Business Law

California Advocates for Nursing Home Reform v. Arágon (Jan. 29, 2021, A158035) __ Cal.App.5th __ [2021 WL 321251]

Unlicensed companies may manage licensed skilled nursing facilities via an approved management agreement.

California law requires the operator of a skilled nursing facility (SNF) to obtain a license from the California Department of Public Health (CDPH). (See Health & Saf. Code, § 1253.) A licensee may enter into an agreement with a management company to oversee the day-to-day operations. The management company does not need to hold the license, but the CDPH must approve it to manage a SNF. The requirements for SNF management approval and a SNF operator’s license are similar, but the operator must meet additional financial responsibility and criminal background criteria and disclosure requirements.

In this litigation, the nonprofit group California Advocates for Nursing Home Reforms and two individuals sued the CDPH Director, two entities licensed to operate a SNF (Country Villa), and a SNF management company (CVSC), alleging that CDPH’s approval of management agreements is illegal because only licensees are permitted to operate SNFs. The plaintiffs sought declaratory and injunctive relief. The trial court granted the defendants’ motion for summary judgment, ruling that CDPH was authorized to approve management agreements. Plaintiffs appealed.

The Court of Appeal affirmed, holding that approving unlicensed management companies to operate SNFs does not violate any law. The court explained that Health and Safety Code section 1253 was a general prohibition against the operation of SNF without a license, which did not preclude a licensee from contracting with a management company after obtaining a license. Moreover, Health and Safety Code section 1267.5 anticipates the use of unlicensed management companies by requiring licensees to disclose if the SNF will be operated by a management company pursuant to a management agreement. Additionally, the statutory scheme included different requirements for a license than for the approval of an unlicensed management company. The court also rejected plaintiffs’ argument that the operation of a SNF by a management company impeded the authority of the nursing home administrator and insulated the licensee from liability. While Health and Safety Code section 1416.68 defines the administrator’s duty as overseeing the day-to-day management of the SNF, it also makes clear that the delegation of a SNF’s management does not limit the obligations of the administrator or the licensee, which remain responsible for how the management company operates the SNF. 

The bulletin describing this appellate decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, Horvitz & Levy LLP, and is republished with permission.

For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com.

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