State Delays Adult Day Center Not-for-Profit Requirement

The requirement that adult day health care centers become not-for-profit operations has been delayed at least a year, according to Department of Health Care Services officials.

A Dec. 31 letter to centers caring for the frail and elderly population in the Community Based Adult Services program said “DHCS has decided to postpone until further notice and no sooner than January 1, 2014, the implementation of the requirement restricting CBAS providers to Non-Profit legal status.”

About two thirds of California’s 250 adult day centers are for-profit entities, according to state officials. Putting as many as 186 centers through the complexity of a not-for-profit conversion was a little too much for the state and the centers, according to Jane Ogle, deputy director for DHCS.

“We decided to postpone that [not-for-profit] requirement for a bunch of reasons,” Ogle said. “In part, the CBAS centers in the state have been through a lot of activity, and we thought it would be a good idea to give everything a chance to calm down for a little while.”

Ogle said the financial complexity of the conversion also is a big reason for the delay.

“When we first put out these criteria, we had three exemptions,” Ogle said. “For specialized programs for a specific group of clients where their needs couldn’t be met elsewhere; second is, if their transition was going to impact their ability to serve an adequate number of people, so if they had to put people on waiting lists, for example; and the third was if there were complicated financial arrangements, such as having small business loans [that can’t be moved to not-for-profits].”

The department still supports the not-for-profit model for CBAS centers but the reality of the complexity of converting for-profits loomed over the enterprise, Ogle said.

“We still believe not-for-profit is the way we want to move forward,” she said, “but this gives everybody a little breathing room.” 

Federal income tax restrictions on not-for-profits are a big reason the process is so complicated, said Lydia Missaelides, executive director of the California Association of Adult Day Services.

“This is very legally complex,” Missaelides said. “For instance, a for-profit business can’t have any control over a non-profit,” and since many CBAS providers are part of larger health care facilities, that makes conversion of part of the business a big problem, she said.

“And bank loans only are for a for-profit, and a lease can’t be assigned over,” Missaelides said. “Once you dig deeper into the transactions that had to occur, it got more and more complex.”

Established for-profit businesses have assets, investments and equity that can’t just be given away, Missaelides said.

“There was a big sigh of relief to get that memo on Dec. 31, believe me,” Missaelides said. “There was a lot of anxiety about what would happen.”

Ogle said it makes sense to revisit the not-for-profit goal later.

“There’s a realistic view of what can be accomplished here,” she said. “Primarily it’s a view of what is possible to review, and it’s an acknowledgement of the workload involved. We do believe the heart and soul [of CBAS] is in community-based, not-for-profit services — where the core value is on patient care, rather than on the bottom line.”