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The Transitional Care Movement – Short Term Beds

Physical therapyLast month Transitional Care Management received State of Illinois approval to build two new short-term rehabilitation skilled nursing facilities in Lisle and Aurora, Illinois.  Shortly thereafter three local area nursing homes filed lawsuits against TCM to try and stop the construction of these buildings.  Based on the letters filed in opposition to the State of Illinois approval, existing providers have an issue with TCM’s claims that existing SNFs in this area do not provide short term high level of acute care.  I do not doubt that the plaintiffs in the lawsuit provide short term rehab services.  Many SNF providers give not only long term care to their residents but offer a suite of services including short term rehab, which is a lucrative segment of these facilities.  TCM, however, is providing short term services at a stand-alone facility as opposed to the mixed use traditional nursing home environment.  TCM believes that baby boomer short term rehab residents would prefer their stand-alone facility to the traditional mixed resident nursing home with short term and long term residents.  I don’t doubt that this is correct.  The local homes argue that TCM will be in a lucrative position to cherry pick the highest paid recipients of care from the market, leaving existing operators with less revenues. And I also suspect this will be true.  The problem for the existing local area facilities is that the State of Illinois has determined a need for beds in each of the areas and the CON rules do not differentiate between short term and long term skilled nursing beds.  Until that happens, long term care facilities will have to compete with short term rehab facilities for available beds and, eventually, revenues.

Medicaid Managed Care – Final CMS Rule 2390 and Nursing Home Pass-Thoughs

The money hookIndiana currently receives Medicaid Supplemental Payments for nursing facilities that are operated by Non-State Government Owners that increase the amount of Medicaid payments to the Upper Payment Limit for participating providers, with the state portion funded by Intergovernmental Transfers.  Texas and Utah have similar programs while Oklahoma and Iowa are just two of the states currently pursuing similar programs.  We have a number of clients who indirectly participate in these programs by managing skilled nursing facilities for county owned hospitals.  After CMS released its 1,400 page Final Rule 2390 regarding Medicaid Managed Care, our clients are concerned about the elimination of the pass-throughs to the county owned hospitals operating the nursing homes affecting their revenues as management companies to these hospitals.

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Healthcare Supply and Demand Issues

Update of 6/30/2016: The REITs have slowed their market activity in 2016 due to interest rate uncertainty, slumping share prices and concerns about the SNF market in general per the CBRE “Senior Housing Market Insight” report for the first quarter of 2016.  Per the report, traditionally REITs have represented the majority of transaction volume, but in Q1 2016, only 15% of the first quarter 2016 volume involved a public buyer (REIT).  Private equity buyers have, however, increased their presence and now account for 55% of transactions in the first quarter of 2016.

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Transferring of Nursing Home Operations Upon Lease Termination

This is just a cautionary tale for lessee’s returning nursing homes to a lessor or new operator upon lease termination.  Earlier this month, a jury in Texas found that an affiliated tenant and subtenant of two nursing home facilities violated their leases and conspired to defraud the landlord before returning the facilities upon lease termination.  The Court found that when the landlord was unwilling to sell the properties to the tenant, the tenant and subtenant fraudulently transferred or discharged residents, terminated Medicare agreements and vendor relationships, removed supplies necessary to operate the facility and caused key employees to leave.  A jury then awarded the landlord nearly $5 million in actual damages and $2.7 million in actual and punitive damages.  Rebecca Ann Inc., Donald Grether and Paul A. Heining v. Sunset Nursing Homes, Inc. v. Plantation Health Care Inc.

Texas QIPP Program

In 2014 the State of Texas established the Nursing Facility Minimum Payment Amounts Program (MPAP) to allow participating skilled nursing facilities with a source of Intergovernmental Transfers to receive additional funds equal to the difference between Medicare Part A and the amount they would have received under Medicaid.  MPAP became effective on March 1, 2015, but was intended to be a short term program lasting not later than September 1, 2016 when Texas is to have developed a performance based program.  Last year Texas enacted legislation instructing the Texas Health and Human Services Commission to transition from MPAP to a Quality Incentive Payment Program (QIPP) for all nursing facilities receiving public funds for the non-federal share.  HHSC prepared a Concept Paper on December 9, 2015 describing the QIPP program requirements and explaining that QIPP is designed to incentivize SNFs to incentivize and improve innovation in providing nursing services.   On February 8, 2016, HHCS received feedback from CMS on the Concept Paper stating that CMS would not approve certain portions of the Concept Paper.  Since then CMS and HHSC have been negotiating with CMS over terms in the Concept Paper leading to a very real possibility that HHSC will not be able to implement QIPP on September 1, 2016 as required.  There is a self imposed March 11, 2016 deadline for resolution on the open items.

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Please don’t send me your wire transfer instructions in the body of an email.

Every day I send and receive hundreds of emails without considering the ease with which emails can be intercepted by clever hackers.  I doubt anyone has much use for the fifteen daily “Thank You” emails I receive or my snarky comments to Seller’s inexperienced general counsel on his draft purchase agreement; however, I recently learned that a hacker can make productive use of an email with wire transfer instructions, but not for withdrawing funds as I first suspected. Instead hackers are changing the emailed wire transfer instructions so that funds intended for your account are sent to their bank and account.

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Jaret Glazer

Jaret is a new associate attorney at the firm.  His direct dial is 847-324-7993 and his email is jaret@sherlaw.net.

Elimination of the 1031 Exchange?

Ninety-five years after inception, Congress is considering a repeal of Section 1031 of the Internal Revenue Code.  In November of 2013, the Senate Finance Committee proposed a repeal of Section 1031, but left the door open for a more narrow view of exchanges.  In February, 2014, the House Ways and Means Committee released a draft proposal for discussion that included a total repeal.  Now, President Obama’s 2015 budget contains provisions seeking to limit capital gain deferrals on real property to $1 million per year per taxpayer.   All of these are merely proposals and the most recent Senate reports make no mention of changes to Section 1031, but whispers in the dark can lead to revolutions.  The real estate industry claims that Section 1031 stimulates the economy because it encourages Sellers to sell their properties.  Of course, without 1031 there would be less transactions for real estate brokers and attorneys like me handling real estate deals – until we figure out everything there is to know about deferred sales trusts.

HUDs New Form of Intercreditor

As some of you may know, in April of last year, HUD released new forms of certain closing documents, including the AR Intercreditor Agreement.  Unfortunately, there were few AR lenders who would agree to enter into HUDs new form.  I personally know of only one lender who would sign the new form of the document and only did so on one deal and then not again.  After months of negotiations between FHA and certain AR lenders, a revised Intercreditor Agreement has been tentatively approved by the parties.  Before this new form of Intercreditor Agreement can be approved for use by the OMB, it must be published in the Federal Register, as required by the notice and comments rules of the federal government.  Although HUD has been working to get the necessary approvals to publish the new form Intercreditor in the Federal Register, this has not yet occurred. To prevent issues caused by the delays, HUD is currently allowing the use of the new Intercreditor prior to its publication in the federal register, but with no deviations from the form.  For those borrowers who put aside their AR loans while awaiting resolution of the Intercreditor issues, it is now safe to move forward, provided your lender will accept the newly revised form of Intercreditor without modification.

In re Crane Overturned

As we described last year, the bankruptcy court in In re Crane held that a bankruptcy trustee could avoid two mortgages because the mortgages did not expressly state the interest rate and the maturity date.   This ruling turned upside down mortgage-industry standard practices and effectively required all Illinois mortgage to contain the maturity date and interest rate.  Then, when loans were extended, the lender would need to modify the mortgage, record the modification and require borrowers to purchase a date down endorsement.

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