Overview & important Notes

As New York begins to emerge from the COVID-19 pandemic, healthcare stakeholders are beginning to reassess pre-pandemic thinking and develop forward-thinking business models that incorporate lessons learned from the pandemic. This handbook is intended to help identify potential State funding opportunities, how or whether such opportunities could be combined, and other considerations.

· The information provided herein is an overview, and whether a funding opportunity is appropriate or viable for any client will be dependent on the client’s particular circumstances or project. The members of Brown & Weinraub’s Healthcare Team – Neil Benjamin, Carolyn Kerr, Emily Whalen, John Tauriello, Kemp Hannon, Lauren Tobias and Jon Federman -- are available to answer questions regarding these funding opportunities and help clients develop any appropriate specific strategies.

· In July 2021, Brown & Weinraub circulated a document entitled “Funding Opportunities are on the Horizon: Get Ahead of the Curve.”[1] The white paper emphasized that any funding opportunity available to health care providers likely will require successful applicants to develop short, medium, and long-term strategies that align with the State’s priorities to build health equity in our delivery care systems and reduce health disparities. The importance of an applicant to understand and be able to articulate whether and how a particular project addresses health disparities and builds health equity cannot be overstated. The points and principles of that paper apply to this document as well.

· Finally, the information set forth in this handbook is likely to change as additional actions are taken with respect the State budget or subsequent federal stimulus packages, and we will submit updated information as necessary.

Medicaid funding opportunities[2]

Any of the following funding opportunities could be combined with grant funding opportunities, provided the applicant meets eligibility and other requirements.

American Rescue Plan Funding for Home and Community Based Services (HCBS) On July 9, the Department of Health submitted to CMS a plan to spend a total of $5.4 billion that the State expects to receive in one-time funding from the American Rescue Plan, which allows for a one-year 10% enhanced federal match in Medicaid funding for Home and Community Based Services (HCBS). The new funds must be used to expand, enhance or strengthen HCBS for Medicaid members, and cannot supplant existing State funding. The funds would be calculated from April 1, 2021 and must be spent by March 31, 2023. The State’s plan accounts for Medicaid HCBS services administered by DOH, OMH, OASAS, SOFA and OCFS, and includes 43 funding proposals that are focused on three general areas:

· Supporting and Strengthening the Direct Care Workforce (Total $4.572B)

· Building HCBS Capacity through Innovations and Systems Transformation (Total: $664M); and

· Investing in Digital Infrastructure (Total $155M).

It is important to note that this funding will only be available primarily to HCBS providers, which are typically community-based providers.

As of this date, CMS has not approved the State’s plan, either in whole or in part. Please contact us for a summary of this plan. When the plan is finalized and specific opportunities emerge, Brown & Weinraub will provide additional information.

Medicaid Rate Adjustment for Full Asset Mergers

Several years ago, via a Medicaid State Plan Amendment, the State established funding specifically to encourage mergers and consolidations. This funding is limited to full asset mergers (not active or passive parent arrangements). The funding would take the form of a three-year Medicaid rate adjustment. Entities interested in exploring funding through this mechanism should review requirements identified in 10 NYCRR Part 86-1.31.

Value Based Payments

A term and condition of the $8 billion DSRIP Medicaid waiver was to transition a substantial percentage of Medicaid reimbursement to value based payments (VBP). These contracts could enhance revenue to providers by allowing for enhanced payments if providers meet certain quality metrics for an attributed population, to be determined by negotiations between the plan and the contracting provider(s). To incent and facilitate movement to VBP models, the State had established and funded over the past few years VBP stimulus pools.

While funding for those stimulus pools has proven uncertain in recent years, the State remains committed to VBP arrangements, and committed a significant portion of its 1115 Medicaid Waiver Concept Paper (see FN 2, above) to revising and improving VBP arrangements, and to rely on VBP arrangements to deliver significant portions of any approved Medicaid Waiver funding.

