Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

F I S C A L I M P A C T R E P O R T

SPONSOR SPAC

DATE TYPED 3-17-05 HB

SHORT TITLE Fort Bayard Medical Center Contractor

SB 1055/SPACS/aSFl#1/aHAFC

ANALYST Collard

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

Significant

Various

(Parenthesis ( ) Indicate Expenditure Decreases)

Conflicts with SB 935, substituted

Relates to Appropriation in the General Appropriation Act

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Health (DOH)

General Services Department – Property Control Division (GSD)

Attorney General (AG)

State Personnel Office (SPO)

Health Policy Commission (HPC)

Responses Not Received From

Taxation and Revenue Department (TRD)

Department of Finance and Administration (DFA)

State Land Office (SLO)

SUMMARY

Synopsis of HAFC Amendment

The House Appropriations and Finance Committee amendment to the Senate Public Affairs

Committee substitute for Senate Bill 1055 strikes the first Senate Floor amendment, which al-

lows for all current and future employees of FBMC to remain state employees and inserts in lieu

thereof language clarifying all current and future employees, with the exception of the manage-

ment employees of the contractor, will remain state employees.

Senate Bill 1055/SPACS/aSFl#1/aHAFC -- Page 2

Synopsis of SFl #1 Amendment

The first Senate Floor amendment to the Senate Public Affairs Committee substitute for Senate

Bill 1055 clarifies language in Section C of the bill to indicate that all current and future employ-

ees of Ft. Bayard Medical Center will remain state employees, entitled to all the rights and re-

sponsibilities of state employees.

Synopsis of Substituted Bill

The Senate Public Affairs Committee substitute for Senate Bill 1055 offers the secretary of DOH

the option of contracting with a private company, or facility owner, to operate the Ft. Bayard

Medical Center (FBMC) or to construct a replacement center in Grant county. The bill allows

the DOH secretary, in conjunction with the appropriate agency such as GSD or the State Land

Office, to enter into a long-term lease or use agreement, not to exceed 25 years, with a private

company for the provision of or operation of a facility to replace FBMC. The bill exempts such

agreements from the Procurement Code. The committee substitute for the bill includes a section

relating to the continuation of state employee benefits. The section also indicates the independ-

ent contractor shall provide management and supervision to the state employees, including pro-

vision of work assignments, evaluations, and promotional and disciplinary actions. Finally, the

committee substitute adds an emergency clause.

Significant Issues

The AG’s Office indicates current exemptions to the Procurement Code are general in nature.

The amendment to Section 13-1-98 specifically permits the operation of Ft. Bayard outside the

Procurement Code, and would set a precedent.

DOH describes FBMC as a long-term care nursing facility and chemical dependency treatment

center. The services include nursing home, medical, social and therapy capabilities. The campus

is designated as a National Landmark in the Federal Register.

The November 2004 preliminary Facility Assessment Report prepared by 3D/I for GSD in No-

vember 2004 estimates repair costs for the hospital portion of the facility at over $4 million and

replacement costs at approximately $22.3 million. For the chemical dependency unit (Yucca

Lodge) at FBMC 3D/I estimates repair costs at $451.2 thousand and replacement costs at $4.8

million. Without investment in substantial repairs, the facility faces increasing difficulties in

meeting its licensing and accreditation requirements.

It should be noted the 3D/I Facility Assessment Report, as of March 8, 2005 is not finalized and

GSD has yet to assess the estimated needs of FBMC, as identified by 3D/I. See attached execu-

tive summary.

DOH indicates FBMC serves between 181 and 210 patients, plus a chemical dependency unit

that has a capacity of 18 and in January 2005, was serving 9 patients. Based on current expendi-

ture trends and January census information, FMBC is spending $21.6 million per year or $114

thousand per patient. By way of comparison, one private pay nursing home in Santa Fe, charges

approximately $60 thousand for a private pay nursing home patient.

DOH also indicates the facility is over-spending its FY05 current budget by several hundreds of

Senate Bill 1055/SPACS/aSFl#1/aHAFC -- Page 3

thousands of dollars and is operating per an austerity plan. The facility has been placed under

new temporary management, because the previous director did not meet licensure requirements,

as set by state law. The new management team and DOH project that FMBC will not be able to

balance its FY05 budget. The facility was cited recently as violating operating requirements and

is being fined pursuant to federal Medicaid procedures.

