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June 2010

 

A Polsinelli Shughart Health Care Update:

Health Facilities and Services Review Board Rule Change

 

On April 13, 2010, the Joint Committee on Administrative Rules adopted amended Health Facilities and Services Review Board Administrative Rules (Amended Rules). The Amended Rules are effective for all certificate of need applications filed on or after April 13, 2010. The two most notable changes to the Amended Rules are the addition of charity care as a new criterion on the certificate of need application and waiver criteria for the financial viability requirements.

Charity Care, 77 Ill. Admin. Code 1120.20(c)

The new rules created a requirement relating to charity care. In addition to reporting charity care as a component of the Safety Net Impact Statement, all applicants are required to report charity care information for the three most recent audited fiscal years for each facility the applicant owns or operates in the State of Illinois. Specifically, an applicant must report the following:

  • Net patient revenue
  • Amount of charity care based on charges
  • Cost of charity care

Additionally, if the applicant owns or operates multiple facilities, and the cost of charity care is reported on a consolidated basis, the applicant must document the following:

  • Cost of charity care
  • Ratio of charity care to net patient revenue as reported on its consolidated financial statements
  • Allocation of the costs of charity care and the ratio of those costs to net patient revenue for the facility under review

Where an applicant proposes to establish a new facility, and charity care information is not available, the applicant must provide its projected payor mix by payor, anticipated charity care expense, and the projected ratio of the cost of charity care to net revenue for its second year of operation.

Financial Viability Waiver, 1120.130(a)

The Amended Rules also expand the types of applicants or projects that are exempt from the financial viability requirements. In addition to those applicants with a bond rating of A- or better from Fitch’s or Standard and Poor’s, or A3 from Moody’s, certain applicants are exempt from the financial viability requirements if one of the following criteria are met:

  • All project capital expenditures are funded internally, e.g., cash, securities, received pledges
  • Debt financing is insured by Municipal Bond Insurance Association, Inc., or its equivalent
  • A third-party surety bond or performance bond letter of credit from an A rated guarantor guaranteeing project completion within approved financial and project criterion is provided

In addition to the substantive changes discussed above, the Amended Rules also include changes to the financial viability ratios to address the differences among non-profit, for-profit and government health care facilities and stand-alone facilities and health care systems. The Amended Rules establish a cost complexity index for hospital projects. The cost complexity index addresses differences in project costs to construct or modernize various departments and service areas. Finally, the Amended Rules create new square footage standards. Unlike the previous standards, the new standards are based not only on the particular service area, but also on the type of facility.

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