Westmount Nursing Home and Cogeneration sale

Town Hall Meeting
Supervisor Doug Beaty
Supervisor Peter McDevitt
Supervisor Mark Westcott
5/1/2014

Opening Remarks
We believe the public should have the opportunity to weigh in
There are major financial challenges facing the county.
Where possible favor privatizing County functions including Westmount.
We don t understand why other county run facilities running similar deficits aren t looked at with the same steely gaze taken to Westmount.
The Cogeneration plant has hindered the county s ability to attract buyers for Westmount.
One potential buyer was not willing to pick up the future co-gen payments to Siemens and dropped out.
We want people to know the truth about the Cogeneration plant.
Finding a caring operator is every bit as important as the initial sale price.
We do not support how this sale process has been handled and the deal terms with the one remaining buyer.
We re here tonight to tell you why.
Doug Beaty, Peter McDevitt and Mark Westcott

Agenda
Overall Economics o The State of the Nursing home industry o Westmount Nursing Home o Cogeneration plant

Cogen Impact: o How the deal was originally structured o The financial impact to Westmount o The impact on the current sale.

Alternatives We will propose other options.
Conclusion - what is this really all about?

Town Hall meeting
Presentation first, questions and comments after.
Supervisor Beaty or Westcott will recognize each speaker. Please be brief, clear and succinct under 3 minutes. Additional comments welcomed later.
Please maintain civility and proper respect for all.

Nursing Homes in New York State

County Nursing Home Trends
County Homes pay higher wages.
County Homes offer better employee benefits.
Statistics suggest County homes generally provide better service. But higher wages and benefits mean most County Homes are losing money.
As a result County Homes are serving fewer people and the percentage of County Homes is declining.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other County financial pressures include:
NYS property tax cap.
New Accounting rules -- GASB 45
Uncertainty about future federal support, E.g. Medicaid IGT payments to nursing homes:
Although the 2014 NYS budget confirmed Medicaid IGT through
2017.

County Homes pay higher wages

County Homes offer better employee benefits

Most County Homes are losing money

Number of County Homes is declining
In 1997 40 counties outside NYC operated nursing homes.
By early 2013 that number had dropped to 33:
Only 8% of nursing homes are County owned.

At least 8 of these 33 counties have decided to sell their homes:
5 more are actively considering sale.

Of the remaining counties half are uncertain about the future of their homes.
Source: Center for Government Research (CGR) August, 2013

Center for Government Research (CGR)
Recommendation
Donald Pryor, Ph.D., and Erika Rosenberg from CGR:

Before making a determination about the future of its nursing home, each county should engage in a careful due diligence process of examining a range of options...
It is generally better for a county to sell its nursing home , as long as it is able to sell to a responsible buyer.

We agree.
Source: NYS Association of Counties Fall Conference (Sept. 25, 2013)

Westmount Nursing Home and
Cogeneration Plant
Westmount:
On February 7, 1981, Warren County opened Westmount an 80 bed nursing home.
Providing affordable quality care for over 30 years.
Westmount relies heavily on federal, state and county assistance to serve our residents.
Cogeneration plant:
In June 2005 Westmount along with two other county buildings went off the grid and onto a cogeneration plant for power.
The Cogen has been an on-going source of controversy since.
Today we have confirmed it has not provided energy savings as promised and has been a drain on the finances of Westmount and the County.

Westmount Nursing Home

Westmount Deficits
Warren County is selling the nursing home because of the projected deficits the county will incur in coming years.
The October 22, 2013 financial plan projected multi-million deficits for future years:
- At the time the county did not believe Medicaid IGT would be paid in the future.
See Addendum 1 for the October 2013 county projection.
It is clear something had to be done and the correct decision was made by the county to sell Westmount.
Since the October 2013 forecast: The 2014 NYS budget extends Medicaid Intergovernmental Transfer (IGT) funding for public homes through March 31, 2017 and increases the annual statewide IGT payment cap from $300 to $500 million.
Note - With increased funding for IGT, but fewer homes there may be more money for
Westmount in the future.
Source: www.leadingageny.org/linkservid/C624D5D8-D692-E12E-94D8F6D01A2F250B/showMeta/0/

In April 2014 the County presented revised forecasts for Westmount that included
Medicaid IGT once the state confirmed extension of the program.
Even with Medicaid IGT the county is facing significant deficits at Westmount.
See Addendums 2 and 3 for the April 2014 county projections.