Until that waiver application is submitted and approved, providers should continue to consider their ability to maximize reimbursement through aggressive VBP contracting, with upside and downside risk. If there is an ability to receive appropriately capitated payment for services in populations, this can create predictability and stability in revenues for providers able to manage and track outcomes for attributed lives.

Grant programs

Vital Access Provider Assurance Program (VAPAP), Essential Plan Quality Improvement Program (EIQIP), and Value-Based Payment Quality Incentive Program (VBPQIP)

The State budget includes hundreds of millions of dollars[3] to support financially distressed hospitals through programs that have had various names, including the three stated above. These monies are available to general hospitals that “are safety-net providers that evince severe financial distress.” According to historical DOH-developed criteria, eligible applicants typically must:

· have less than fifteen (15) days cash on hand;

· not have assets that can be monetized or liquidated; and

· exhaust all avenues to obtain resources (financial) from corporate parents or affiliated entities.

Traditionally, funds from these programs can be used for payroll and payroll-related purposes; direct patient care expenses associated with existing services; and indirect expenses to preserve existing services. The following expenditures are NOT eligible: capital expenditures; consultant fees; retirement of long-term debt; and bankruptcy-related costs.

The State recently applied to CMS for approval of a state-directed payment template that would (1) expand eligibility criteria so that more hospitals who share similar characteristics to the safety hospitals but miss existing eligibility rules can benefit from the funds; (2) increase the amount of funds available; and (3) amend the types of deliverables in exchange for funding support. Eligible hospitals must be:

· not-for-profit,

· not be a sole community provider or a critical access provider,

· not have a specialty facility rate, and

· have a payer mix of greater than or equal to 36% Medicaid for both inpatient discharges/day and outpatient visits.

Hospitals currently receiving VBPQIP who do not meet this criteria will continue to be able to receive VBPQIP.

This model would allow for provider-specific rate determination (and linked with provider-specific deliverables). This model is likely to result in more predictable funding for providers through an alternative minimum fee schedule which will redefine minimum payments per discharge/day/visit. We understand the State hopes that this reconfiguration will occur before October. (VBPQIP has been extended only through the end of September 2021.) Historically, recipients of the VBPQIP/EIQIP/VAPAP funding have been able to participate in other State funding efforts, but it is unclear whether any limitations will be set going forward.

Distressed Hospital Fund[4]

While the State’s budget included funding for financially distressed hospitals and nursing homes that qualified as ‘critical safety net providers’ per criteria to be established by DOH, the funding has yet to be released. The fund was intended in part to take into consideration losses hospitals have experienced as a result of the changes to the Indigent Care Pool formula. The pool is funded through assessments on the counties and New York City, and is seeded with $50M by the State. The appropriation bill has total funding estimated at $250M. Historically, recipients of the funding have been able to participate in other State funding efforts, but it is unclear whether any limitations will be set going forward.

Vital Access Provider (VAP) Program

For several years, and subject to State appropriation, the Vital Access Provider (VAP) Program has supported healthcare services for New York State’s fragile, elderly, and low-income populations. Eligible providers have included hospitals, nursing homes, diagnostic and treatment centers, home care agencies – and through a separate pot of VAP funding – behavioral health providers. Among other things, the focus for this supplemental financial support is to provide operational funds to providers for healthcare transformation. VAP dollars are non-capital and are paid quarterly to successful applicants.[5]

Traditional Article 28 VAP

This year’s budget included about $132M for VAP ($66M state share). These funds are typically overcommitted, and the application process is very competitive. Eligible applicants either: (1) must be in a fragile financial state; or (2) have a solid restructuring proposal (regardless of financial state).[6] For non-financially challenged applicants seeking VAP dollars for operational costs related to restructuring proposals, those that are designed to meet demonstrated community need, are forward-thinking and are structured to achieve financial stability are more likely to be successful.

Applicants are required to identify specific problems to be addressed, the objectives to be achieved, the patient population to be targeted/served by the project, how this project will better meet the health care needs of the community served by the provider (access, quality, etc.), where the facility is located that impact community need, and the financial condition of the provider to document need (if applicable). Successful applicants will be assigned an outside independent monitor and advisor to help with many deliverables and other aspects of the award.

