New guidance for Friday… convertible debt and economic interest for licensees

Just in time for the weekend, new guidance arrives from DHSS…

The letter can be read in its entirety below, but the highlights include the ability for facilities to raise capital with convertible debt and economic interest.

With regard to convertible debt, agreements can be made between parties without pre-approval of the agreements. Department review will be required if any existing agreements as a part of the minimum standards verification process would result in a change in ownership contrary to the guidelines of licensure. Otherwise, the agreements will be made between parties. The department reminds stakeholders that potential partnerships should be entered into after due diligence has been performed.

   

Economic interest is broken down by the department as “the simplest way to describe what we will be looking for to determine whether a person or entity has an economic interest in a facility is whether they are entitled to financial gain tied to the income of a facility.” The Department does not consider employee incentive programs to be an economic interest in the facility as long as the incentive is based on the employee’s performance and not the income of the facility.

A set bill for services does not indicate an economic interest in the facility. Compensation based on the facility’s revenue, income, earnings, etc. does indicate an economic interest in the facility. This is particularly relevant for branding or licensing agreements.

Any suggestions for rule changes that would allow for revenue-sharing in a manner that does not subvert the ownership values of Article XIV will be considered. The department encourages anyone with suggestions to submit them as soon as possible so that they can be considered in the next round of rule revisions.