Westmount s Legacy Cost
It is important to note not all of the Westmount deficit would go away with a sale.
Legacy costs would still exist for current retirees, unemployment costs, etc.:
Projected 2015: $464,593
Projected 2016: $350,708
{By 2024 legacy costs are still $268,811}
Source: County Administrator
Projected 2017: $324,875
See Addendum 4 for the county projected legacy costs with a Westmount sale.
Actual savings through a sale would be reduced by ongoing legacy costs.
Even so there would still be significant savings by selling Westmount.
It is worth noting in 2013 Legacy Costs were a primary reason stated for why the
County should not close the Countryside Adult Home with a 2012 deficit of $567,350: o Probable costs associated with closing Countryside: $484,222 in the first year o Probable costs for futures years: $292,066
See Addendum 5 for county projected legacy costs for Countryside
So why are we not also considering the sale of Countryside?
Source: February 23, 2013 Countryside Financial Analysis

Westmount deficit
Impact of Siemens Cogen payments
The Siemens cost for the Cogen are reflected in the annual Westmount deficits: o Monthly payment to Siemens: $32,000/month or $384,000/year o Maintenance fee: = $50,000 - 70,000/year
Without the Siemens payments, Westmount s deficits drop significantly.
Interesting to note: o In 2013 the airport deficit was a combined $1,005,938 an increase of 19%
Source: Warren over 2012 (operatingCounty. Note$825,938 and hanger payments $180,000) deficit 2013 actual not available o Countryside Adult Home had a deficit of $534,188 a decrease of 6%.
Source: Warren County

Westmount looks much better compared to other county facilities that are running deficits without the drag of the annual Siemens payments.
Yes, but Siemens is a reality and it still is a deficit

So why does this matter?

Because we are asking the nursing home buyer to pick up payments to
Siemens, continue to run the co-gen in order to get future Medicaid reimbursement, and the county to guarantee those Medicaid payments.

GASB 45 from Wall Street Journal March 2007

Enterprise Fund / General Fund
- The other factor that obfuscates the numbers is the fact Westmount has a separate Enterprise
Fund and it will be depleted sometime in 2014.
- All future funding will have to come from the
County General Fund versus before the County could tap into the Enterprise fund.
- Draws from the General Fund will increase dramatically but the net cost to the County is not affected. - It is an accounting issue.

The Cogen

The Cogen
There was a movement in the late 1990 s and early 2000 s to install Cogen plants.
In the case of Warren County a plant went into operation in 2005:
Powered three buildings - old social services, Westmount and a third building.
4 years after installing the social service and third building were torn down.
The nursing home only needed a fraction of the power generated by the cogen, but a very odd thing happened:
For 8 years the manufacturer submitted reports showing large energy savings.
The former County Treasurer Frank O Keefe kept questioning the savings reports because the actual county bills showed energy costs going up.
It also got the attention of a number of citizens including engineers who attended county meetings and cried foul.
Why does this matter now? Why bring up this past history?

The Cogen Deal
The Cogen project was based on a pro forma from Siemens* over multiple years:
MEDICAID REIMBURSMENT: $3.3 million over 16 years:
However Warren County has only received $635,000 YTD in the first 9 years.
Siemens would not guarantee.
WARREN COUNTY PROJECT DEBT PAYMENTS: $4.6 million over 12.2 years:
$3.4 million paid by the county to date.
$1.2 million still owed. (Source: EnerNoc).
WARREN COUNTY PAYMENTS FOR SUPPORT/MAINTENANCE: $1.2 million over 18 years.
ENERGY SAVINGS: Contracted over 18 years.
There has been a lot of talk of possible overstatements of savings calculations.
The County hired a firm EnerNoc that audited the Siemens reports and verified issues.
Source: Warren County, Westmount Comptroller

Addendum 6 for more details on the Cogen deal.
Addendum 7 and 7A for the Over-reported energy savings.
* Note: There were actually two Pro Formas. One in 2003 submitted with the
Certificate of Need and another in 2004 just prior to final contract w/Warren County.
See Addendums 8 and 9 for copies of the actual pro formas.