The Department of Health has instructions (HERE) on the specifics to be included in a VAP application. It should be noted that the VAP application is a two-step process. First, the applicant has to file a “mini” application to determine whether an award will be made. If the mini application is successful, the applicant will need to submit a full application. Once that is accepted, the State will assign a monitor and file on behalf of the awardee a separate state plan amendment to CMS. State share dollars can flow independently of CMS approval. It should be noted that the State and/or CMS can suspend awards if deliverables are not met.

Behavioral Health VAP

VAP funding for behavioral health providers was provided in this year’s State Budget: $25 million in SFY 20-21 and $25 million for SFY 21-22. Providers interested in the Behavioral Health VAP Program should monitor the websites of OMH and OASAS for more information. We note that previously, the process for applying for and awarding behavioral health VAP awards differed in significant respects from traditional Article 28 VAP awards.

How VAP relates to other funding opportunities:

· Historically, VAPAP/EIQIP/VBPQIP recipients could also theoretically qualify for traditional VAP for transformative activities. It is not clear whether the State will take a different position going forward, including with State-directed payments. If entities are eligible for both, the funding sources cannot duplicate each other.

· An entity receiving VAP historically also could be eligible for Health Care Facility Transformation Program funding.

· The purposes of the Health Facility Restructuring Pool are consistent with the reform and restructuring initiatives and infrastructure stabilization initiatives that are consistent with VAP, and this funding pool should be available to VAP recipients.

· Recipients of VAP funds may have transformation projects that could be eligible for REDC funding, especially if the projects create new jobs for the area and otherwise create a positive regional economic impact. VAP funding could also be complimented by other non-government grant programs.

Health Care Facility Transformation Program

After several years of funding Health Care Facility Transformation grant programs, the State has not in several years provided additional capital funding opportunities for health care entities. That said, there remains $225M in funds available from previous appropriations, pending DOH’s issuance of a request for application.

The program is jointly administered by the Commissioner of DOH and the Dormitory Authority of the State of New York (DASNY). The purpose of the program is to strengthen and protect access to care. Eligible entities include general hospitals, nursing homes, diagnostic and treatment centers, primary care providers, home care providers, assisted living facilities, Article 31 clinics, Article 32 clinics, Article 16 clinics, and hospices.

Under existing statutory criteria, funding may be used to replace outdated and inefficient facilities, provided this is part of a merger, consolidation, acquisition[7] or “other significant corporate restructuring activity” intended to create a financially sustainable system. The funding may also be used to for debt relief. Applicants needed to demonstrate: (1) contribution to integration of services, establishing long term sustainability of services, or preserve essential services in the community; (2) alignment with DSRIP [8]; (3) geographic distribution; (4) meets community need; (5) applicant’s access to alternative funding; (6) extent to which project furthers primary care and OP; (7) extent to which project benefits Medicaid beneficiaries and uninsured; (8) extent to which community has been engaged in planning project; (9) risk to patient safety. Successful applicants must be able to meet metrics/milestones.

That said, we understand that the State may be looking at changing the criteria around eligibility and purposes, in part, to be consistent with its evolving policy direction focused on addressing health disparities and achieving health equity. We also anticipate that should the State be successful in getting CMS approval of a new 1115 Medicaid Waiver, the SFY22-23 budget likely will include additional capital funding opportunities to complement the program dollars.

How the Health Care Facility Transformation Program relates to other funding opportunities:

· An HCFTP applicant could also theoretically qualify for traditional VAP for transformative activities.

· The purposes of the Health Facility Restructuring Loan Program are consistent with the reform and restructuring initiatives and infrastructure stabilization initiatives of HCFTP, and entities eligible for Health Care Facility Transformation funds may be eligible for the Health Facility Restructuring Loan Program while applications for those HCFTP grants are pending.

· Applicants for HCFTP might have transformation projects that would be eligible for REDC funding, especially if the projects create new jobs for the area and otherwise create a positive regional economic impact. Non-government grant programs could complement HCFTP funding.

