REGULATION AND SYSTEMS IMPROVEMENT AGREEMENT BETWEEN THE ARIZONA DEPARTMENT OF HEALTH SERVICES, ‘AND. HACIENDA HEALTHCARE INC. ‘This Regulation and Systems Improvement Agreement (“Agreement”) is entered into between the State of Arizona, by and through the Arizona Department of Health Services (“Department”) and Hacienda, Inc.; Hacienda Healtheare, Inc; Hacienda Skilled Nursing Facility, Ine; Hacienda Children’s Hospital, Ine. and Los Nilos Hospital, Ine. (individually and collectively, “Hacienda” (the Department and Hacienda collectively refered to as “the Parties"), RECITALS 1. Hacienda owns and operates Hacienda de los Angeles, an intermediate care facility for individuals with intellectual disabilities (ICF-IID") thet is currently not required to be licensed by the State; Hacienda Skilled Nursing Facility, a skilled nursing facility (“SNF”) that holds license number NCI-2617; and other licensed health care institutions in Arizona (“Hacienda’s ‘other licensed health care institutions”), Hcienda’s other licensed health care institutions include Hacienda Children’s Hospital, Ine. a hospital that holds license number S117283 and Los ios Hospital Innovative Home Health Care that holds license numiber HHA3379. 2, Hacienda's ICF-IID is federally cenifed to provide services to Arizona Medicaid ‘members consistent with federal regulations, including conditions of participation found at 42 CER, Part 483, Subpart I, but is exempt ftom the State of Arizona’s licensure requirements for ‘health care institutions pursuant to ARS. § 36-591(E). The Department surveys health care institutions for Medicare and Medicaid certification on behalf of the United States Department of ‘Health and Human Services" Centers for Medicare and Medicaid Services ("CMS") 3. The Department is statutorily charged with protecting the health of the people of Arizona. Arizona Revised Statutes ("A.R.S.") § 36-132(AX1). It is also generally required to license health care institutions inthe State. A.R.S. §§ 36-405, 36-407, and 36-430. However, federally certified ICF-IID facilities are currently exempt from the State's licensure requirements. A.R.S, Page 1 of 15, i |§ 36-591(E). Current proposed legislation may require ICF-IIDs tobe licensed by the State in the future, Senate Bll 1211, S4th Leg. 1st Reg, Ses, §§ 4, 7-6 2019), 4. The Arizona Health Care Cost Containment System AHCCCS") is Arizona's Medicaid agency that offers healthcare programs to Arizona residents that meet certain income and other requirements, For individuals who require nursing home or in-home care, AHCCCS offers these services through the Arizona Long Term Care System (‘ALTCS"). To provide health care services to its members, AHCCCS contracts with managed eare organizations and other state agencies, such as the Arizona Department of Economie Security (“ADES") 5. ‘Through its Division of Developmental Disabilities, ADES provides support and services for people with development disabilities and their families throughout Arizona. Through @ contract with AHCCCS, ADES manages car for enrolled ALTCS members with an intellectual oreognitive disability 16, AHCCCS andlor ADES have members who are residents at Hacienda’s ICF-ID, 7. On December 29, 2018, a vulnerable patent at Hacienda’s ICF-UID delivered a baby. AS a result ofthis incident, AHCCCS, ADES, and the Department—on behalf of CMS—opened investigations of Hacienda's ICF-IID and SNE. Additionally, AHCCCS and ADES issued @ corrective action leter to Hacienda on January 16, 2019. ‘That leer stated that “AHCCCS and ADES . .. [welte directing [Maciends] . . . to retain © qualified third party manager, at [Hacienda’s} own cost, to monitor and oversee the operations and appropriate delivery of health care services at the [ICF-IID] and SNF operated by Hacienda.” ‘The January 16, 2019 letter also sated that “fon or before Wednesday, January 23, 2019, Hacienda shall identity and retain— after obtaining the approval of AHCCCS and [AJDES—a qualified third party manager who will assume responsibility for overseeing day-io-day operations of facility” and that “Hacienda shall censure that the third party manager is in place and overseeing operations on or before ‘Wednesday, January 30, 2019." The January 16, 2019 leter also stated that “the contract with the third party mast require thatthe manager assess each resident and establish individualized continuity ofcare plans no later than 90 days from the date of this eter. Bach continuity of eare plan must ensure the safety of the resident and identify « plan in the event the resident needs to ‘or desires to transfer toa different health care setting.” 8 In a February 6, 2019 letter to AHCCCS's and ADES's ditectors, Hacienda “emphasize(d) that it was [Hacienda’s} fll intention to comply withthe State's request as set Page 2 of 15oth in its Fanuary 16, 2019 letter.” Tt stated that it security of [its] facilities, patients and employees” and that “numerous policy and procedural changes hafd] been modified, implemented and... sent to the State.” Hacienda also stated that although it had taken steps to fully comply with AHCCCS's and ADES's requirement to hite an approved third-party manager, and had identified a potential State-approved third-party manager, “had made numerous changes to ensure the this potential third-party manager and Hacicnda were unable to agree on contractual terms within the timeframe provided by AHICCCS and ADES, Hacienda additionally notified AHCCCS and ADES that its board of diceetors had met and concluded that dae ICF-IID facility “was ualikely tbe sustainable over the long term” and provide a transition proposal. Hacienda subsequently provided confirmation that it planned to cease operations at its ICF-ID. 9. On February 8, 2019, the State made clear in a letter to Hacienda that it was never the State's desire to see Hacienda's ICF-ID shut down and that it did not consent to Hacienda ceasing operations at iis ICF-ID. The State expressed concem for the health and safety of Hacienda’s ICF-IID residents and the need to ensure that Hacienda’s residents are in a safe cavironment and receiving appropriate care by qualified individuals, ‘The State asked Hacienda to provide clarification regarding four issues and “offerfed] Hacienda two options: (1) come into compliance with the dtective in the January 16, 2019 letter for the State or (2) enter into an ‘agreement with the [Department] to voluntatly permit [dhe Department] to exercise leensing authority over the ICF-IID peoding legislative ation regarding licensure.” 10, Hacienda subsequently notified AHCCCS, ADES, and the Department that it wished 0 voluntarily enter into 3 regulatory agreement for its ICF-ID. Because Hacienda has affirmatively expressed an intention to comply with the State's requests, including retaining a third-party authority and providing organizational and transfer plans, and in the interest of protecting the health and safety of Hacienda's ICP-IND residents, the Department and Hacienda are entering into this Agreement to provide the Department with regulatory oversight of Hacienda’s ICF-UD. Page3 of 1S,