A number of hospitals in North Carolina have skilled nursing beds in their bed inventory. According to the Proposed 2015 State Medical Facilities Plan (SMFP), 1,652 of the 45,724 (or approximately 4 percent) of the licensed nursing home beds in North Carolina are located in hospitals. In addition, critical access hospitals in rural areas typically have swing beds capable of being used for both acute care patients and those requiring skilled care.

While the use of swing beds in the critical access hospital setting has remained a viable economic model, utilization of hospitals’ traditional nursing home beds has decreased due to a shift in the manner in which hospitals are reimbursed for care provided to persons qualifying for long term care health services. Ten hospitals in North Carolina, having a total of 290 licensed nursing home beds in their inventory, reported zero occupancy in their most recent License Renewal Applications.

At the same time, traditional nursing homes located in the same counties may actually be at high utilization. However, because the hospital-based nursing home beds in a county are at low utilization, the SMFP methodology may not identify a need for additional nursing home beds in that county.  In fact, both the 2014 SMFP and the Proposed 2015 SMFP identify a need for no additional nursing home beds. Thus, there are no nursing home beds identified as being needed in North Carolina for the next 18 months.

Many providers may believe that developing new beds under the N.C. State Health Coordinating Council (SHCC) need determination methodology provides the only opportunity for growth. However, there are other options.  The Certificate of Need (CON) law permits two providers to jointly file a CON application to relocate beds from one facility to another.

Hospitals seeking to rid themselves of unneeded nursing home beds may enter into agreements with nursing homes to effectuate such a transfer.  This transfer of beds  can occur within the same county regardless of the SMFP need determination. In addition, providers may relocate beds to a contiguous county, so long as the proposal would not result in a deficit of licensed beds in the county that would be losing the beds, or a surplus of beds in the county gaining the beds, as reflected in the SMFP.

This type of transfer requires a two-step process. First, the hospital and the nursing home must jointly file a CON application to relocate the hospital’s beds to the nursing home site. The beds can be moved to an existing wing of the nursing home building, or to a new wing constructed on the nursing home site. 

After the CON application is approved and the beds are developed, licensed and certified, the nursing home provider may  acquire the hospital’s interest in the beds. This can be done by obtaining an exemption from the CON Section. In order to obtain the exemption, the nursing home must send a letter to the CON Section advising the section of its intent to enter into a purchase agreement with the hospital. 

Because of the lack of need in the SMFP and the value of additional nursing home beds, nursing home providers are willing to pay a significant amount of money for the right to acquire these beds.  They also typically will cover all the costs associated with the CON application and the exemption request. Thus, the hospital’s expenditures in this type of transaction are typically limited to its costs associated with the negotiation of the transaction.

North Carolina is now the 10th largest state in the U.S., and one of the fastest-growing states in the over-65 population category.  Despite the absence of “new” nursing home beds in the annual SMFP, the state’s nursing facility industry is  expanding. This growth presents an opportunity for hospitals to recoup some of the cost of operating nursing home beds that are no longer needed in the hospital’s bed inventory. 

Please feel free to contact our health law team if you are considering this type of transaction. We have a great deal of experience in this area, both in following the steps discussed above to obtain CON Section approval of the transaction and in negotiation and preparation of the asset transfer documents.