This facility faces unique challenges in meeting its mission of providing quality and cost effec-

tive nursing home and substance abuse care:

.

There are not bathrooms in rooms used for nursing home patients. Many of the patients use

walkers and it is a very long way to the bathroom. DOH indicates the facility has experienced

a relatively high patient fall rate.

.

The patient rooms are located along long hallways, making it difficult for the nursing staff to

have good line of sight to patients to monitor their safety.

.

The facility was built as a tuberculosis sanatorium in the early 1900’s and is not designed in

conformance with current nursing home standards.

.

The facility is 80 years old and in need of significant repair.

.

To repair the hospital portion of the facility would cost some $22.3 million, and the state

would still be left with an 80 year old nursing home facility and a 103 year-old chemical de-

pendency unit.

.

The facility is “like a small city” and must maintain old systems, such as its own water sys-

tem.

.

The facility is located on 462 acres, which presents maintenance challenges.

.

There are about 53 buildings on site, of which 45 are in use and are in various state of repair.

.

Environmental hazards, such as asbestos and lead paint in ancillary building.

.

Several areas in the facility have uneven floors, which present trip hazards.

.

Sidewalks and curbs are not American Disabilities Act compliant.

.

Management estimates the roofs will fail within 8 years.

.

The fire alarm system is in need of $400 thousand in repairs.

.

The kitchen and dining areas are in need for $400 thousand in repairs.

.

The boilers need to be retrofitted, at an estimated cost of $750 thousand.

GSD indicates if a private contractor operates a DOH program in a state-owned facility, the cur-

rent space use agreement between GSD and DOH would require modification to require the op-

erator to properly maintain the facility. If the contractor provides a new facility for the FBMC

program and the state facility is abandoned, GSD in conjunction with other agencies and the

Legislature will have to address the purpose and potential uses of the vacated facility.

GSD also notes that DOH programs at Fort Stanton in Lincoln County and Los Lunas Medical

Center in Valencia County were moved out of state-owned facilities in the mid-1990s. GSD

states it has been difficult to retrofit these facilities for tenants, and funds to maintain the facili-

ties have been increasingly difficult to obtain. As a result, these assets are deteriorating.

PERFORMANCE IMPLICATIONS

DOH notes, if an independent contractor were to provide a replacement facility in Grant county,

the community could explore other uses for the current FBMC campus.

With a new facility, DOH would have options not now available, given the condition of the cur-

rent facility, for changing its programs to provide a combination of community based and 24-

Senate Bill 1055/SPACS/aSFl#1/aHAFC -- Page 4

hour residential services. This program design could reflect best practices in programs for the

disabled, elderly and those needing chemical dependency treatment. Given the expected signifi-

cant increase in the elderly population, along with unmet needs of the disabled population, the

need for chronic care facilities can be expected to increase over the next several years. While this

administration has a priority the reduction of the number of uninsured and under-insured popula-

tion, the state will continue to need to serve as a safety net service provider into the future. DOH

needs cost effective alternative service delivery options to meet these needs.

FISCAL IMPLICATIONS

There is no appropriation contained in this bill; however, the fiscal implication may be signifi-

cant, depending on the option taken by DOH. The substituted bill allows for all state employees

to remain state employees, with all included benefits. DOH requested just over $15 million for

personal services and employee benefits for FBMC employees in FY06.

FBMC also receives funding from the permanent fund through the State Land Office. DOH pro-

jects $700 thousand for the facility from the land grant permanent fund in FY06. If privatized,

these funds would no longer be available to FBMC.

Additionally, if privatized, the hospital would no longer be exempt from gross receipts taxes.

Assuming revenues for the private hospital are $15 million to $20 million (the current budget is

$20.3 million), gross receipts revenues would be $1 million to $1.3 million, with 60 percent of

this going to the state general fund and the remainder to local governments.

SPO notes it is not indicated in the bill where funding would come from to compensate the inde-

pendent contractor who engages in contract to operate the facility. Although this bill does appear

to be the place for such appropriation, funding should be included in the general appropriations

act or other appropriate funding bill.