Siemens Pro Forma 2003
At the time of filing the Certificate Of Need for the Cogen the original pro forma forecast a 41.8 years simple payback and Siemens performance guarantee period of 15 years.
The original 2003 pro forma showed total annual savings of $129,000 (Addendum 10).
$63,000 (Addendum 10) of the savings was to come from the Cogen but the maintenance contract cost more than the projected savings for the Cogen!
The savings in the 2003 Pro Forma - only $2.8 million for the first 18 years were not enough to justify the deal.
More savings were needed in a shorter period of time in order to make the deal work and reduce the payback period.
See Addendum 8 for the 2003 Pro Forma.

Pro Forma 2004
A second pro forma emerged in 2004 with a simple payback of 12.6 years (vs 41.8 years).
When comparing the new 2004 pro forma versus the original 2003 pro forma:
Base year costs increased 46% and total savings doubled WITH NO BASIS FOR THE CHANGES.
The 2004 pro forma savings for year one exceeded the baseline cost on the 2003 pro forma.
Total savings over 18 years:
2003 pro forma $2.8 million
2004 pro forma $5.7 million

We can t save more than we ever spent!

To reduce the payback to 12.6 years, $256,000 annually was needed to make the deal work.
So without ANY engineering backup the estimated Cogen savings went from $63,000 in 2003 to
$221,000 in 2004 with a stroke of the pen.

Addendum 10 for 2003 savings backup

Siemens has been guaranteeing $181,000 a
Addendum 11 revised 2004 savings backup year in savings based on the 2003 pro forma,
Addendum 12 total guaranteed savings but had they used the 2004 pro forma annual energy savings needed to be closer to $300,000 a year.
That is a difference of $119,000 per year for 8 years or about $952,000 of understated
GUARANTEED SAVINGS.
EnerNOC points to an additional $223,000 on top of this.

Siemens needs to write the Warren County taxpayers a check!

The Cogen how it really performed
Warren County hired EnerNoc to evaluate the Co-gen plant here are a few eye openers:
How has the Cogen done to date?
EnerNoc in the December 2013 report page 2 titled Scenario back to Grid :
Estimates Net Loss for Electricity and Gas over first 8 years (2006-20013):
$147,487 versus had the county stayed on the Grid:
Plus there were $3.4 million of payments on top of this.
Even if Medicaid paid for it all the county would have lost, but Medicaid has paid only $635,000 to date.
How is it projected to do in the future?
EnerNoc in the December 2013 report page 1 projects cost though 2022:
Go back onto Grid Immediately, No lease or Medicaid: $1,362,804
Existing co-gen provides power to the nursing home: $1,860,896
$498,092 more expensive over the next 8 years to run the Cogen versus on the Grid:
And that is only if the $1.2 million of Medicaid payments come in
Source: EnerNoc December 2013 report to the Warren County BOS

Why would anyone want to buy this thing?

BOS Minutes May 2006
There were high hopes for the Cogen and the county expected Siemens to deliver.
Shortly after the Cogen was installed the county received the Gold Award of
Excellence* for the Cogen. It was stated in the meeting notes:

A year later on 10/26/2007 when questioned on the Year 2 Energy Savings report from
Siemens the meeting notes state Mr. Dusek clarified that when the Year 1 report was received it had been put through an extensive review to ensure that the figures were accurate and the notes went on to say Clough Harbor had done the job gratis because they had felt they were being extremely scrutinized and their reputation was at stake.
The Board has been approving these reports for years since until now
Year 8 report has been held and not voted on. Year 9 should be released shortly.
Source: Warren County Website May 2006 meeting notes

*American Council of Engineering in New York

Predicted Medicaid Reimbursement
2005-2021
Siemens 2003 pro forma:
Siemens 2004 pro forma:
Westmount Controller 2014:

$3,853,797
$3,316,126
$2,754,870

We are now predicting nearly $600,000 less in Medicaid payments versus what was budgeted.
WE HAVE ONLY RECEIVED $635,000 TOTAL OVER PAST 9 YEARS!
Siemens was unwilling to guarantee Medicaid reimbursements in the contract with
Warren County (see Addendum 13) an integral part of the Cogen deal, but now
Warren County is willing to guarantee Medicaid reimbursements to Specialty Care?

