Periodically over the years, and consistently since 2005, the New York State Department of Health (DOH) has received funding through the New York State budget process to provide capital support for infrastructure improvements at institutional providers. The rationale for this state funding has varied – at times, it has ostensibly been intended to incentivize certain actions (e.g., facility consolidation, development of information technology infrastructure, participation in value-based payment arrangements, etc.), but at other times, it has clearly represented a recognition of the fact that the depressed margins of healthcare providers often prevent them from making necessary investments in aging infrastructure.
These programs, including the original Healthcare Efficiency and Affordability Law for New Yorkers (HEAL-NY) Program, the Capital Facility Restructuring Program (CFRP), and the Essential Health Care Provider Support Program, among others, have usually focused on hospitals, but have included other Article 28 providers (nursing homes, clinics, etc.) as well as other types of providers more recently. They have invariably included limitations on permissible uses of the funds, and have usually required some form of qualifying activity on behalf of applicants that may or may not relate directly to the use of the funds (e.g., bed closures or consolidations in the form of active parent relationships or full asset mergers). They have also frequently included some form of non-capital support, either via non-capital appropriations supporting the program directly, or via allied programs offering some temporary relief from operating expenses.
Over time, DOH has refined its approach to such programs and the Request for Applications (RFA) language used to define that approach. For a long time, the trend was toward limiting the pool of potential applicants to facilities facing some form of economic hardship. More recently, however, DOH seems to have broadened the pool of potential applicants, and appears to be more comfortable using its capital programs as a general support for the New York State health care system as a whole.
The latest iteration, the Statewide Health Care Facility Transformation Program (“SHCFTP”) reflects this trend. SHCFTP was first authorized in 2016, and has seen two iterations so far, with a third just having been approved as part of the 2018-19 New York State Budget. All three iterations share some basic characteristics. First, in all cases eligibility includes at minimum the following types of entities:
1. General hospitals;
2. Residential health care facilities;
3. Diagnostic and treatment centers and clinics licensed pursuant to Article 28; and
4. Clinics licensed pursuant to the Mental Hygiene Law.
Second, in making awards, in all cases the State was required to consider criteria including, but not limited to:
(a) The extent to which the proposed capital project will contribute to the integration of health care services and long term sustainability of the applicant or preservation of essential health services in the community or communities served by the applicant;
(b) The extent to which the proposed project or purpose is aligned with delivery system reform incentive payment (DSRIP) program goals and objectives;
(c) Consideration of geographic distribution of funds;
(d) The relationship between the proposed capital project and identified community need;
(e) The extent to which the applicant has access to alternative financing;
(f) The extent that the proposed capital project furthers the development of primary care and other outpatient services;
(g) The extent to which the proposed capital project benefits Medicaid enrollees and uninsured individuals;
(h) The extent to which the applicant has engaged the community affected by the proposed capital project and the manner in which community engagement has shaped such capital project; and
(i) The extent to which the proposed capital project addresses potential risk to patient safety and welfare.
Third, in all cases awards have been permitted to be made without a formal competitive bid, although in practice they were awarded competitively pursuant to Request for Applications (RFA) processes.
Beyond that, there have been some differences among the three iterations. One difference is in the stated purpose of each. The first iteration, which was authorized by Public Health Law § 2825-d, enacted in 2016 (“SHCFTP I”), provided that “[t]he program shall provide capital funding in support of projects that replace inefficient and outdated facilities as part of a merger, consolidation, acquisition or other significant corporate restructuring activity that is part of an overall transformation plan intended to create a financially sustainable system of care,” thus focusing very strongly on consolidation and sustainability.
In contrast, the second iteration, authorized by Public Health Law § 2825-e and enacted in 2017 (“SHCFTP II”), provides that funding is “in support of capital projects, debt retirement, working capital or other non-capital projects that facilitate health care transformation activities including, but not limited to, merger, consolidation, acquisition or other activities intended to create financially sustainable systems of care or preserve or expand essential health care services.” In short, SHCFTP II has a broader scope than SHCFTP I, insofar as its purpose include “preserving or expanding essential health services” and it is not tied solely to restructuring or supporting failing systems. It is also significant that SHCFTP II can be used for some non-capital expenses; while SHCFTP I was solely “for capital non-operational works or purposes,” the only analogous limitation on SHCFTP II is that it may not support “general operating expenses.”
The third iteration (“SHCFTP III”), just approved in the 2018-19 New York State Budget, expands that purpose even more. It allows the program to provide funding in support of “capital projects, debt retirement, working capital or other non-capital projects that facilitate health care transformation activities including, but not limited to, merger, consolidation, acquisition or other activities intended to: (a) create financially sustainable systems of care; (b) preserve or expand essential health care services; (c) modernize obsolete facility physical plants and infrastructure; (d) foster participation in value based payments arrangements including, but not limited to, contracts with managed care plans and accountable care organizations; (e) for residential health care facilities, increase the quality of resident care or experience; or (f) improve health information technology infrastructure, including telehealth, to strengthen the acute, post-acute and long-term care continuum.” Once again, grants are not available to support general operating expenses, but otherwise, this a far broader set of purposes than the prior iterations.
The second difference is that SHCFTP III adds some categories of eligibility. In addition to general hospitals, residential health care facilities, diagnostic and treatment centers and clinics licensed pursuant to Article 28, and clinics licensed pursuant to the Mental Hygiene Law, SHCFTP III is available to adult care facilities, children’s residential treatment facilities, and assisted living programs.
The third difference is in the amount of funds in the program each year. SHCFTP I allowed $200 million to be appropriated without a formal competitive bid, and required at least $30 million of those funds to be awarded to community-based health care providers. SHCFTP II allows $500 million to be appropriated without a formal competitive bid, and requires at least $75 million of those funds to be awarded to community-based health care providers. SHCFTP III allows $525 million to be appropriated without a formal competitive bid, and requires at least $60 million of those funds to be awarded to community-based health care providers. It also provides that $45 million of those funds must be awarded to residential health care facilities and $20 million to new assisted living programs.
Significantly, the definition of “community-based health care provider” varies between the iterations: SHCFTP I defines the term as Article 28 diagnostic and treatment centers, mental health clinics, alcohol and substance abuse treatment clinics, primary care providers, or home care providers. SHCFTP II includes that list, but also includes “other purposes and community-based providers designated by the commissioner.” SHCFTP III is the same as SHCFTP I, except that it also includes clinics serving people with developmental disabilities and hospices.
Taken together, the variations between SHCFTP III and the prior iterations reflects a continued movement away from using capital funding as a means of incentivizing desired behavior and toward simply providing necessary funding in the absence of private capital. Perhaps more importantly, it reflects a stronger focus on long term care providers, and more generally, on smaller providers instead of the large hospital systems that have traditionally benefited from DOH’s capital programs. It remains to be seen how this change in focus will be implemented in practice, and, on a practical basis, how many long term care providers (or smaller providers more generally) will be able to take advantage of the funding, insofar as the burdensome requirements of the grant process are often challenging for smaller providers. Any such providers interested in pursuing the funding would be well-advised to seek assistance from counsel familiar with DOH’s grant requirements.
The creation of SHCFTP III represents a significant dedication of capital to healthcare providers during the 2018-19 fiscal year. It is also important to remember that this program is separate from the $2 billion “Health Care Transformation Fund” previously discussed, which the State can dedicate to similar purposes. These funds together present a significant opportunity for healthcare providers.
If you are interested in pursuing a grant under SHCFTP, the Heath Care Transformation Fund, or another state program, please feel free to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at (518) 313-1450, or email the Practice Group at NYSRGR@FarrellFritz.com.