By Targeting Skilled Nursing Ownership Transfers, States Look to Prevent More Skyline-Style Implosions

The swift expansion and equally rapid flameout of one skilled nursing provider left its mark on several states in the form of sudden state takeovers, drawn-out receiverships, and several closures.

That company — Skyline Healthcare — may also leave a more lasting legacy in the form of stricter vetting of new operators in multiple states.

In April of this year, Kansas passed a law mandating closer scrutiny of nursing home owners’ finances, specifically because of the fallout when the Wood Ridge, N.J.-based Skyline was unable to make payroll in 15 nursing homes in the state.

In August, a report from the Pennsylvania auditor general called for stricter vetting of nursing homes, specifically calling out the collapse of Skyline as an example of what can go wrong when nursing facility license applicants are not properly vetted. Pennsylvania Secretary of Health Rachel Levine noted in her reply to that report that the state is currently exploring how to improve the process of vetting for new nursing home owners.

And this month in Ohio, new regulations will take effect that require new SNF operators to submit information about their financial status and where they’ve operated in the past.

“It’s a pretty significant change,” Pete van Runkle, the executive director of the Ohio Health Care Association (OHCA) told Skilled Nursing News. “Ohio has never really had any kind of review of changes of ownership, other than that you have to file a license application.”

‘We didn’t want it to happen here’

Ohio was not one of the states impacted by the collapse of Skyline Healthcare. The operator acquired SNFs and then fell apart in Nebraska, Kansas, South Dakota, and Pennsylvania; other affected states included New Jersey, Massachusetts, and Arkansas.

But the OHCA was watching the collapse of the company. There had been a spike in SNF transactions over the past two to four years, and the association had noticed an influx of out-of-state operators from all over the country acquiring buildings in the Buckeye State.

“We feel like we dodged a bullet, in that no catastrophes have occurred with these new operators coming in,” van Runkle said.

SNF license applicants in Ohio still had to follow a specific process; the old operator had to essentially allow the incoming entity to operate for a period of time under the former operator’s license, he explained. But there really was nothing related to the new operator’s fitness apart from the same rules that applied to everyone in the sector, he explained.

That led the OHCA to craft language for regulations related to new ownership, which became part of a July 18 bill establishing an operating budget for fiscal 2020-2021 in Ohio. Those new rules require the new operator to submit information about their financial status, where they have operated in the past, and demonstrate some level of experience — all provisions that are “new and different,” according to van Runkle.

The rules don’t include specific situations specific examples of red flags; for instance, a provider with issues in another state that applies for a license in Ohio isn’t going to automatically be banned.

But the regulations now allow the state’s Department of Health to examine an operator’s record. The documentation requirements include a list of each currently or previously licensed nursing home located in Ohio — or any other state — where the license applicant has or had a percentage of ownership. That ownership stake could be in either the operation, real property, or both of a nursing home, according to the regulations.

I don’t know that we ever denied somebody coming into the state to operate. And it sounds like maybe we should have.

Cindy Luxem, Kansas Health Care Association

In terms of financials, the operator receiving the SNF license has to demonstrate the financial resources “to cover any reasonably anticipated revenue shortfall for at least 12 months after the assignment or transfer,” if the assignment or transfer of license is not in the form of a lease, according to the new rules.

If that change of operator is taking the form of a SNF lease, then the new operator has to obtain a bond of at least $1 million with a term of at least 12 months and an annual renewal. If getting such a bond isn’t possible at a cost deemed reasonable by the state’s director of health, then the new operator needs to demonstrate the financial resources necessary to cover any reasonably expected issues for at least a year after the license assignment or transfer takes place.

In addition, the new operator must be able to show at least five years of experience as an operator, manager, or administrator of a nursing home, along with plans for quality assurance and risk management — and general and professional liability insurance coverage of at least $1 million per occurrence and $3 million aggregate.

The new operator will also have to supply projected financial statements for the nursing home for the 12-month period after the assignment or transfer of operation, according to the new rules, which took effect on October 17.

Some of OHCA’s members were concerned about whether the new regulations would slow down transactions, even if the acquiring operators had a solid track record in Ohio, van Runkle noted. While the Department of Health’s implementation will be “where the rubber meets the road,” he believes the existing language is a good start toward providing some checks without constricting deal flow.

The goal is to establish safeguards to prevent any collapses like the ones that hit the states where Skyline was in operation. Specifically, the OHCA wants to make sure that good operators can still acquire buildings, particularly ones that were struggling, while also working to ensure that unprepared operators aren’t able to acquire licenses at the same pace as Skyline — which secured more than 100 nursing home sites over the course of its lifespan.