SAM Grants

State and Municipal (SAM) Grants can be used to cover “capital costs of construction, improvement, rehabilitation or reconstruction of facilities owned by eligible entities; the acquisition of capital facilities and assets by eligible entities, including fixed capital assets; the acquisition by eligible entities of equipment and other capital assets, including vehicles, in support of health, safety, technology, or innovation; the acquisition by an eligible entity of capital assets with a useful life of not less than ten years purchased for the sole purpose of preserving and protecting infrastructure that is owned, controlled or appurtenant to an eligible entity . . . .” The SFY21-22 Budget contained an appropriation of $385 million for SAM grants, and specifically defines “eligible entity” to include not-for-profit organizations. Interested eligible entities should work closely with their State elected officials to explore whether a SAM grant is possible or appropriate.

Loan programs

Health Care Facility Restructuring Loan Program

The Health Care Facility Restructuring Loan Program, created by the Health Care Reform Act of 1996, provides low- or no-interest loans to general hospitals to improve efficiency or fund critical turnaround business plans. It is important to note that the pool is primarily available to acutely distressed entities, and the uses of the funding are restricted and narrow. The Department of Health and the Dormitory Authority of the State of New York jointly administer the Program.

The 2014-15 Executive Budget expanded the availability of these loans to assist not-for-profit nursing homes and not-for profit diagnostic and treatment centers in “addressing the development of service delivery strategies, including strategies for the formation or strengthening of networks, affiliations or other business combinations, designed to provide long-term financial stability within and among participating borrowers.”

The SFY21-22 enacted budget included funding of $19.6 million to finance these loans. However, because this is a revolving fund, there are more funds in the pool than the annual appropriation. These loans are typically smaller in scale, ranging from two to five million dollars. Interest is charged, but forgiven, if the loan is paid back within the negotiated term. Recently, these loans have been used as an interim funding mechanism -- to be repaid by other grant proceeds, especially in extreme instances. DASNY will take a lien position on assets as a condition of the loan.

How the health care facility restructuring loan program relates to other funding opportunities?

· This is a loan, not a grant, program;

· This pool could be used to help establish financial viability;

· This program can be used to gap fill while applications for other funding streams are pending;

Revolving Loan Fund: Community Based Providers

In 2017, the State established the not-for-profit Community Development Financial Institution to provide $19.5 million in loan opportunities for primary care entities, administered by the Primary Care Development Corporation (PCDC).

This community health care revolving capital fund was established to make loans to qualified borrowers to improve access to affordable and needed financing for the purpose of expanding and improving capacity to provide health care services throughout the state.

A qualified borrower is defined as a “community based health care provider,” meaning a licensed Diagnostic and Treatment Center (Art. 28), a Mental Health Clinic (Art. 31) or an Alcohol and Substance Abuse Treatment Clinic (Art. 32).

Applications should be made to the fund administrator for consideration.

Eligible uses of the money include (but not limited to):

· Construction, reconstruction, renovation, rehabilitation, refurbishing, expansion, upgrading and equipping the facility;

· Debt service; and

· Health Information Technology.

For more information, click HERE.

How the Revolving Loan Fund relates to other funding opportunities:

· With regard to VAP:

o VAP is a grant program, but the Revolving Loan Fund funds must be repaid.

o Both VAP and the Revolving Loan Fund are available to community based providers. Additionally, behavioral health providers would be eligible for both the BH VAP and the loan fund.

o VAP funds and loan funds could be used to leverage each other for a particular project.

· Entities that access the Revolving Loan Fund for a project could complement and leverage this funding with REDC funding or non-Government funding sources.

Other Sources of Capital

Regional Economic Development Council (REDC) Funds and Similar Types of Funding Opportunities

Providers should be aware of funding options outside of the Departments of Health and Mental Hygiene. Examples of such funding are the Regional Economic Development Council funds; money for “green” projects; other funding sources through the Consolidated Funding Application (CFA); and the Upstate Revitalization Initiative, which continues to have funding available for economic development projects in three Upstate regions (Central New York, Southern Tier and Finger Lakes).”

