June 22, 1999

To:Policy and Finance Committee

From:Commissioner, Community and Neighbourhood Services

Subject:Feasibility of Responding to the Ministry of Health's Request for Proposals for New Long Term Care Beds

Purpose:

The purpose of this report is to provide additional information and a five-year forecast that further explores the cost implications should City Council decide to adopt the recommendation of the Community Services Committee, to respond to the Ministry of Health's current Request for Proposals (RFP) for new long term care beds.

Funding Sources/Financial Implications/and Impact Statement:

This report details the policy and financial implications of securing Ministry of Health approval, through the current Request for Proposals (RFP) process, to build a new 200-bed Home for the Aged. Proposals are required to be submitted to the Ministry of Health by July 30, 1999. Based on the timelines experienced for approvals in the RFP process of 1998, it is anticipated that the Ministry of Health would notify successful bidders by late 1999.

Therefore, if the City submitted a successful bid, it is anticipated that capital costs would be incurred in 2000 and 2001. The forecasted 2000 capital budget would be $9 million (net) and the 2001 budget would be $11 million (net). The Ministry of Health no longer provides upfront capital grants, but rather provides construction funding through a per diem payment system of $10.35 per resident day, for a period of 20 years, with the payment starting after the first admission to the new facility. The anticipated total net capital cost to the City is therefore $12 million.

With respect to the operating budget, there would be no impact on the operating budget until 2002. However, in order to operate the new facility at the same level and scope of service as currently exists in the City's 10 other Homes for the Aged, there would be need for an annual net contribution of approximately $1.25 million, effective 2002.

Recommendations:

It is recommended that:

(1)should City Council adopt the recommendation of the Community Services Committee directing staff to respond to the RFP for new long term care beds by the deadline of July 30, 1999, City Council recognize and endorse in principle the multi-year cost implications of this decision in both the capital and operating budgets for the fiscal year, starting in 2000 (as outlined in this report); and

(2)if a proposal is submitted to and approved by the Ministry of Health, staff report back with a more detailed financial impact analysis, prior to signing any agreement with the Ministry of Health.

Council Reference/Background/History:

The Community Services Committee, at its meeting on June 17, 1999, had before it a report entitled "Homes for the Aged - 1999 Operating Budget", which set out a number of options for City Council's consideration, and responded to a prior request from the Budget Committee for staff to provide advice with respect to their preferred direction, should provincial funding levels be restored/increased within the long term care sector.

By way of background, prior to the recent election, the Ontario government announced its plan to continue to expand and improve long term care services across the province, and released its second RFP for new long term care beds. This is the second phase of a six-year expansion plan, and upon completion will have increased the number of beds by a further 5,790 across the province. Of these second phase expansion beds, there are to be 744 new beds within the City of Toronto. This commitment does create an opportunity for the City of Toronto to apply for new beds, should City Council endorse this expansion as the preferred direction.

In addition, the Ministry of Health's long range plan is also intended to address the enhancement of facility and community funding, by reinvesting health restructuring dollars into the long term care system. Although the Ministry has not yet released any specific details regarding how enhanced funding might be phased in, the staff report provided background on staff's opinion and a rationale for supporting the restoration of a portion of the level and scope of service lost within the Homes over the past several years due to multi-year budget reductions and the resultant cost restraint exercises.

Therefore, the report "Homes for the Aged - 1999 Operating Budget" detailed a number of options available to City Council, including: (i) the potential to expand the number of long term care beds owned and operated by the City of Toronto, (ii) to improve the nursing and personal care levels within the current 10 Homes, and/or (iii) to restore certain other resident program or service areas, when enhanced funding becomes available.

The Community Services Committee concluded that they were not restricted to recommending only one of the options presented, but rather could select and recommend components from each of the options presented.

The Committee:

(1)recommended to the Policy and Finance Committee that:

(a)City Council be requested to direct the Commissioner of Community and Neighbourhood Services to respond to the Province of Ontario's Request for Proposals for additional long term care beds for a new City Home for the Aged prior to the July 30, 1999 deadline; and

(b)City Council be requested to endorse maintaining the same level of operating service for both the existing and expanding Homes for the Aged portfolio; and

(2)directed that the Commissioner of Community and Neighbourhood Services be requested to report to the Policy and Finance Committee for its meeting on June 24, 1999, on the budgetary implications of building a new Home for the Aged.

