Florida Nursing Home Expansion To Spur Litigation Wave

November 24, 2014, Miami, FL, Law360 - Recently passed legislation in Florida lifting a moratorium on new nursing homes and shielding investors from liability lawsuits is driving a resurgence in the market, and attorneys say they expect an uptick in real estate deals and litigation as providers compete for the limited number of slots available for new facilities.

The state Legislature in its most recent session passed H.B. 287, which temporarily lifts the 13-year moratorium on the issuance of any new certificates of need for community nursing home beds in Florida. The bill has set into motion what will likely be a heated process as providers bid for beds before the state closes the door again.

"This is the biggest opportunity in a long time," said Sonya Penley of Greenberg Traurig PA. "A lot of people see it as a great opportunity. I think we could have anywhere from 20 to 25 brand-new nursing homes in Florida."

Faced with pressure to deregulate the industry, the Legislature in 2001 decided to implement a moratorium on new nursing home beds instead, effectively putting off the issue. The moratorium has been renewed twice since then, but in recent years, the health care industry has pressured legislators to allow for more beds as providers have seen increases in their occupancy rates, which in some parts of Florida are at more than 92 percent.

The moratorium will be closed again after 3,750 beds are awarded. The first batch, for which the application period ended Nov. 19, will be the largest, with 3,100 beds. There will likely be two more small-batch cycles to award the remaining 650 beds, according to Penley.

The lifting of the moratorium has created work for regulatory attorneys, who are scrambling to help applicants put together their proposals for the state. The full applications, which involve documents like architectural drawings and audited financial statements, are due Dec. 23, according to Penley.

Penley says she expects a "very significant amount of litigation" to spring from the certificate of need process, fueled by pent-up demand for community nursing home beds, particularly in the northeastern and central parts of the state. Florida's Agency for Health Care Administration will release its decisions Feb. 19, at which point losers in the process will likely file appeals and protest the decisions.

"This is a sea change in terms of the market because beds have not been available for a long, long time," said Jerome Hoffman of Holland & Knight LLP. "There's a lot of jockeying for individual beds because there's no guarantee the state won't decide to put a moratorium on new beds. The salad bar is open, and you're going to go grab as much as you can."

Hoffman, who used to work as the general counsel for the AHCA, said there are few surplus beds because of the moratorium, and demand is only going to continue to increase because of the state's aging population.

"Simply look at the demographics — the baby boom population began in 1946," Hoffman said. "We're going to have this huge bubble carry through for the next 15 or 20 years."

Unlike the typical government contracting process, the state in this situation is not looking at price in providers' applications, because reimbursement rates are controlled by third-party payors, such as Medicare or private insurance companies, Hoffman said. What the AHCA will be looking for when choosing providers for the new beds is the company's ability to deliver high-quality care, he said.

In addition to lifting the moratorium on new beds, the state Legislature also passed S.B. 670, which substantially reformed existing law regarding negligence lawsuits against nursing home facilities, shielding passive investors from liability while adding teeth to enforcement.

The new law states that the only people who can be sued in an initial pleading against a nursing home are the nursing home licensee and its management or consulting company, managing employees, and direct caregivers. The bill specifically states that passive investors are shielded from liability, a step aimed at ensuring that capital continues to flow to the state's facilities.

And capital has been flowing in, according to Marc Shuster at Berger Singerman LLP, who says interest in nursing homes is high among out-of-state private equity firms.

He says he has done three large nursing home deals in the past 12 months, all involving out-of-state parties.

"I'm not talking one-off $8 million facilities," he said. "I'm talking large portfolios."

The uptick in interest is largely a product of the current real estate economy, in which investors see commercial real estate as a good investment that can give them good returns on their money. Net operating income plays — such as self-storage facilities, hotels and nursing homes — are particularly popular because operators can regularly raise rates and increase their revenues as people move in and out.

Shuster said the regulatory and licensing hurdles haven't dissuaded buyers interested in nursing homes.

"The New York private equity space loves nursing homes," he said.

With the aging population, nursing homes are becoming more ubiquitous, he said, and the Legislature's decision to allow new beds will continue to fuel interest in these facilities.

Some providers will elect to build new facilities, as at the moment, it can often be cheaper to build a new nursing home than to buy an existing one, but he said he did not expect sales of facilities to slow down.

"I don't think it's a sure bet that trade slows down, because there are enough buyers in the state who aren't looking to be contractors," Shuster said.

--Editing by Kat Laskowski and Kelly Duncan.

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