxes (other than sales taxes or payroll taxes), capital depreciation, rent and leases, and fiscal services. The points most important to note are that “debt service” and “rent and leases” are specifically excluded. This means that the 30 percent of revenue remaining must be sufficient to pay all non-direct resident care costs including debt service and lease payments to the real estate owner. Section 2828 does not define “resident health care facilities” but does exclude from the term: (a) facilities that are authorized by the department to primarily care for medically fragile children, people with HIV/AIDS, persons requiring behavioral intervention, persons requiring neurodegenerative services, and other specialized populations that the commissioner deems appropriate to exclude; and (b) continuing care retirement communities licensed pursuant to article forty-six or forty six-a of this chapter.

Section 2828 has already created a great deal of anxiety in the nursing home community. Because the legislation is not effective until January 1, 2022, the interested parties have some time to decide how to proceed in order to have their concerns heard via additional legislation or in the courts.

Please look out for future updates on this issue from your Reed Smith team.

Client Alert 2021-110