As a result of the direction received from the Community Services Committee, staff prepared an initial analysis with respect to the financial impact of adding a new 200-bed Home for the Aged to the Homes' portfolio, for the consideration of the Policy and Finance Committee. The analysis is detailed in this report, and includes a five-year capital and operating forecast on both the gross and net costs associated with a new 200-bed Home for the Aged. For the purpose of this exercise, a 200-bed Home was chosen as the most feasible, due to efficiencies of scale and the past preference of the Ministry of Health for homes of 200 beds, as demonstrated in the results of the 1998 RFP process.

It is important to note that the current RFP process closes on July 30, 1999, and no proposals will be accepted that are received after that date. Therefore, a timely decision by City Council is required to allow ample time for staff to prepare the submission, should City Council decide to apply to expand the number of long term care beds in its current Homes for the Aged system.

The cost analysis included in this report is based on the Homes for the Aged Division's current service standards and staffing levels.

Comments and/or Discussion and/or Justification:

The recently announced second phase of the Ontario government's six-year expansion plan has made available 744 long term care beds within the City of Toronto through a Request for Proposals process. The call is open to both the non-profit and for-profit sectors. Proposals responding to this second phase must be submitted by 12:00 noon on July 30, 1999. It is expected that a further 2,893 beds will be offered within Toronto in future phases of the multi-year expansion plan. However, based on current information, there is reason to believe that there will not be another RFP released until at least 2001.

In staff's opinion, there is value to having a "healthy balance" of non-profit and for-profit providers in the long term care system, in order to offer competition from various perspectives, including cost, quality, and scope of service. Currently, 63 percent of all of the long term care beds in Ontario are operated by the for-profit sector. If the non-profit sector does not respond to the current RFP, and secure a portion of the newly tendered beds, there is a potential that the non-profit share of the system will erode, and that the "healthy balance" will become less effective in offering Ontario citizens a long term care system with equal weight on cost, quality, and scope of service.

The City's Homes for the Aged are known and respected for providing very good, client-centred care and service to their residents. Although it is acknowledged that the level and scope of service have been reduced in recent years, on an annual basis, in order to respond to a diminishing budget, the level of service is still above that often found in other long term care facilities, and client satisfaction remains high. The public accountability associated with the City's Homes, and the responsiveness of staff in responding to any concerns on a timely basis, are reasons often cited by residents' families as to why they selected a City-owned home for their family member.

For those reasons, there may be merit in the City of Toronto responding to the current RFP. However, staff did not directly recommend this approach in the report entitled "Homes for the Aged - 1999 Operating Budget" for one specific reason: namely, the belief that the current Ministry of Health funded per diem is insufficient to provide the level, quality, and scope of service that we philosophically believe residents are entitled to. Therefore, any expansion of beds in the City's portfolio would have a direct impact on the operating budget and would require a corresponding increase in net contribution.

The balance of this report attempts to explain and quantify the impact on both the capital and operating budgets of adding a 200-bed Home for the Aged to the current portfolio, should City Council decide to direct staff to respond to the current RFP.

 Capital Budget:

All new construction projects must meet compliance with structural standards set out in the "Long Term Care Facility Design Manual" which was released in May 1998. The development of new homes and the redevelopment of existing homes must comply with these standards in order to be eligible for provincial funding assistance. Staff estimate the Ministry's financial commitment to be equivalent to approximately one-half the expected capital construction costs of a long term care facility, as the requirements in the design guidelines describe a facility built to the minimum space and accommodation standards. It is anticipated that any facility considered by the City would exceed the minimum space requirements per resident, in order to add to quality of life.

The Ministry of Health does not provide upfront capital grants. Rather, for every project approved by the Ministry of Health through the RFP process, the Ministry will pay a per diem rate of up to $10.35 per resident following construction of a new facility, up to a maximum of $75,000.00 per bed, towards a facility's total capital costs. That is, any costs above those which can be accommodated through the provincial construction funding are the responsibility of the facility. The provincial funds must be directed to the payment of construction costs and cannot be used to purchase land. The funds begin to flow immediately following admission of the first residents to the new facility, for a period of 20 years.

Staff estimate that the provincial construction funding provides just enough dollars to meet the payments of a 20-year mortgage for half of the cost of the building. Factored into this per diem payment is an implicit interest rate of seven percent. In financial terms, this funding model is much the same for building a new building as implementing the traditional matching grants formula, applied to non-profit facilities in the past, across the whole long term care sector. The difference is that payments will be spread over 20 years rather than provided by way of an upfront capital grant.