“We didn’t want it to happen here,” van Runkle told SNN. “We wanted to build some firewalls into our system.”

‘Shouldn’t we be doing our due diligence?’

Kansas, one of the states where Skyline had several buildings, was able to avoid losing any of those facilities to closures; Mission Health Communities, which had held the buildings in receivership, officially took over the buildings earlier this month.

But the state was alarmed enough by the situation that it was one of the earliest to move forward with laws vetting SNF owners, passing stricter standards in April with the support of the Democratic governor and almost unanimous backing from the Republican-controlled legislature.

The new regulations in Kansas govern more than just SNFs; they relate to all “adult care homes,” which include nursing facilities, mental-health nursing properties, intermediate care facilities for people with intellectual disabilities, assisted living properties, residential health care buildings, boarding care homes, and adult day care facilities.

“We did the full Monty — we did everybody,” Kansas Health Care Association (KHCA) CEO Cindy Luxem told SNN. “The skilled owners are the ones causing us the most grief, but it’s across the board.”

After the collapse of Skyline, one of the first things that Kansas found was that it lacked the ability and authority to check with other states where potential operators were in business or used to be in business, she explained. There was no process for checking past compliance issues or surveys, so the group set out to implement a statutory requirement for checking on the history of a prospective new operator.

Anyone looking to buy a SNF or other adult care home has to provide a list of every other licensed property in which he or she had an ownership stake, whether in Kansas or in other parts of the U.S. The disclosure rule applies to ownership in either the operations or the real estate, and operators have to also provide a 12-month operating budget — and proof of capital to enact that budget — for a facility.

And in the cases of receivership, the applicant or licensee under receivership is not eligible to apply for a new or reinstated license for 10 years from the date of the termination of the receivership action, according to the rule.

“I don’t know that we ever denied somebody coming into the state to operate,” Luxem noted. “And it sounds like maybe we should have.”

While there could be some challenges for smaller operators acquiring facilities as a result of the new rules, most of KHCA’s members viewed it as necessary given that “we’ve gotten burned so bad,” she told SNN.

For Pennsylvania, no new rules have been implemented yet; the regulations are still being formulated, and it’s not clear yet what they’ll look like when they’re implemented, Pennsylvania Health Care Association (PHCA) president and CEO Zach Shamberg told SNN.

“There definitely is a desire to do what other states across the country have done and amend the change of ownership process,” he said.

Specifically, the association wants to ensure that providers have “a proven track record in other states,” as well as the necessary capital to purchase, maintain, and improve facilities; they also have to understand how to care for Pennsylvania’s aging population, Shamberg said.

It’s still not clear how that process will look under the new regulations, and a spokesman for the Pennsylvania Department of Health (DOH) told SNN via e-mail that the department is looking at its processes for examining nursing home license applicant track records.

Currently, a nursing home license applicant in Pennsylvania has to fill out an application providing details on current licensed capacity, requested capacity, changes of ownership in the past year, whether or not the owner expects changes in ownership or filing for bankruptcy within the year, financial interest in other health care facilities, and questions about ownership structure.

In terms of documentation, health care providers applying for a license to operate a health care facility in the Keystone State have to provide a range of information in terms of applications for initial licensure, according to a document provided by the Pennsylvania DOH spokesman.

But the fallout from Skyline’s collapse raised many questions, Shamberg noted. The PHCA, as a result, is taking a look the work Ohio and Kansas have done with regard to their regulations, he told SNN, with a focus on collaborating with the administration of Pennsylvania Gov. Tom Wolf and the DOH.

That state-by-state approach, with lawmakers learning from their counterparts across the country, represents the best path forward for nursing home ownership reform, Mark Parkinson, the president and CEO of the American Health Care Association, told SNN in an interview at the trade group’s convention and expo last week.

“If you tried to have a congressional committee figure this out and run it through Congress, it’s very likely to go overboard so that no transactions could occur, which would also not be a good thing,” he said. “Our official position is: It shouldn’t be a rubber stamp. It should be a real vetting, and it should be done at the state level.”

Despite their variations, all of the states’ efforts have centered on making sure that they know who’s taking care of residents in the SNF setting, given the systemic flaws that Skyline’s troubles exposed.

“[Operators] are taking care of some pretty vulnerable people,” Luxem said. “Shouldn’t we be doing our due diligence?”