Downsizing, Merging, Shared Services ICF/IID

Transcription

1 Downsizing, Merging, Shared Services ICF/IID ID/DD SUMMIT Nationwide Conference Center August 24, :00pm 2:00pm Presented by: Rosemary Orlando, CPA Principal & Director, HW Healthcare Advisors & CPAs Paul Lang, Partner, Rolf Goffman Martin Lang, LLP

2 Session Overview Downsizing and Conversion Challenges and Opportunities Historical Overview Downsizing/Conversion Incentives Downsizing/Conversion Barriers Capital Considerations Lease vs. ownership Fair Rental Value System impact 2

3 Are You Ready? Info provided by PCG What are your plans for the future? Downsizing/conversion Expansion Status Quo Wait and see? Proactive or reactive Timeline Buy in from: Individuals Parents/Guardians Owners/Board County Board Employees DODD 3

4 History Rebalancing Info provided by PCG DODD s White Paper Issued August 2014 The Future of the ICF-IID Program House Bill 64 Guiding Principles ICF for highest medical/behavior needs Encourage downsizing/conversion Established Grand Bargain interim benchmarks for Downsizing/Conversion o 225 by 6/30/2016 o 350 by 6/30/2017 o 500 (or more) by 6/30/2018 o Clawback provisions if downsizing not completed by 6/30/18 4

5 Clawback Statute ORC June 30, 2018 deadline unless: Voluntary repayment Good faith effort to comply, but downsizing not complete due to reasons beyond provider s control and downsizing is completed in a reasonable time thereafter Clawback options: Voluntary repayment, in which case no interest is charged Recoupment, in which case interest is charged Lump sum or installment payment with DODD approval Payments or Medicaid vendor off-set 5

6 Disability Rights Ohio 7/1/14 letter requesting negotiations as a result of extensive investigation 3/31/16 lawsuit to grant injunctive relief including the expansion of home and community-based services required by the members of the Plaintiff class to avoid or prevent unnecessary institutionalization, and to provide access to integrated residential, employment, and day services 8/22/16 class certification 3/23/17 order denying state s motion to dismiss - mostly 6

7 Mergers and Acquisitions Increased activity the past few years both for-profit and non-profit agencies There appear to be more sellers than buyers See the preceding slides Reimbursement uncertainty Deals are still getting done, but they are more complicated Waiver business Active treatment programs Real estate vs. beds 7

8 Approvals/Conversions/Downsizing Info provided by PCG CONVERSIONS DOWNSIZING Approvals Approvals Prior to 7/1/13 (71) (16) Approvals 7/1/13 to 8/1/ Completed as of 8/1/ Buy Back Program 24 Beds Total $182,424 Average Cost $7,600 8

9 FY18 Rate Summary Direct Care Ceiling Can you adapt to future reimbursement changes? 9

10 FY18 Rate Summary Indirect Care Ceiling Can you adapt to future reimbursement changes? 10

11 FY18 Rate Summary Indirect Care Efficiency Incentive Can you adapt to future reimbursement changes? 11

12 Downsizing/Conversion Incentives Downsizing Incentives Bed Buy-Back Ability to file 3 month Cost Report Available to original and new ICF At least 10% less MCD certified bed capacity OR At least 5 less certified bed capacity Adjusts rate for increased per diem cost of operating smaller facility Retroactive Rate Adjustment: To certification date for new ICF To first day of month following downsizing/conversion for existing facility Payment for resident while waiting for ODH survey Avoid Rate Penalty for large ICFs Efficiency incentive for IC and COO cut in half Clawback provision if plan not complete by 6/30/18 DOWNSIZING 12

13 Downsizing/Conversion Incentives Conversion Incentives Early termination of bed tax: At end of quarter with full conversion Semi-annual relief with partial conversion Potential forgiveness of government funded capital Payment for date of discharge Home Choice (Money Follows the Person)- $2,000 start up costs Rental Assistance Community Capital Assistance Program 13

14 Downsizing/Conversion Incentives Conversion Incentives Con t $.52 per unit rate incentive for resident moving from ICF or DC to a waiver setting Effective 9/1/17 Home modification limit increased from $7,500 to $10,000 per project for IO waiver $.63 per unit rate add-on for Complex care ICF Conversion/Downsizing Process Checklist sion.aspx peningproviderchecklist.pdf 14

15 Downsizing/Conversion Barriers Barriers Housing Affordable housing Zoning Accessibility Acceptability Financing Repositioning old space Reimbursement changes Capital New reimbursement system Labor shortage Department approval Development rule (6 vs. 8 beds) (ORC ) 15

16 Downsizing/Conversion Barriers Workforce (DSP) Shortage The current rate models for Homemaker/Personal Care (HPC) and On-site, On-call (OSOC) have not kept up with inflation (or state mandated minimum wage) for the last years, even given 6% rate increase on 1/1/16 Finding, training, and retaining DSPs is the biggest issue for waiver providers today Starting and ongoing wages are too low Other outside influences (i.e., retail and food industries, etc.) directly compete for available labor 16