Window is closing with Siemens
The moment the county signs a contract with the buyer of the nursing home that includes the Cogen any future recourse with Siemens will end:
Article 12.2 of the Siemens contract:
Neither CLIENT nor SIEMENS shall assign or transfer any rights or obligations under this Agreement
And in Article 4.8 :
The Performance Guarantee is dependent on maintaining the TSP report that the framework ageement with
Specialty Care says both parties will STOP
See Addendum 14 for actual scans of contract language.

The Nursing Home Sale

The Request for Proposal (RFP)
At the 8/2/12 Budget Committee meeting a Proposal to address
Westmount Skilled Nursing Facility Budget/Finances was presented.
The recommendation was to sell the nursing home but do so by finding a buyer that would invest into a health care campus.
Below are direct quotes from this recommendation:
It would seem that the finances of the facility would be benefitted if it were enlarged and additional services were provided.
Continued operation of the nursing home at present occupancy rates with a plan for expanded services (rehabilitation, adult day care, assisted living, etc.)
Retention of existing employees and additional job creation over time

Based on this presentation the county went to work on developing a
RFP for the sale of the nursing home that incorporated this vision.

Initial Bids for Westmount
Four firms submitted initial bids:
1. Affinity Health Care - $1.6 million:
Was considered too low. Not considered.
2. LTC Midwest WC LLC - $3.5 million:
Company did not f/u. Dropped out.
3. Fort Hudson Health System - $2.2 million:
Dropped out during negotiations.
4. Centers for Specialty Care - $2.2 million:
Continued with negotiations.

Status of Sale
Where does it stand with Specialty Care?
Offer is now up to $2.3 million.
Agrees to take on future Cogen payments and run power off Cogen.
County guarantees future Medicaid reimbursements.
Specialty Care agrees to maintain Medicaid ratio (important for Medicaid reimbursement). Specialty Care agrees to operate home for 5 years what then?

What did Fort Hudson offer?
Competitive bid - $2.2 million.
Vision and proposal to create a health campus.
No interest in picking up the Cogen payments.

Why did Fort Hudson drop out?
Tax exempt status: On the nursing home portion (the balance of property that would become the health campus would be taxed).
Cogen: Was not willing to pick up the future Cogen payments to Siemens.

Specialty Care / Fort Hudson
There was a trade-off between Specialty Care and Fort
Hudson:
Specialty Care had a higher bid and willingness to take on the Cogen payments, but the county would have to guarantee future Medicaid payments; no commitment to build out a health care campus.
Fort Hudson had a competitive bid but requested a tax exempt status for the nursing home and no co-gen payments, but also no Medicaid guarantee; and a willingness to build the health care campus.
The decision to move forward exclusively with Specialty Care was decided behind closed doors and did not involve a vote of the board of supervisors on these two options.
It is now a negotiation with one firm Specialty Care.

The Deal with Specialty Care
The county is preparing to guarantee Specialty Care future
Medicaid payments in return for taking on Cogen payments and operating it at a projected loss.
Status of Medicaid Payments (2006 2014 YTD):
$3.3 million of Medicaid payments were budgeted.
$635,000 has been received year to date.
$113,000 additional committed (county will receive soon).
$2.5 million balance.

Are we prepared to take on the responsibility of guaranteeing future Medicaid payments?
Payments the county has no control over?
Note: Medicaid is actively pursuing fraud charges and could pull back ALL payments if proven.
Based on what we now know shouldn t we be more worried about further burdening Medicaid with these payments than about further enriching Siemens?

