Nursing homes may close for a variety of business and legal reasons, including but not limited to:

  1. The owner decides that the real estate may have more value as a different type of property, considering its alternative highest and best use.
  2. Facility financial issues/pressures do not justify its existence as a going concern (market reasons, reimbursement problems, poor management, et. al.).
  3. Forced closing related to quality of care issues.

To follow is a brief discussion of the legal and practical issues to consider when contemplating a closure. Failure to comply with legal requirements could lead to significant liability.

Legal Issues (Illinois and Federal)

  1. State/Federal Notice. Most states require prior notice of the intent to discontinue operations and a plan for the relocation of residents (Illinois requires no less than 90 days - see 77 Ill. Adm. Code 300.110). The federal notice period is no less than 60 days (so the longer state requirement in Illinois must be followed), or in the case of a facility where the Secretary of Health and Human Services (“Secretary”) or a State terminates the facility’s participation in the Medicare and/or Medicaid programs, not later than the date that the Secretary determines appropriate (42 CFR 483.70). Notice must be sent to the State Medicaid Agency, the State Long-Term Care Ombudsman, residents of the facility, and the legal representatives of the residents or other responsible parties regarding the transfer and adequate relocation of the residents. The notice must include the date of closure, the reason for closing, a description of the closure plan, information about a resident’s appeal rights and the name and address of the ombudsman. The facility may not admit any new residents on or after the date on which the written notification is submitted.
  2. Relocation Plan. The relocation plan must provide for the transfer and adequate relocation of the residents prior to closure, including assurances that the residents will be transferred to the most appropriate facility or other setting in terms of quality, services, and location, taking into consideration the needs, choice, and best interests of each resident. The nursing home must provide information to the receiving facility, including contact information for the doctor responsible for the resident, the resident’s representative information, information about advance directives, and specific resident care instructions and goals. The facility must comply with all applicable laws and regulations until the date of closing, including those related to transfer or discharge of residents. In Illinois specifically, where the resident is unable to choose an alternate placement and is not under guardianship, the Illinois Department of Public Health must be notified of the need for relocation assistance. Note that the plan might also include the following (non-exhaustive list): A plan for communicating with staff and/or unions; continuation of appropriate staffing levels and paychecks at the facility; provision of necessary supplies the roles and responsibilities of the facility’s Administrator or replacement; sources of funding to assist in keeping a facility open until the residents are transferred; and a plan for communicating with the State long-term care ombudsman, residents and legal representatives of the residents or other responsible parties.
  3. Policies/Procedures. The facility must have policies and procedures in place ensuring that the administrator’s duties and responsibilities involve providing appropriate notices in the event of facility closure. (42 CFR 483.70(m))
  4. Sanctions. The “liability” for failure to comply with the requirements under Illinois and federal law falls upon (i) the facility (generally monetary penalties) and (ii) potentially, pursuant to federal law, the facility administrator. The civil monetary penalty assessed upon an administrator is up to $100,000 and/or the administrator may be subject to exclusion from participation in any Federal health care program.

Practical Issues

There are various labor issues that must be considered and addressed. For example, under the federal Worker Adjustment and Retraining Act, when a business with more than 50 employees is closing, 60 days’ prior written notice must be provided to employees. Many states also have their own WARN Act provisions. Employee benefit issues, such as severance, paid time off, retirement plans and health insurance and the like must be addressed. Closure impacts residents with transfer issues and related stress as well as taking a toll on employee morale and motivation.

There are also financial issues to address, such as when vendors will be paid and post-closure collection of accounts receivable. Also, the owners should analyze existing financing related to the facility including mortgages and lines of credit.

As traditional skilled and intermediate facilities continue to age (necessitating ever increasing capital expenditures to (i) maintain compliance with federal and state health care, Medicare/Medicaid and property codes; and (ii) for the property to remain competitive given the influx of newer/modern assisted living, memory care, et. al. facilities) it is reasonable to expect that financial demands arising from property use will increase for nursing home owners in the foreseeable future. Voluntary and involuntary closure is likely on the horizon for many troubled facilities. Owners will need to analyze (and have professionals such as attorneys and accountants) assist with these very important issues when contemplating closure.