17 Downsizing/Conversion Barriers Department approval 60 day prior notice requirement 365 days to apply for license from approval 30 day prior notice before opening ORC Section Applies to all ICFs UNLESS downsized or partially converted by 20% or more as of 1/1/15 or all residents under age 21 and parents consent Submit plan by 12/31/15 to limit 2 residents per room June 30, 2025 compliance date Any downsizing is limited to 6 beds, but may be 7 or 8 beds if necessary to be financially viable 17

18 Capital Considerations General Issues Availability of capital/credit Equity or down payment Consider non-profit housing corporation Securing LOC to address cash flow shortfalls New construction or renovating HUD financing (release of collateral) Who will purchase and legally own license? Construction cost requirements sprinkler, reinforced dry wall, unbreakable glass Generally building costs are approximately $100K per bed Does the contractor understand Ohio s licensure and certification issues? Does construction require bank approval? Impact on bank covenants 18

19 Capital Considerations Lease vs. Ownership Ownership: Advantages Equity in building and land Ability to borrow for significantly less than investor Return on Investment (ROI) implicit interest rate Potential ability to have more control over construction costs of facility Disadvantages Financing (and refinancing in future years), along with associated costs Significant capital/equity requirement for loan Capital tied into building and not investing in business 19

20 Capital Considerations Lease vs. Ownership Lease: Advantages No upfront capital requirement No additional assets or debt on the books May have ability to walk away from homes after lease term if ICFs no longer viable Disadvantages Profit goes to landlord Landlord can walk away at the end of the lease term and operator could lose facility (minimized with lease extensions options) Capital vs. operating lease accounting considerations 20

21 Capital Cost Recommendations Capital Cost Recommendations for New System Public Consulting Group recommends transitioning from Cost Based to a Fair Rental Value methodology Fair Rental System (FRS) attempts to quantify a fair rental price for each facility based on: o Age o Size o Upkeep FRV is more beneficial to facilities owned than leased Budget neutral will have winners/losers Attachment 9 added to 2016 cost report to collect: o Data FRV o Cost Impact 21

22 Capital Cost Recommendations FRV Parameters - DEVIL IS IN THE DETAILS! Square footage capped between square feet/bed (1,000 for downsized facilities) Value per square foot based on RS Mean Construction Cost Estimator Applied by county Updated annually 8 beds or less will use RS SNF Mean (higher) Greater than 8 beds use RS AL Mean (lower) Total Equipment value estimate of $4,000 per bed (includes vehicles) 2017 cost reports will be modified to track actual equipment costs in case this estimate needs to be revalued in the future Depreciation rate recommended to be set at 1.5% Recommends a Rental Rate of Return of 9% Land value at 10% of Current Asset Value Effective Age Adjustment accounting for additions/reductions/renovations FRV implementation date 7/1/18 6/30/19 (FY19) Optimistic! CY2017 Cost Report 22

23 Capital Cost Recommendations Info provided by PCG Info provided by PCG FRV Parameters Values will be modified per region, with the following counties determining regional values for counties without a published RS Means Regional Value 5 Region Model Modifier Regional Rural County Proxy Northeast 0.95 Prices pegged to Stark Northwest 0.94 Prices pegged to Allen Central 0.92 Prices pegged to Richland Southeast 0.92 Prices pegged to Muskingum Southwest 0.92 Prices pegged to Butler 23

24 PCG FRV Results Based on CY16 Cost Report Data Wide variation in results (big winners/losers) Most important factor - If ICF owner operated or leased Owner operated facilities tend to have: More square footage More renovations Loans paid down ICFs with 16+ or 4-6 beds were more likely winners Generally newer facilities do better under FRV ICF work group to explore ways to narrow the gap HB 64 transition provisions will mitigate the impact of changes to the capital component and the other rate segments for the first three years after the new reimbursement system is finalized 24

25 Rate Impact: Ownership Type Info provided by PCG Info provided by PCG For owned facilities, the average and median rates increase significantly For rented facilities, the average and median decrease significantly Comparison: Ownership Type FY17 Rate FRV Rate Owned Average $16.22 $19.95 Rented Average $22.61 $16.84 Owned Median $15.39 $19.00 Rented Median $22.53 $14.93 Peer Group 2 (9-16 beds) is the only group that is not primarily owned Owned vs. Rented by Peer Group Owned Rented %Owned % % % % 25

26 THANK YOU FOR ATTENDING HW&Co Chagrin Blvd., Suite 700 Cleveland, OH P F Polaris Parkway, Suite 300 Westerville, OH P F Tyler Blvd. Mentor, OH P F FOR.HWCO Rosemary Orlando, CPA 26

27 Thank You! Rosemary Orlando, CPA Paul Lang Cleveland + Columbus hwco.com