This link is the most helpful in terms of giving an in-depth summary of the REDCs and CFA:

The CFA, which was created under Governor Cuomo, allows for applicants to enter their project information into a database on the front-end, and the economic development staff, on the back-end, will then look across the state government enterprise and figure out which pools of money the project is eligible for and would be most appropriate to use on the project. Funding sources range from grants for energy efficiency improvements from the New York State Energy Research & Development Authority, to grants for strategic planning feasibility studies from Empire State Development, to low-cost hydropower electricity contracts from the New York Power Authority, to low-cost financing using the State’s credit rating for development projects, among others. By applying for CFA funds, the State will do the “heavy lifting” of figuring out which money can work for you.

Each of the ten regions of the State has developed a regional plan with priorities, which they update yearly. Providers should work with REDC members in their region as early as possible when they are interested in developing a project to apply for a REDC award so they are up-to-date on key priorities and supported regional initiatives. Providers can find their specific council by going to link below and clicking on their region on the map: http://regionalcouncils.ny.gov

Key to success in these applications is getting buy-in at the local level from the individual members of the regional council as well as state and local elected officials. Getting a project listed as a priority in the regional plan goes a long way in the scoring process when deciding which projects to fund. Please keep in mind that in awarding these funds, priorities will be given to projects that create jobs, leverage other funds, and have an overall economic impact (direct and indirect). Projects cannot be started at the time of application but can be shovel-ready (for example, CON approval and other necessary permits may already be granted or in process).

How REDC funding relates to other funding opportunities:

· The funding opportunities referenced in this section are not administered by the Department of Health, nor are they specifically designed for health care providers. They are focused on impacting the overall economic health and development of a region.

· These funds could complement other funds discussed in this document.

· These funds require strong local government and business community support as part of the eligibility process and must tie into the broader “regional plan” for a particular region.

Non-Government Programs

Access to capital for many providers remains very challenging in New York. Those few providers that are investment-grade typically can access the markets, but the vast majority have difficulty raising cost-effective money for a reasonable term. Nevertheless, the search for more innovative sources of capital goes on. While none of the following were in the budget per se, these potential sources outside of mainstream traditional bonding or loans, are getting more attention:

Obligated groups: This is where members of a hospital system issue capital debt that is jointly and severally cross-guaranteed by each member. This mechanism allows for weaker credits to gain access to favorable borrowing terms off of the strength of the strongest credits in the group. There are several of these in existence in New York, and an obligated group consisting of out-of-state hospital members that control New York hospitals is currently under review by state regulators. Hospitals should consider the benefits of this mechanism when deciding to more closely align with other hospitals.

Real estate investment trusts (REITS): In their simplest form, these for-profit trusts acquire hospital property/capital assets for an upfront payment, and lease them back, typically over long terms. This can provide substantial upfront capital in return for transfer of control over real estate and other capital assets. In New York, the regulatory burdens attendant to this type of transaction are not as complex as for some types of private equity and obligated groups. Despite that, this type of capital funding is rare if not altogether absent in the hospital sector in New York, although it is commonplace in certain other states. These REITS may begin to enter the health care market in New York State, as the demands for capital increase.

Private grants. There are private grant opportunities that are available to health care providers from time to time, often offered through foundations. For example, the Mother Cabrini Foundation provides grant funding to all types of health care providers, and while there are currently no available opportunities, interested stakeholders should visit their site and get on their distribution list for notice of future funding opportunities. Additionally, the New York State Health Foundation periodically provides funding/grant opportunities. More information about the types of initiatives they fund can be found here.[9] Other foundations in and outside NYS will also be good sources for grant funds.

How Do The Non-Government Opportunities Relate to Government Funding Programs?

· These mechanisms involve no State or Federal dollars.

· Because these arrangements are typically outside of State review, they can provide a provider with considerably more flexibility in how funds are used (limited only by the terms of specific arrangement).

Appendix: Summary chart of Funding Opportunities

Funding Opportunity

Eligible Entities

Type: Grant, Loan, other?

