1. Skilled Nursing Supplemental Payment Programs
Architecture for Expansion & Utilization – Nuts and Bolts
October
Kevin Pahud
Partner

2. Topics The Contracts Benefits: Financial and … Flow of funds
Change of ownership
Financial reporting
Administrative & deal considerations

3. The contracts
Increasingly, participation is being achieved via a Lease Agreement
Change of Ownership (CHOW) is triggered & hospital becomes the licensee
No capital required by buyer
SNF retains long-term control of its assets
Ease of entry/ease of exit
Benefits of leasing

4. The contracts Parties also typically execute a management agreement
Compensation structures unchanged
No HR implications
No disruption of day-to-day activities at Facility
Employees remain employed by manager
Manager subject to oversight of owner -

5. Benefits: financial and …
Benefits of participation include:
Max financial benefit based on estimate of UPL and 10% Rule = approximately $25 million per hospital
Strengthened relationship & enhanced communication between hospital & SNF
Preparation for future ACO development
Preparation for future Medicare payment bundling, i.e., DRG 469/470 demo joint replacement project – this will be the norm

6. UPL/IGT – Flow of Funds Supplemental Payment Operating Expenses, Lease
Non-Fed Share Supp. Payment
(43.26%) (100%)
Operating Expenses, Lease
& Management Fee
Supp. Payment
Federal Government
State Government
Third-Party Vendors, Lessor & Manager
Gov’t Hospital General Account
Hospital Bank Account(s) – dba SNF

7. Change of ownership (CHOW)
Buyer’s / Lessee’s (Hospital) responsibility
Dept of Inspections and Appeals-
Application for License – 30 days in advance
Additional documents and CMS required docs including 855 and 588, as well as, legal doc(s) governing CHOW (lease)
Notify IME
CON considerations
If a “new institutional health service” or “changed institutional health service” – CON required

8. Change of ownership
Lease structure would not seem to meet this definition, but submitting a request for a “determination of reviewability” would remove any doubt
Submitted to Iowa dept of Public Health
If determined CON is NOT required, goes to state health facilities council for consideration

9. FINANCIAL REPORTING Governed by Management Agreement
SNF operations recorded on Hospital GL
Software typically NOT integrated
Monthly journal entry to record activity - suggest establishing a Dept or Segment (“Post-Acute Operations”)
Cost reporting (responsibility of Manager)
Separate cost report
Limited impact to Hospital – allocation of G&A

10. 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
Financial
Increased accounting & financial reporting requirements

12. Kevin Pahud, Partner BKD, LLP kpahud@bkd.com 317.383.4069