Late April brought a shower of regulatory changes as the federal government dropped four major final rules this week that the senior living and care industry is calling “flawed,” “aggressive” and “dramatic.” Provider groups raised concerns that the mandates may have unintended consequences for both older adults and their caregivers.
Tuesday, the Department of Labor announced a new threshold for over time pay eligibility, and the Federal Trade Commission issued a ban on noncompete agreements.
Those rules followed Monday’s announcement from the Centers for Medicare & Medicaid Services on Monday of the impending release of its final Ensuring Access to Medicaid Services rule affecting the spending of home- and community-based services funds, as well as a minimum staffing mandate for nursing homes. The latter rule applies directly only to nursing homes, but senior living providers expect it to increase their staffing challenges, too, given that they hire caregivers from the same pool of candidates.
Noncompete agreement ban
The noncompete rule already is facing a coalition lawsuit, filed Wednesday by the US Chamber of Commerce, the Business Roundtable and Texas business groups. The complaint calls the FTC’s decision to ban employer noncompete agreements “unlawful” and a “blatant power grab” and says it will undermine American businesses’ ability to remain competitive.
Another suit was filed by Ryan LLC, a global tax services company, in the Northern District of Texas, also challenging the rule and the FTC’s authority to issue the rule.
During Wednesday’s Argentum Advocates member policy briefing, Director of Government Relations Dan Samson said the FTC’s ban on noncompete agreements represents a “dramatic change” in those agreements. Referencing the Chamber’s lawsuit to block the rule, he said it likely won’t take effect immediately, but he recommended that employers look at their existing noncompete agreements to ensure that they are in compliance.
LeadingAge said it does not support a categorical ban of noncompete agreements, which Vice President of Legal Affairs Jonathan Lips said many businesses enter with workers “on a reasonable, limited basis, for a variety of reasons, and consistent with existing state laws.”
“As we assess the impact of the final rule on our member organizations, a key issue we are reviewing at this stage is whether, and to what extent, the FTC may apply the prohibition on noncompetes to nonprofit organizations,” Lips told McKnight’s Senior Living. “The Commission states that certain entities that would otherwise be subject to the final rule may fall outside the FTC’s jurisdiction under the Federal Trade Commission Act, including an entity that is not ‘organized to carry on business for its own profit or that of its members.’”
Lips noted that the final rule, however, also noted that although tax-exempt nonprofit status is one factor to be considered, it may not be the end of the inquiry in all cases.
Law firm Fisher Phillips, in a blog post, said although the rule isn’t slated to take effect until August, and multiple legal challenges are expected to drag on into 2025 and beyond, employers should use the next few months to plot alternatives. Employers also should review all non-solicitation, non-recruitment, non-servicing and non-disclosure clauses, as well as ensure policies and procedures are in place to protect trade secrets, the firm advised.
Referencing the complaints filed in Texas courts challenging the rule, attorneys at Baker Donelson noted in a blog post that the same courts struck down the National Labor Relation Board’s joint-employer standard and the Labor Department’s “persuader rule.”
Overtime rule
During the Argentum Advocates briefing, Patrick Brennan, an associate with Foley Hoag, called the Labor Department’s overtime rule a “pretty aggressive piece of rulemaking.” He said that DOL rules have been subject to significant litigation over the years and that it is “almost certain” that this rule will be subject to major litigation.
Argentum called the overtime rule “flawed” and said it will exacerbate already “dire” workforce challenges faced by senior living providers, who continue to struggle financially as a result of the COVID-19 pandemic.
“Rather than taking a reasonable approach that factors in current economic conditions and workforce considerations, this new rule will arbitrarily raise the overtime eligibility salary threshold by over 40% beginning Jan. 1 and raise the overtime threshold for highly compensated workers on a regular cycle,” Maggie Elehwany, Argentum senior vice president of public affairs, said in a statement. “These changes seemingly ignore economic considerations and could ultimately and unnecessarily strain an already struggling workforce that are providing excellent care for our nation’s seniors.”
LeadingAge said it understands the need for “occasional” updates to the salary threshold requirement for overtime exemption but that the final rule will add to the financial strain that long-term care providers are navigating due to Medicaid reimbursements that are inadequate to cover the cost of care, wages in a highly competitive labor market and inflation.
“The significant size of this increase will be challenging for our members to absorb,” Lips said, adding that the short compliance timeline also is a concern. “This gives employers less than three months to analyze the final rule, strategize and execute a compliance plan — all of which is a complex process, taking many operational and financial considerations into account.”
The automatic increases every three years, Lips said, also bypasses a proposed rule and public comment, a critical element of the regulatory process that helps achieve a balance between employer and employee interests and supports transparency.
