NYS New Medicaid Mandate for Skilled Nursing Facilities

Enforces Minimum Spending and Maximum Margin

By Dorothea A. Russo, CPA, Partner

As a result of the New York State 2021-2022 budget proposals that adopted in January 2022, skilled nursing facilities will be subject to minimum spending and maximum margin thresholds beginning January 1, 2022.

• The minimum spending threshold requires skilled nursing facilities to spend not less than 70% of revenue on direct resident care and not less than 40% of revenue on resident-facing staffing, which amounts are included in direct resident care.
  
  
• The maximum margin threshold calls for the state to collect any operating revenue that exceeds operating and nonoperating expenses by more than 5%.

With the exception of specifically excluded facilities, a skilled nursing facility shall be subject to the following provisions.

Minimum Spending Thresholds

Seventy percent of revenue must be spent on direct resident care as follows. [Note: On December 31, 2021, January 31, 2022 and March 1, 2022, Governor Hochul issued EO #4.4, EO #4.5 and EO #4.6 suspending enforcement of this part of the mandate until January 30, 2022 and again until March 1, 2022 and again until March 31, 2022.]

• “Revenue” is defined as total operating revenue from or on behalf of residents, government payers or third-party payers. An amendment in the 2022-23 Executive Budget excludes from revenue all cash receipts assessment revenue. Also, for those facilities with a four- or five-star rating in the Center for Medicare and Medicaid Services Five-Star Quality Rating System, revenue will be reduced by the capital portion of the Medicaid rate. Facilities with a three-star rating would be eligible to request a capital exclusion waiver from the Commissioner of Health.
  
  
• “Direct resident care” is defined very broadly but excludes administrative costs (other than nursing administration), capital costs, debt service, taxes (other than sales taxes and payroll taxes), depreciation, rent and leases and fiscal services.

• Resident-facing staffing is defined as all salary (including benefits) and contract expenses related to nursing and therapy services.
  
  
• Costs associated with resident-facing staffing that are contracted out by a facility for services provided by registered professional nurses or licensed practical nurses or certified nurse aides shall be reduced by 15% when calculating the amount spent on resident-facing staffing and direct resident care.

Maximum 5% Margin

[Note: This part of the mandate was NOT suspended with Governor Hochul’s EO #4.4 or EO #4.5 and, therefore, is effective January 1, 2022.]

• The mandate caps a skilled nursing facility’s surplus of operating revenue over total operating and non-operating expenses at not more than 5%. This will be measured on an annual basis using each facility’s annual cost report as a basis for the determination of whether a facility is compliant or not.
  
  
• “Expenses” are defined as including all operating and non-operating expenses before extraordinary gains. However, the mandate expressly carves out expenses associated with any related party transaction or compensation that exceeds fair market value, as well as any employee compensation for any person not actively engaged in or providing services at the facility.
  
  
• Any such excess revenue shall be payable by November 1 in the year following the year in which the expenses are incurred and in a manner to be determined by such regulations.

Excluded Facilities

Skilled nursing facilities specifically excluded from the new mandate are continuing care retirement communities or facilities that are authorized to primarily care for medically fragile children, people with HIV/AIDS, persons requiring behavioral intervention or neurodegenerative services, or other specialized populations that the Department of Health may designate.

Failure to Comply

Any funds collected from skilled nursing facilities that fail to comply will be deposited into the Nursing Home Quality Pool to benefit high-quality skilled nursing facilities.

Determining Compliance

Since the annual Residential Health Care Facility cost report will be the basis to determine a facility’s compliance with these mandates, it is imperative that each facility carefully review the accuracy of the reporting to be sure the assignment of costs is appropriate. In addition, the mandate says the state shall, no less frequently than annually, audit the cost reports for compliance. This gives facilities even more reason to ensure the accuracy of the annual cost report.

Contact Us

PKF O’Connor Davies has a team of experts ready to assist you. For more information on these mandates, please contact your PKF O’Connor Davies’ client engagement partner or:

Dorothea A. Russo, CPA
Partner
Health Care Practice
drusso@pkfod.com | 914.341.7087

Christopher J. McCarthy, CPA
Partner
Health Care Practice Co-Leader
cmccarthy@pkfod.com | 914.341.7018