A buyer of a SNF can either accept or reject an assignment of the seller’s Medicare provider agreement. Rejecting the existing Provider Agreement requires the new operator to apply for a new agreement from CMS, which is an onerous process requiring, among other things, a new state survey. Accepting the assignment of the existing agreement requires a paper submission without a new survey, but brings with it the baggage of successor liabilities from overpayments or even post-closing audits of the old operator’s billings. During the past several years, savvy buyers have been able to use connections to obtain new provider agreements in as short as a week, allowing them to avoid successor liability. To curb these abuses, CMS passed Policy Memo 13-60 on September 6, 2013 incentivizing new operators to assume the existing Provider Agreement and pre-closing liabilities associated with the provider agreement by: (1) highly scrutinizing any state survey that takes place within 14 days of the acquisition; (2) directing state survey agencies to make these surveys their lowest priority and not allowing the survey until, at the earliest, the acquisition occurs and a Medicare Administrative Contractor has issued a recommendation for approval; and (3) not allowing the new Provider Agreement to be dated back to the acquisition date, but instead making it effective when all federal requirements are met.

“A master lease will be required on any group of facilities under common control numbering three or more facilities and/or with an aggregate mortgage amount of $15,000,000 or more.”

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A recent National Labor Relations Board order with respect to Yuba Nursing Home reminds nursing home purchasers and operators of the importance of carefully handling employee and labor decisions during the purchase and sale of a facility. The Board recently upheld an administrative law judge decision to order the buyer of a California nursing home to recognize the seller’s employee union, rehire 50 employees and pay nearly $1.25MM in lost wages and benefits, all stemming from the wrongful failure to hire employees and unilateral changes to employment terms of those retained employees.

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The requirements of nursing home facility licensure may soon change for Illinois skilled nursing home operators and licensees. State lawmakers have introduced HB6243, a bill which PROPOSES to revise annual license fees and institute a mandatory liability insurance requirement. If passed, nursing home operators could face increased costs and added oversight in the licensure process.

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The Illinois bankruptcy court has ruled that the inclusion in a mortgage of the interest rate, maturity date and identification of the note, which are items merely suggested by Illinois statute in 765 ILCS 5/11, are actually required to prevent challenges from purchasers and bankruptcy trustees. In re Crane, 11-09067 (U.S. Bankr. Ct., C.D. Ill). In June, 2012, this case was appealed to the U.S. District Court with briefs filed by banking and title company associations setting forth reasons for overturning the ruling. There is also legislation pending to amend the existing statute to clarify that failure to include an interest rate or maturity date will not invalidate an Illinois mortgage. SB3522. However, until the case is overturned or the pending legislation is approved, lenders making loans secured by Illinois mortgages may and should require the inclusion of interest rates and maturity dates in Illinois mortgages.

Effective July 1, 2012 per the terms of the Indiana State Enrolled Act No. 298, a mortgage on Indiana property that fails to state a maturity date expires 10 years after the execution date. These new terms are part of a revision to the original Statute and made in response to an Indiana Supreme Court ruling in Citizens State Bank v. Countryside. The new provision is retroactive affecting all exisiting Indiana mortgages and can be cured by recording a simple affidavit.

As a Buyer of a SNF with Medicaid residents in Illinois, you should be careful to ensure your Seller puts funds aside to pay the bed tax when it becomes due. Although the regulations are clear that the payment is the responsibility of the seller, if the seller does not make the payment, HFS will deduct this amount from the buyer’s Medicaid check. The amount of the tax is based on $6.07 per day multiplied by the actual census in house (as slightly adjusted) for the month two months prior to the date on which the tax is being imposed. The tax is typically due only after HFS pays the licensee for services rendered in such month. For example, if HFS paid for December services, the tax will be due for the month of December based on September census figures. A Seller may argue that they shouldn’t be required to put funds aside for a payment that isn’t yet due and for a month in which it hasn’t yet been paid. Without the funds put aside, however, a buyer may find itself suing an entity without assets for six or seven months of bed taxes.

HUD’s most recent 232 Lean Blast indicates a pilot program has been instituted in the Atlanta, Baltimore and New York offices allowing only one set of closing documents to be submitted if Lender’s counsel provides HUD with the electronic versions of the closing documents post-closing. HUD clearly indicates that this is solely at the HUD attorney’s discretion. We are still early in the process and I suspect the lender will still need a couple additional copies for itself and Ginnie, so don’t yet post on ebay your cart with wheels or cancel your chiropractor appointment.

As mentioned in an earlier item, the prepayment penalties associated with 232(a)(7) HUD loans could be financially beneficial because of substantial monthly savings, even on loans that are only a couple of years old with large 8% or 9% prepayment penalties. Many HUD lenders will pay these penalties for you, but the cost of these prepayment payments is wrapped into your loan in the form of a higher interest rate (I have seen estimates of 75 to 125 basis points). I caution borrowers to compare the interest rates available with the prepayment paid by the lender against the rate that would be charged if the borrower paid the prepayment penalty directly. Borrowers may find it worthwhile to beg, borrow or steal the funds required for this prepayment penalty. Also, check with your accountant to see if the prepayment penalty paid by the borrower is a tax deductible expense. If so, this is an additional immediate additional benefit.

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The United States Supreme Court in Marmet v. Brown, 565 U.S. ____ (2012) held that state and federal courts must enforce arbitration clauses in all agreements covered by the statute, including specifically those in nursing home residency agreements requiring arbitration in personal injury or wrongful death actions. This ruling vacates an earlier West Virginia supreme court finding of such arbitration clauses as against public policy. http://www.supremecourt.gov/opinions/11pdf/11-391.pdf