ADMINISTRATIVE IMPLICATIONS

DOH indicates FMBC employs approximately 385 staff to serve 190 patients and is a major em-

ployer in Silver City. A plan to use the option provided in the bill, would need to address the

interests of these employees, many of who are union employees.

DOH indicates the substituted bill would address these issues by retaining all FBMC employees

employed at the time of an agreement to operate the existing or new facility will remain as state

employees with all the associated benefits, such as retirement and health insurance. If DOH

elects to take advantage of the provisions of the substituted bill, it is likely that a DOH employee

would be assigned to assist in assuring that the state employees are supervised as state employees

per SPO rules and regulations in place at the time of an agreement.

SPO indicates systems and mechanisms would need to be set up so that the independent contrac-

tor administers the human resource system in a way that ensures consistency with how other

state employees are being treated. Classified employees are subject to State Personnel Rules.

Special care would need to be given to any changes with SPO rules, applicable state law, etc.

The AG’s Office notes DOH would continue to be responsible for FBMC, even if the daily op-

eration of the facility was under the authority of an independent contractor.

Senate Bill 1055/SPACS/aSFl#1/aHAFC -- Page 5

GSD indicates it would have to look for another tenant for the FBMC facility as well as provide

necessary maintenance if the current program moves into another facility.

CONFLICT

The Senate Public Affairs Committee substitute for Senate Bill 1055 conflicts with the Senate

Finance Committee substitute for Senate Bill 935, which authorizes the New Mexico Finance

Authority to issue revenue bonds up to $8 million for improvements at FBMC.

OTHER SUBSTANTIVE ISSUES

SPO indicates it appears that the bill provides for continued employment of FBMC employees

who are employed at the time of the agreement, but it is not clear if, through attrition, new em-

ployees would be hired as state employees (or equivalent) or as employees of the independent

contractor. If the latter is true, it could present human resource problems with some employees

being state employees and other being private employees or contractors. This could result in dif-

fering pay scales and rates as well as different benefit packages – which could ultimately put the

state at a disadvantage when recruiting and retaining employees. In addition to compensation,

separate human resource systems could result in disparate treatment in terms of work assign-

ments, evaluations, and promotional and disciplinary actions.

SPO states almost all of the employees at FBMC are represented by a collective bargaining

agreement. This bill may conflict with existing or proposed language regarding “contracting out

services” in the collective bargaining agreement with AFSCME. Assurances should be made

that existing contractor employees are eligible for all of the rights and privileges of other state

employees.

It is clear that state employees will be provided continued employment to existing employees,

but it is not clear as to the effect this agreement may have on future FBMC employees.

One major objective of DOH is to address gaps in needed services. The Gap Analysis done by

DOH indicates a need to provide additional substance abuse and mental health services in this

part of the state. If the state had a new facility that is not as difficult and costly to operate, DOH

may be better positioned to expand services within current budget resources.

DOH suggests consideration should be given if it is appropriate to exempt the transaction from

the competitive Procurement Act process. If the transaction is exempted, the project could pro-

ceed on an expedited timeframe, but would not benefit from competition. Further, by exempting

this transaction from the Procurement Code, the state would not be ensuring fair pricing or high

quality service for the residents.

HPC notes the substituted bill recognizes that given the state of the facility and the nature of the

long term care business nationally and in New Mexico that a prospective operator/developer

would not likely go through due diligence time and expense required to make a decision to as-

sume responsibility for FBMC or develop a new campus if the operator/developer had to go

through a public bidding/procurement process.

Additionally, HPC notes the substitute bill may allow DOH to not have a DFA fair market ap-

proval or the time and monies involved in a Request for Proposal process in the event a facility

Senate Bill 1055/SPACS/aSFl#1/aHAFC -- Page 6

operator/developer was identified. This exemption would likely make the process of contracting

more attractive to a prospective operator/developer.

The substituted bill allows the state some flexibility as well as a contractor to possibly do a lease

for a nominal sum or a management contract or a new facility development agreement with a fa-

cility operator. It also ensures that the facility would continue to be located in Grant County.

It should also be noted, if FBMC is contracted out, DOH needs an approved plan in place to en-

sure a smooth transition for residents of FBMC.

KBC/lg:njw:yr

Attachment