The Deal with Specialty Care
Guaranteed Medicaid Payments
This is very concerning.
According to Controller/EnerNoc this is an obligation projected at $1,262,813.
How can the county guarantee something it has no control over?
If for some reason the Medicaid payments aren t made to the private buyer the county would have to pay it:
It would take the net proceeds for the nursing home down to $1,037,187, which would be pennies on the dollar.
Siemens was unwilling to guarantee Medicaid reimbursements in the contract with
Warren County (see Addendum 13) an integral part of the Cogen deal, but now
Warren County is going to guarantee Medicaid reimbursements to Specialty Care?

The Deal with Specialty Care
Sale Price $2.3 million:
The sale price for Westmount is $2.3 million for an 80 bed facility or $28,750 per bed.
Essex County sold their nursing home for $4.05 million for a
100 bed facility or $40,500 per bed.
Saratoga sold their nursing home for $14.1 million for a 239 bed facility or $59,494 a bed.
Steuben County sold its 105 bed nursing home to Specialty
Care for $11 million or $105,000 per bed.
In comparison to Essex, Saratoga and Stueben Counties our per bed value is much less if this sale goes through especially if we have to guarantee the Medicaid payments.

Alternatives
We should separate out the Cogen from the nursing home sale.
Conduct a new round of Request for Proposals.
Unplug the Cogen today and stop making payments on it:
This would save $450,000 + a year.

Take a hard look at other county facilities to find savings Airport, Countryside:
Is it fair to single out only Westmount as the culprit for our budget problems?
It is unfortunate Fort Hudson has dropped out and those of us not involved in the negotiations never got a say. Fort Hudson has now stated they have moved in another direction and likely would not participate in a new RFP.

What s next?
The County has hastily pulled together a special board meeting next Wednesday, May 7th to approve moving forward with negotiations and to contract with Specialty Care ..
WE THINK THIS IS WRONG
If you agree please contact the Warren County
Board of Supervisors and let them know. http://www.warrencountyny.gov/gov/bos.php One parting thought
What is this really all about?
Can we say we are doing the right thing for the residents of Westmount? And for the employees?
Did we do everything possible to fulfill the vision to create a health care center at Westmount?
Did we do all we can to find the right buyer?
Many of us felt the right buyer was Fort Hudson, but they dropped out stating they would not pick up the Cogen payments.
The original vision for the nursing home sale was to find a company that would buy the facility, care for our elderly, look out for our employees and invest into a healthcare center by expanding services.

What we ended up with is one interested party willing to buy the nursing home while taking on the Cogen payments, but only if the county guarantees future
Medicaid payments.

Is this really the best we can do Warren County?

Closing
The Cogen should not negatively impact the nursing home sale and it has.
It also has negatively impacted the Warren
County taxpayer for years and will continue to do so with this sale.
Thank you for coming tonight.
Doug Beaty, Peter McDevitt, Mark Westcott

Addendum

Addendum 1 October 22, 2013

Westmount projected deficits

Addendum 2 April 9, 2014

Westmount projected deficits

Addendum 3 4/25/2014

Westmount projected deficits
County share IGT

Legacy costs

Addendum 4
Westmount Legacy Costs
Assuming a December 31, 2014 Closing Date

Addendum 5
Countryside Legacy Costs

Addendum 6 - The Cogen Deal
The Cogen project was based on a pro forma* with total liabilities of $9.4 million, Medicaid reimbursement over 16 years, County payments made over 12.2 years and other costs associated with running the Co-gen:
MEDICAID REIMBURSMENT: $3.3 million to be paid by Medicaid over 16 years:
Medicaid payments were essential to making the numbers work.
However Warren County has only received $635,000 YTD (we are in the 9th year of the deal).
Another payment of $113,000 has been committed that will take total paid to $748,000.
The county estimates a total of $1.9 million by the end of 2014 (meaning another $1.2 million this year).
This would leave a balance of $1.4 million per the pro forma.
WARREN COUNTY PAYMENTS: Total combined monthly payments over 12.2 years at $32,000/month was $4.6 million:
The county owes a remaining estimated $1.2 million to the manufacturer of the co-gen (Source: EnerNoc).
$3.4 million of monthly payments have already been paid by the county.
SUPPORT/MAINTENANCE: Other costs between $50,000 - $75,000 per month, another $1.2 million over 18 years.
ENERGY SAVINGS: Laid out over 18 years.
There has been a lot of talk of possible overstatements of savings calculations.
This was first brought up by former Treasurer O Keefe who saw actual bills that didn t support the alleged savings.
Local engineers have spent hours looking at the reports and have concluded there are over stated savings.
The County hired a firm EnerNoc that audited the Siemens reports and verified the local engineers.