In order to provide a reasonable budget forecast for construction, the cost of building the proposed 200-bed long term care facility is roughly estimated at $20 million. Therefore, the total net capital cost to the City is estimated at $12 million.

Private and semi-private accommodation would be included in the design of the new building to improve the individual living areas. General amenity space would also be provided over the province's minimum standards. Preferred accommodation rooms and the additional amenity space will ensure the optimal dignity of residents by recognizing the need for privacy and opportunities for meaningful social interaction. Preferred accommodation may be charged to 60 percent of the Home's total population, amongst residents who have the ability to pay and/or who request either a semi-private or private room (currently $8.00 per day and $18.00 per day respectively). The Ministry of Health currently claws back 50 percent of any revenue a facility collects for preferred accommodation. It is estimated that the proposed facility will realize approximately $600,000.00 annually in preferred accommodation revenue, which may be used as a minor offset to construction costs.

Construction of a new long term care facility would take approximately 18 to 24 months to complete. The entire project would need to be initially financed by the City, since the Ministry's construction funding does not begin until the facility is officially opened. Funding will then be provided on a per diem basis over a 20-year period. Construction could begin in late-2000, with the new facility opening in early 2002.

For the sake of this example, it is assumed that all construction costs would be incurred in 2000 and 2001, with the facility opening in 2002. The financial impact is outlined in Appendix 1 of this report.

Operating Budget:

As directed by the Community Services Committee, the five-year forecast does not reflect any care level increases nor does it include any program or service enrichments. The forecast has been developed using the same quality standards and staffing levels as those previously established by Council. In addition, the forecast does not make any assumptions related to the current collective bargaining process, the future roll-out of the Corporate Services delivery model, or to a possible funding increase which might result from the continuing provincial health restructuring initiative. For purposes of this exercise, there has been a one percent escalation factor applied to both expenditures and revenue.

A proposed organization chart, based on the Division's management plan which restructured and downsized all areas of the Homes' operation has been developed, and is attached as Appendix 2. Since 1993, the Division has reduced its gross expenditure budget by $38.0 million, while caring for the same number of residents whose health needs demonstrate an increasing acuity. This represents a 23.3 percent decrease. This budget reduction was planned and implemented to deal with reduced provincial funding. In addition to the reduced provincial funding, the Division's municipal contribution has decreased by $9.7 million (29.6 percent) over the same period of time.

Notwithstanding these decreases, the Division is committed to providing residents with a level and scope of service that exceeds the minimum provincial standard, with the belief that seniors are entitled to and require a higher level of service, to meet their personal needs and to achieve a reasonable level of family satisfaction.

Appendix 1 estimates the ongoing net contribution to be approximately $1.25 million per year. This net contribution would be directed at maintaining a higher level of service at the actual cost of providing the service, with a recognition that the City pays a higher wage to its employees than the average for-profit facility.

Conclusion:

In the report "Homes for the Aged - 1999 Operating Budget", staff proposed two things. First, they proposed an increase in the 1999 operating budget in the amount of $697,000.00, to enable the Division to access additional provincial funding which is available to enhance nursing services; the increase was approved by City Council at its meeting on June 9 and 10, 1999. Second, they proposed that the policy issues related to bed expansion and/or service enhancement be referred to the Community Services Committee for further discussion and consideration.

At their meeting on June 17, 1999, the Community Services Committee recommended that City Council direct staff to respond to the current Request for Proposals issued by the Ministry of Health. Although staff did not suggest a bed expansion strategy in their report, due to the Division's current cost constraint requirements, staff would be able to respond and prepare a Proposal within the requisite timeframe, if so directed by City Council.

The Homes for the Aged Division is committed to providing vulnerable seniors with a client-centred approach to care and service. To maintain care levels and quality of life programs, the City would need to restore a portion of the Division's previously achieved net operating savings, should the Division be directed to develop and operate a new long term care facility.

It is acknowledged that there would be benefit to the community if the City elected to respond to the RFP and was successful in its bid. However, this community benefit would have an associated net cost. The gross expenditure level necessary to operate a 200-bed facility is estimated to be $8.8 million, with an annual net contribution of $1.25 million. This expenditure level would enable the Division to sustain quality and service levels consistent with the City's other 10 Homes for the Aged.

Contact Name:

Reg Paul, Director, Financial and Administrative Services

Tel: 392-8896; Fax: 392-4180; E-mail: reg_paul@toronto.ca

General Manager, Homes for the Aged Division

Commissioner, Community and Neighbourhood Services