Omega Healthcare and its operators expressed reservations Thursday about a proposed federal rule that threatens several Medicaid funding programs for providers. Company executives conveyed concerns during a fourth-quarter earnings call Thursday morning. 

Officials also noted that the company should finish shedding connections with many Daybreak Ventures connections over the next half year.

The Medicaid Fiscal Accountability Regulation (MFAR) was proposed by the Centers for Medicare & Medicaid Services in November. 

Providers have warned that it could change provider tax regulations for nursing facilities, threaten supplemental payments and revise UPL demonstrations. They’ve also warned that it could slice up to $50 billion nationally from the Medicaid program annually.

“If finalized, MFAR would modify and refine a federal portion of Medicaid funding for two programs, commonly referred to as UPL and provider taxes. Indiana, Texas and Utah currently have UPL programs, while 46 states have provider tax programs,” Omega CEO Taylor Pickett said, adding that UPL funds likely would be eliminated under the proposal. 

“I think the general view is the UPL program is going to be very difficult to retain in its current form, while … there appears to be an ability to likely retain [provider taxes]. It is a very detailed, well-written regulation that addresses some perceived strategies around the current regs that have been refined,” Pickett said. 

“At the CMS level, they’re intent on pushing it along. I don’t think we can sit here and think about it not becoming an active reg this year,” he added. 

While the regulation could be enacted this year, Pickett noted that it would take several years for it to become effective for providers in Indiana, Utah and Texas. 

He also noted that it’s “too early to estimate the ultimate potential impact of MFAR on our facilities in Indiana and Texas as we expect any reductions in revenues will be at least partially offset by expense reductions.” 

Omega executives also noted that the initial feedback from its skilled nursing operators has been “positive” regarding the implementation of Patient Driven Payment Model, which became effective Oct. 1. 

“The revenue side of the equation has been neutral to slightly positive and most of our operators have reported rehab expense savings. At this time, we would expect a modest and much-needed improvement in facility-level cash flow as a result of PDPM,” Pickett said. 

Daybreak Venture

Omega is set to move on from several Daybreak Venture facilities soon. It had hinted that it might be looking to replace the Texas operator in some areas during an earnings call in November.

“Omega and Daybreak have been in ongoing discussions concerning the potential for a consensual and orderly transition of a considerable portion of the Daybreak facilities that are currently leased from Omega,” COO Daniel Booth said. 

“During the course of the next several quarters, Omega anticipates transition either through releases or sales, a vast majority of Daybreak’s existing Omega facilities,” he added. 

Booth also stated the company expects to have between $15 million and $20 million in annual rent or rent equivalence at the end of the transition efforts. 

Overall, the company reported a net income of $61.1 million on revenues of $246.7 million for the quarter. During the same period last year, the company saw a net income of $64.9 million on revenues of $219.8 million. 

Executives noted the decreases were primarily due to an increase in impairments on real estate properties and a decrease in gains on assets sold. The decrease, however, was offset by incremental revenue from new investments completed in 2019.

For additional coverage of the earnings call, see McKnight’s Senior Living.