* BUT there were actually two pro formas. One submitted with the 2003 Certificate of
Need and the other produced in 2004. Their content was very different.
Source: Warren County, Westmount Comptroller

Addendum 7
Over-reported energy savings
The $1,195,170 disputed savings number
Travis Whitehead s chart Contract Language that distorts savings and costs us money :
Electricity
Gas
Laundry
Maintenance
Total

$183,927
$272,897
$223,030
$515,316
$1,195,170 disputed energy savings

See next page for detail

Addendum 7A
Over-reported energy savings
Contract Language that distorts savings and costs us money
A If after comparing the actual metered energy and power cogeneration output to the Baseline data of table 5.1, the units generated by the cogeneration plant exceed the baseline units for the respective month then the units generated by the cogeneration plant shall be used to calculate cost-avoidance, otherwise the Baseline floor values of table 5.1 shall be used This distortion became large when the SS building was torn down yet they still pretended they were powering it to show great savings.
B The natural gas utility costs used for savings calculations will be based on the utility rate in effect for the predominant bill or the cost identified in table 6.1.1 whichever is less This is what Treasurer O Keefe noticed in the early years when gas rates (and bills) went through the roof and Siemens was using lower contract rates to show savings. With recent low gas rates the difference is not so great.
C Avoided Laundry Costs which is outside the contract which states both CLIENT and SIEMENS agree to the stipulated inputs and outcome(s) of the analysis methodology....no further measurements or calculations will be performed But Siemens was greedy enough to take advantage of contract language in A and B but decided to re-estimate how much laundry was being processed.
D Maintenance and Reporting costs These costs are included from National Grid, charged by Siemens, paid by the County, yet they did not count them as costs in their savings calculations after the 1st year.

Which led to the following over-reported savings of well over a Million Dollars
YEAR
8
7
6
5
4
3
2
1

A
$54,998
$44,419
$50,300
$17,290
$ 9,440
$ 2,657
$ 4,823
$
0
$183,927

B
$17,344
$
0
$
0
$
0
$70,542
$50,134
$51,225
$83,652
$272,897

C
$13,420
$31,412
$32,263
$22,949
$28,009
$41,979
$41,361
$11,637
$223,030

Source: Travis Whitehead analysis based on Siemens Contract and Siemens reports

D
TOTAL
$74,190
$159,952
$71,337
$147,168
$68,593
$151,156
$65,955
$106,194
$63,418
$171,409
$60,979
$155,749
$56,634
$154,043
$54,210
$149,499
$515,316 $1,195,170

Addendum 8 Certificate of Need
Siemens Pro Forma 2003

Years

Addendum 9
Siemens Pro Forma 2004
Years

Addendum 10
Cogen Savings 2003 w/backup

Addendum 11
2004 revised savings backup

Addendum 11A

Addendum 12
Guaranteed Savings

Addendum 13
Siemens contract provision

Addendum 14
Siemens contract provisions

American Journal of Public Health Study
ABSTRACT. Does Investor ownership of nursing homes compromise the quality of care?
Objectives. Two thirds of nursing homes are investor owned. This study examined whether investor ownership affects quality.
Methods. Data analyzed from state inspections of 13,693 nursing facilities.
Results:
Investor-owned facilities averaged 5.89 deficiencies per home, 46.5% higher than nonprofit facilities and 43.0% higher than public facilities.
In multivariate analysis, investor ownership predicted 0.679 additional deficiencies per home; chain ownership predicted an additional 0.633 deficiencies.
Nurse staffing was lower at investor-owned nursing homes.
Conclusions. Public-owned and not-for profit nursing homes provide better care and more nursing care than do Investor-owned nursing homes.
Source: American Journal of Public Health, October 2000

Like any study this draws general conclusions and may not apply to our region. We know private operators like Fort Hudson Health Care provide the highest quality care.