Changes of Ownership: Georgia Department of Community Health Issues Revised Financial Stability Affidavit

Applicants for personal care home (“PCH”) and assisted living community (“ALC”) licenses in Georgia will now submit a revised financial stability affidavit with any initial or change of ownership application. The revised affidavit, released January 26, 2023, replaces the first and second licensure affidavits issued by the Department of Community Health (“DCH”) in 2022. Most CPAs were unable to sign the first or second version of the affidavit resulting in a backlog of applications that could not be processed due to applicants’ inability to submit a completed financial stability affidavit.

Background

House Bill 987 was signed into law on June 30, 2020, amending Title 31 of the O.C.G.A. The law was a response to media reports related to allegedly deficient practices at PCHs and ALCs and contained a number of measures intended to increase protection for residents of such communities. The Bill resulted in the following text at Ga. Code Ann. § 31-7-12.2(k):

On and after July 1, 2021, all assisted living communities shall be required to meet the following financial stability requirements: (1) Upon initial application for an assisted living community license, provide a financial stability affidavit from a certified public accountant affirming the applicant’s ability to operate as a going concern for the next two years . . .

Similar text was later added to Ga. Comp. R. & Regs. 111-8-62-.05(9) and 111-8-63-.05(10).

The initial affidavit prepared and distributed by DCH, Healthcare Facility Regulation Division (“HFRD”), mirrored the statutory and regulatory language. The affidavit contained attestations to be made by the CPA (e.g., confirming personal knowledge and being over 18 years of age), with the most substantive attestations being:

• In executing this affidavit, I hereby swear and affirm that I have personally reviewed the financial resources of the above-referenced applicant for facility licensure.
• In executing this affidavit, I hereby swear and affirm that, based on my review of the financial resources, the above-referenced applicant for facility licensure has the financial resources to operate as a going concern for the next two (2) years.

Following its release, CPAs pushed back on the form and expressed concerns with their ability to execute the affidavit given the statements. For example, CPAs did not believe that the final statement (regarding operating as a going concern for two years) was clearly tied to an evaluation of financial figures, and so went beyond any statement a CPA could make.

After hearing the concerns, HFRD issued a revised affidavit on May 16, 2022. Among other updates, the affidavit revised the final two statements to read:

• In executing this affidavit, I hereby swear and affirm that I have reviewed the audited financial statements, for the most recently completed fiscal year, of the above-referenced applicant for facility licensure.
• In executing this affidavit, I hereby swear and affirm that, based on my review of the audited financial statements, the above-referenced applicant for facility licensure received an unmodified or unqualified opinion and the report did not contain an emphasis of matter paragraph about the entity’s ability to continue as a going concern.

While the affidavit attempted to tie its statements more closely to financial documentation, it received similar criticism from applicants and CPAs. The affidavit presented difficulties for applicants for the following reasons:

• Any applicant entity that was newly formed would not have audited financial statements, so there would be no documentation available for a CPA to review in order to prepare the affidavit.
• In order to obtain audited financial statements, an applicant would need to engage an accountant to prepare them, potentially at significant cost.
• To the extent an entity that owned the applicant was not newly formed and had a financial history, it was unclear if an owner entity could use its own financials to support the applicant’s affidavit and, if so, would also need to engage an accountant to audit its financials if such were not already prepared.

Revised Affidavit

Effective January 20, 2023, DCH issued an “Interim Affidavit,” which revises the final two statements to read as follows:

1. 5. (A)_______ In executing this affidavit, I hereby swear or affirm that I have reviewed financial documents for the previous fiscal year, for the above-referenced applicant for facility licensure, OR
   6. (B)_______ In executing this affidavit, I hereby swear or affirm that, in the absence of the documents in 5A above, I have reviewed sufficient financial documents to make the required determination for the above-referenced applicant for facility licensure. Sufficient financial documents may include forward-looking documents.
   7. In executing this affidavit, I hereby swear or affirm that, based on my review of the applicant’s documents pursuant to 5A or 5B above, the applicant for facility licensure has demonstrated the financial resources to operate. I understand that the Department will rely on the statements made herein in making a determination regarding the applicant’s eligibility for facility licensure.

Based on preliminary feedback, the new affidavit appears to be more palatable to license applicants and CPAs. Because the affidavit is labeled as an “interim” affidavit, it is unclear if or when a subsequent revised affidavit will be issued.

For more information, please contact AGG Healthcare attorneys Hedy Rubinger or Alex Foster.

The Arnall Golden Gregory CHOW team leads all regulatory aspects of healthcare transactions for investors, operators, managers, capital partners, and developers of every size in all 50 states. The team streamlines the regulatory process so that clients close their transactions on or ahead of schedule. Whether obtaining licensure and Medicare/Medicaid approvals, structuring transactions to expedite closings, anticipating issues to minimize cash flow disruption, negotiating regulatory terms in deal documents, creatively resolving diligence issues, or advising on CHOW guidelines and compliance, the team provides extensive experience and practical solutions. To date, the CHOW team has served as primary regulatory counsel in transactions valued at more than $35 billion.