Medicaid Bed Waivers: Friend or Foe? October 30, 2008 Jennifer Rogers Jackson Walker L.L.P.

1. Medicaid Bed Waivers: Friend or Foe? October 30, 2008 Jennifer Rogers Jackson Walker L.L.P. 100 Congress Avenue, Suite 1100 Austin, Texas 78701

2. Overview • Types or classifications of Medicaid beds • Types of waiver beds • Requirements and procedures for waiver bed applications • Trends in waiver applications (the numbers) • Trends in waiver applications (the practical realities and concerns) • Where do we go from here? • Feedback and input from industry members

3. Classification of Medicaid Beds • CERTIFIED BEDS IN EXISTING FACILITIES • 10% increase for high occupancy • REPLACEMENT BEDS • 25% increase for replacement allocations to encourage new physical plants • transferable between parties with certain requirements (such as quality of care) • WAIVER BEDS • application process • transfers highly regulated with substantive restrictions • original intent was to address need for new beds, but to minimize chances that waivers would become a “commodity market” for people who aren’t actually participating in the day-to-day industry • OTHER ALLOCATIONS • open solicitation process for counties with 90% occupancy • 10% if no Medicaid beds • low capacity • temporary spend-down

4. Types of Waiver Beds • Community Needs Waiver • lack of “reasonable access to quality nursing facility care” • demographic study by “experienced” and “independent professional” • “substantial community support” • Under-Served Minority Waiver • “Black, Hispanic, Asian or Pacific Islander, American Indian or Alaskan Native” • independent demographic study demonstrating the target ZIP CODE has minority population greater than 50% • minorities in zip code do not have reasonable access to quality care • Rural County Waiver • rural county is one that has population of 100,000 or less and no more than two Medicaid-certified facilities • no more than 120 beds per county per year • must be requested by County Commissioner’s Court • requires notice in Texas Register and opportunity for comment to Commissioner’s Court • Must consider demographic and economic needs of County, quality of existing facilities, quality of proposals submitted and degree of community support • Others • criminal justice waiver • Alzheimer’s waiver • teaching nursing facility waiver • State veteran's homes

5. Requirements and Procedures for Waiver Applications (for Community Needs Waivers) • File initial kick-off letter with required details regarding identity of controlling parties of the applicant entity AND expert report • Either file support letters with kick-off letter or supplement as soon as practicable • If opposition, applicant has chance to respond • Opponent then has chance to reply if applicant provided new information • Applicant coordinates with State to confirm file is “complete” for purposes of State’s official review • Any follow-up as necessary between the parties • Approved, denied or withdrawn

6. Requirements for Waiver Beds Once Approved • Like replacement beds, subject to 2-year construction clock with one-year progress report • Eligible for one-year extensions thereafter if evidence of good-faith efforts to meet deadlines and/or evidence that delays were beyond applicant’s control • Unlike replacement beds, waiver beds can only be assigned to an entity that will either be (i) owner of real property or (ii) the licensee (at licensure); AND if that entity is majority-owned by original waiver owner (this standard is based on historical interpretation by the State of the relevant rule) • When people misunderstand or are unaware of these restrictions, disastrous circumstances can arise because the development proceeds and then has to be addressed between the private parties (and their lenders where involved) to sort out ownership of beds in order to get license

7. Trends in Community Needs Waivers * No. of Applications * Of the total 104 applications filed since 1998, 92 have been decided, and of those, 50 have been granted (54% of the applications have been approved where decision has been rendered). ** Of the 13 applications filed in 2007, only 10 have been decided, so 4 out of 10 approved so far is 40%. The final % will be between 31% and 54%.

8. Trends in Waiver Applications • More contentious and more personal • More opposition (now almost every waiver application) • Longer review time because of necessary back-and-forth for both sides (multiple sides if different oppositions based on different reasons) • Litigation by various collective plaintiffs in two recent lawsuits filed against the State • Possible, if not likely, there will be more litigation since when one wildebeest jumps, the whole herd jumps

9. Where Do We Go From here? • State was already willing to hear ideas for possible reform from industry members long before lawsuits • Internal (formal) initiative has not taken shape yet, but State was/is willing to discuss concerns with people to co-develop suggestions for new draft rules • Change in rules will more than likely still happen, but lawsuits and upcoming Legislative session may impact timing simply because of available resources to separately spear-head the initiative • Likely issues (just a few – not a representative list): What constitutes an independent report? What constitutes and expert? What due process should be afforded? Time limits on parties (and/or State)? Definitions, such as “reasonable access” and “substantial community support”

10. Feedback and Input from Industry Members • Some people want waivers to go away all together because “a moratorium is a moratorium” • Downside – brings good old-fashioned competition to screeching halt and doesn’t adequately motivate old physical plant owners to rebuild • Some people want moratorium to go away all together • Downside - unfettered construction on every corner would financially hurt owners and industry • Some people want only minor tweaks to current system, and others have suggested entirely new measures (such as requiring letter of credit from applicant) • Bottom line – to work with the State, the focus has to be on what is best for the elderly citizens of Texas. Both extremes (above) have potential negative impact on care, so what works? And what promotes good policy, good practice and good results for the benefit of the people we’re all trying to serve?