Government Source?

Funding Uses: Capital, operations, etc.

Can this be combined with other funding opportunities?[10]

Enhanced HCBS FMAP

HCBS providers and programs

Grants, one-time funding/rate boosts

Yes (Medicaid)

Operations, workforce. (Program will dictate how funds can be used.)

Yes

Medicaid rate adjustment for full asset mergers

Hospitals

3-year Medicaid Rate adjustment

Yes (Medicaid)

Operations

Yes

Medicaid Value Based Payments

All Medicaid providers

Potential additional funding through VBP contracts with managed care organizations

Medicaid may provided incentive funding.

Unrestricted. Additional dollars received through VBP can be used at the discretion of the recipient

Yes

VBPQIP/EIQIP/

VAPAP/State Directed Payments

Eligible Hospitals

Grant – made to hospitals through managed care contracts

Yes (Medicaid)

Operations

Yes

Distressed Hospital Fund

Eligible Hospitals

Grant

Yes (Medicaid)

Operations

Yes

VAP

Hospitals, D&TCs, SNFs

Grant

Yes (Medicaid)

Operations

Yes

BH VAP

OASAS and OMH providers

Grant

Yes (Medicaid)

Operations

Yes

Health Care Facility Transformation Fund

Hospitals, D&TCs, SNFs, primary care providers, BH and SUD providers

Grant

Yes

Capital

There may be some restrictions on duplication of funds

SAM Grants

Various

Grant

Yes

Capital, and will be dependent on nature of grant award

Yes

Health Care Facility Restructuring Loan Fund

Eligible hospitals

Loan

Yes

Capital

Yes

Revolving Loan Fund

D&TCs (Art. 28), Mental Health Clinics (Art. 31) or Alcohol and Substance Abuse Treatment Clinics (Art. 32).

Loan

The program is a State government funded program, administered through a private entity (PCDC)

Capital

Yes

Regional Economic Development Funds

Various

Grant

Yes

Capital

Yes

Obligated Groups

Hospitals

Capital debt that is jointly and severally cross-guaranteed by each member

No

Allows for leverage in borrowing

Yes

Real Estate Investment Trusts

Various entities that are real property owners

Trust instrument

No

Allows entities to utilize real property asset to pay for other expenses

Yes

Private foundation

Various (will depend on particular opportunity)

Typically grants

No

Use will be dictated by the type of grant/funding opportunity

Yes

[1] Please contact Brown & Weinraub if you would like a copy of this document.

[2] The State recently submitted to CMS a Concept Paper for a new, $17 billion, 5-year, 1115 Medicaid Waiver. If the State is successful in its efforts, there will be significant additional funding opportunities, including potential additional related capital funding. The process for approval of a final waiver will likely take many months, and any finally approved waiver may deviate somewhat or substantially from the Concept Paper. Brown & Weinraub will alert clients of those opportunities when they become available. For a summary of the Concept Paper, please contact Brown & Weinraub.

[3] Funding for these programs exceeds $600M annually.

[4] This fund has been renamed and restructured over the years, but the fundamental elements of the fund are to provide targeted funding to hospitals that are sole community hospitals, critical access hospitals, and hospitals that meet other certain specified criteria regarding payer mix.

[5] Being designated as a vital access provider under other State or DOH programs has no relevance for purposes of applying under the VAP Program.

[6] While the Department has sometimes used these dollars for financially struggling entities, they have expressed a desire to stop using this as “bailout” fund and to start using it for true innovation, restructuring, etc.

[7] We note that hospitals that undergo a full asset merger can apply to DOH for a temporary Medicaid rate adjustment pursuant to 10 NYCRR Part 86-1.31.

[8] We note that this is the existing statutory criteria; DSRIP has expired. We anticipate that this criteria may be modified if there are future funding opportunities, but successful applicants will align projects with current State policy direction.

[9] The Health Foundation just released an RFP for funding, with initial deadlines for inquiries of October 7, 2021.

[10] Please note that the answers given below are based on current/historical criteria and could be subject to change.