“The goal of ensuring the salary test remains meaningful should not come at the expense of allowing employers to provide comments on how a proposed increase would affect their organizations,” Lips said. “Providers should be given the opportunity to explain how the impact of a proposed increase may differ from one area of the country to another, in light of existing wage variation, or to articulate difficult choices an organization might have to make if it would not be able to absorb the full cost of a proposed increase in the salary threshold, such as potentially reducing non-essential services and programming in some form or serving fewer individuals.”
ANCOR, advocating for people living with disabilities, said that the overtime final rule “unfortunately and dangerously” overlooked the effects that the increased overtime salary threshold will have on Medicaid-funded service providers. The organization said that excluding a mechanism for ensuring that Medicaid-funded providers can comply risks hurting the very workers the rule is trying to protect.
A 2023 study from ANCOR found that the rule could impose more than $1 billion in additional expenses for providers in the first year alone, potentially forcing providers to restrict overtime hours, convert salaried workers to hourly pay, or reduce the number of salaried, full-time workers.
In response to the overtime rule, law firm Fisher Phillips said that employers will need to act quickly to ensure that their pay practices align with this “significant change” that could prompt big changes to employer compensation plans. Although the rule doesn’t actually change current overtime laws, it does increase the number of employees eligible for overtime pay by increasing the threshold from the current $35,568 to $43,888 by July 1 and to $58,656 next Jan. 1.
The firm recommended that employers “get ready for big changes” by reviewing pay practices for compliance, deciding whether to reclassify employees to nonexempt status, proactively communicating any changes, reviewing how equipment and personal device policies affect exempt and nonexempt employees, training managers and reclassifying employees on any new changes and staying updated on legal challenges.
Medicaid Access Rule
Brennan of Foley Hoag called the Medicaid Access Rule a “really big deal” for assisted living communities and the American healthcare system in general.
Along with transparency requirements, the rule puts in place a controversial provision that requires that at least 80% of Medicaid HCBS payments — including payments for personal care, homemaker and home health aide services — be put toward direct care workers’ wages.
He said that the 80/20 rule raised concerns that it might make it very difficult, if not impossible, for assisted living communities to continue their current Medicaid operations.
But it’s not clear how the rule will apply to HCBS services delivered to assisted living residents. Brennan said that CMS will need to provide “substantially more clarity” around how the rule applies to assisted living. Noting that the effective date of the rule was pushed back from four years to six years — a timeframe that could cover two future administrations and future litigation — he said the federal agency will need to provide much more guidance to states charged with ensuring providers are following the regulations.
Elehwany said the rule could force assisted living communities to either reduce their HCBS services or cease participation in the Medicaid program altogether, which “ultimately would have a negative impact on direct care workforce participation and Medicaid beneficiary access to care.”
Between 18% and 20% of all assisted living residents receive Medicaid services under state HCBS programs and waivers, Argentum President and CEO James Balda said in his comments to the federal government about the rule during the commenting period.
“While we support policies to increase the number of caregivers and to improve Medicaid reimbursement for HCBS providers, we are concerned that these mandates may not effectively achieve these goals and could potentially have unintended negative consequences for both seniors and caregivers,” Elehwany said.
During a LeadingAge member policy update call on Wednesday, Medicaid Director Georgia Goodman said that a significant change from the proposed rule is that the 80% passthrough excludes services rendered in a larger service bundle. But if an assisted living community is serving a resident who has higher needs, with additional services authorized in a service plan, and the community is billing specifically for those services, it is likely that those services would fall under the final rule.
LeadingAge Vice President of Home Based and HCBS Policy Mollie Gurian noted that the House Energy and Commerce Committee will hold a subcommittee meeting on April 30 that includes legislative proposals that could affect some of the recently announced rules, particularly the 80/20 passthrough provision in the Medicaid Access Rule.
HR 8114 is one of those bills the House committee will discuss. It would prohibit CMS from finalizing the 80/20 provision, also referred to as the payment adequacy provision. Gurian said that although LeadingAge supports increased compensation for direct care workers, in the association’s view, CMS is imposing a mandate with no existing infrastructure for collecting and reporting accurate information, and that the agency does not provide resources for states and providers to ensure that enough money exists to continue operations while passing through 80% of Medicaid dollars to wages.
“There is no data to ensure those dollars are being distributed as intended,” Gurian said.
Minimum staffing rule
Although the minimum staffing rule only applies to Medicare and Medicaid-certified skilled nursing facilities, Argentum said it could have a potentially devastating effect on the senior living and care sector more broadly.
“Regardless of an assisted living community’s workforce situation, a federal minimum staffing mandate threatens to reduce the available pool of essential caregivers that assisted living and other senior living communities also depend on to serve more than 1.4 million residents each year,” the association said in a statement.
Senior living providers collectively will need to attract three million workers by 2024, Argentum previously calculated, and the long-term care industry overall will need to attract more than 20 million workers in that time.
“A federal minimum staffing standard will not create more caregivers; it will simply further exacerbate the current shortage,” the association said.
