SKILLED NURSING SUPPLEMENTAL PAYMENT PROGRAMS

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1 SKILLED NURSING SUPPLEMENTAL PAYMENT PROGRAMS Architecture for Expansion & Utilization August 30, 2016 Kevin Pahud Partner Mark Myers Executive Director 1

2 TO RECEIVE CPE CREDIT Participate in entire webinar Answer polls when they are provided If you are viewing this webinar in a group Complete group attendance form with Title & date of live webinar Your company name Your printed name, signature & address All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar Answer polls when they are provided If all eligibility requirements are met, each participant will be ed their CPE certificates within 15 business days of live webinar SUPPLEMENTAL PAYMENT (UPL/IGT) PROGRAMS FOR STATE/NONSTATE GOVERNMENTAL NURSING FACILITIES 2

3 TOPICS Definitions Program overview Benefits Flow of funds Participation Example Supplemental Payment calculation Administrative & deal considerations Select states update UPL TRANSACTIONS DEFINITIONS Upper Payment Limit (UPL) Maximum a state may pay providers = a reasonable estimate of what Medicare would pay Supplemental Payment Difference between what Medicare would pay (UPL) compared to what Medicaid did pay Intergovernmental Transfer (IGT) State s share of Medicaid payments which is funded by a unit of government 3

4 IGT/UPL TRANSACTIONS OVERVIEW Supplemental Payment Programs have been available since the inception of Medicaid Program Provider categories: state owned, nonstate owned & privately owned Original intent of the Skilled Nursing Facility (SNF) Supplemental Payment Program the ol county home Most common way to participate is for a municipality or a municipal hospital district/authority to own the assets of a SNF OVERVIEW Increasingly, participation is being achieved via a Lease Agreement Change of Ownership (CHOW) is triggered & hospital becomes the licensee Benefits of lease No capital required by buyer SNF retains long-term control of its assets Ease of entry/ease of exit 4

5 OVERVIEW Parties also typically execute a management agreement Employees remain employed by manager Compensation structures unchanged No HR implications No disruption of day-to-day activities Manager subject to oversight of owner IGT/UPL TRANSACTIONS BENEFITS Governmental hospital leasing a SNF could provide following opportunities Strengthened relationship & enhanced communication between hospital & NF Increased reimbursement via Supplemental Payments to provide for CapEx/other care initiatives Preparation for future ACO development Preparation for future Medicare payment bundling, i.e., DRG 469/470 demo project 5

6 UPL/IGT FLOW OF FUNDS» Supplemental Payment Federal Government Third-Party Vendors, Lessor & Manager IGT State Government IGT Supp. Payment (25% - 50%) (100%) Operating Expenses, Lease & Management Fee Hospital Bank Account(s) dba SNF Supp. Payment Gov t Hospital General Account PARTICIPATION AN EXAMPLE First UPL transaction in Indiana was in 2000 upon SPA approval Limited participation from (60) As of March 31, 2016 there are 469 Indiana nursing facilities participating in the UPL Program This represents more than 95% of the Medicaid certified SNFs in the state Twenty-six (26) county hospitals now lease NFs in Indiana 6

7 PARTICIPATION AN EXAMPLE Annual Supplemental Payments = $900 mil Average Supplemental Payment per day = $114 Average incremental cash flow per day = $76 (net of IGT) Funds have resulted in much needed capital improvements & allowed many rural hospitals to thrive SUPPLEMENTAL PAYMENT CALCULATION Rate setter typically performs Re-RUG Medicaid residents under Medicare payment principles (RUG IV) Consider noncovered services possibly including lab, pharmacy & x-ray Subtract what Medicaid paid Often paid quarterly 7

8 ADMINISTRATIVE & DEAL CONSIDERATIONS Longevity of SNF UPL Program Tax benefits Income, sales, property, etc. Cash flow needs Funding of working capital Reputation of SNF Current LTC financing structure HUD? Bonds? Challenges with financing (AR/working capital lines) Fiscal year-end Sublease approvals needed? Increased accounting & financial reporting requirements UPDATE SELECT STATES Texas Georgia South Carolina Mississippi Utah Virginia Louisiana Wyoming Oklahoma Iowa 8

9 QUESTIONS? CONTINUING PROFESSIONAL EDUCATION (CPE) CREDITS BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: The information in BKD webinars is presented by BKD professionals, but applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor before acting on any matters covered in these webinars. 9

10 CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development Department at THANK YOU! FOR MORE INFORMATION Kevin Pahud, Partner BKD, LLP Mark Myers, Executive Director Institutional Property Advisors

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