Summary Of HUD's LEAN 232 Program E-mail Blast: Office Of Residential Care Facilities (ORCF), October 31, 2012

In an effort to summarize the highlights of the LEAN E-mail Blasts that we receive, and rarely have time to review in a timely fashion, we at Pepper Hamilton are providing this quick synopsis of the latest LEAN update. Our aim is to provide pertinent information succinctly as a roadmap to the LEAN E-mail Blasts, not to replace them. We hope you find these summaries helpful.

New Section 232 Regulations Effective October 9, 2012

The new Section 232 regulations published September 7, 2012, became effective October 9. The new regulations cover many aspects of the 232 program, including physical, financial and operational matters, and though generally effective October 9, various provisions have different initial applicability dates as noted below. Below is a summary of some key provisions of the regulations noted in the LEAN Blast, for additional in-depth analysis, please see our complete summary.

Operator Financial Statements

The new provision requiring operators to submit quarterly/year-to-date financial statements to the FHA lender and HUD (24 CFR 5.801(a)(6) and (d)(4)) is not yet applicable and will not be required until HUD announces (via Federal Register notice) how the financial reports are to be submitted. HUD anticipates announcing the submission method in 2013. Even then, this provision will apply only with respect to fiscal years commencing at least 60 days after the announcement. When the applicability date is ultimately reached, however, this provision will apply both to existing and future 232 projects.

REAC Physical Inspections

The new REAC regulation, which limits the inspections required for skilled nursing facilities (SNFs) (24 CFR 200.855), is now applicable. REAC will no longer routinely perform physical inspections on skilled nursing facilities (though HUD can direct on a case-by-case basis that one be conducted). SNFs that have some non-skilled nursing units, but are predominantly providing skilled nursing care, are also excluded from the REAC inspections.

In implementing this provision as expeditiously as possible, HUD is halting the scheduling of routine inspections on such facilities. Additionally, HUD has directed the cancellation of:

1. inspections scheduled prior to November 8, where the prior REAC inspection resulted in a score of 80 or above, and b) inspections already scheduled to occur on or after November 9, unless the prior REAC score was below 60.

The provision also gives HUD the authority to determine that other (non-SNF) projects in a particular jurisdiction do not need REAC inspections, if HUD finds that a particular jurisdiction provides adequate inspections with readily available results. Further information on implementation will be announced in the future.

Purchase of Goods and Services

The new regulations imposing a reasonableness standard when purchasing goods and services (24 CFR 232.1007) are now applicable, and apply to all existing and future 232 projects. While this requirement had not previously been set forth in the regulations, it is not a departure from longstanding HUD expectations or from standard industry practice.

Prohibition on Operator Withdrawing Funds

There is a new regulation prohibiting the operator from withdrawing funds if it fails to timely submit a quarterly/year-to-date financial...