HUD and USDA Financing for Critical Access Hospitals (CAH’s)

January 31st, 2010 by Scott Leave a reply »

The intent of this blog is to help Critical Access Hospitals with an overview of the steps required to submit for federal funding for a replacement hospital.  The general steps listed below apply to practically all hospital financings, including HUD, FHA Hospital Mortgage Insurance Program and the United States Department of Agriculture’s (USDA) Guaranteed Loan program.

Both of these programs will require the hospital to select a lender, as the programs offer mortgage insurance (HUD) or a loan guarantee (USDA), not an actual loan.  The hospitals and the selected lenders or mortgage bankers will be co-applicants to the appropriate agency.

Step 1)  Planning & Preparation

Step 2)  Facility Design & Financing

Step 3)  Endorsement

Step 4)  Construction

These seem like easy steps, but in reality they are comprised of many smaller steps that are costly and time consuming, and which can vary depending on the particular program selected.  However, if the candidate hospital decides very early on in their scoping process, to apply for funding under these federal programs, then the project can align itself with the requirements of these programs during the natural evolution of the project.

It should be noted that all of the upfront development costs will be borne by the hospital, so the path forward should be planned very carefully and milestones set for both schedule and budget adherence. The HUD program (and USDA) allows for these costs to be included in the financing; thus they can be refunded to the hospital if the insurance/guarantee is eventually approved.  The USDA and HUD urge the candidate hospital to get knowledgeable and experienced project management and design teams involved to assist with achieving goals and expectations of these federal programs.

Step 1:  Planning & Preparation – duration 6 – 12 months

The action steps in this phase represent the starting points for community support, determination of the debt capacity of the hospital, financing strategies, physical plant requirements, and the selection of the project team, among others.  Some will vary depending on the requirements of your State and local jurisdictions (ie:  if your State requires a Certificate of Need “CON”, bond offerings: type of feasibility/market study, etc.).

At the end of this Step, the hospital should have achieved these goals:

  • Obtain approval from the Board to investigate replacing the hospital
  • Filed the CON application (if required) with the State
  • Obtained debt capacity analysis
  • Completed market demand analysis for a new hospital
  • Implement Financing Strategy
  • Discuss hospital relocation with CMS
  • Engage local USDA or HUD representatives
  • Interview and hire financial, project management and/or architectural professionals
  • Apply for interim funding with a lender (if applicable)
  • Complete land acquisition
  • Draft the architectural programming and space planning
  • Develop Total Project Budget (including land, professional fees, equipment and construction costs)
  • Engage community and community leaders
  • Implement community capital campaign (if necessary)

Step 2:  Facility Design & Financing – duration 3 – 12 months (with some overlap to prior step)

The financial models completed in Step 1, will be built upon and enhanced.  At the completion of Step 2, the hospital should be able to obtain financing proposals from lenders.  The federal program applications will also be submitted during this Step.

At the end of this Step, the hospital should have achieved these goals:

  • Obtain financing proposals from lenders
  • Obtain approval on the CON application (if required)
  • Submit applications to the USDA or HUD
  • Engage bond consul and issuing authority (if necessary)
  • Completed architectural construction drawings
  • Bid/Award the construction work to a general contractor

Step 3:  Endorsement – duration 1 – 2 months

The federal programs will review and either accept, ask for clarification/re-submittal or deny the applications.  If your project team has been working with the local government authorities during the previous Steps, the CAH should not be surprised by the requirements of this phase or the outcome.

At the end of this Step, the hospital should have achieved these goals:

  • Closed on the Bonds (if applicable)
  • Closed on the Loan
  • Receive initial funding and approval to begin construction
  • Begin construction
  • Continue capital campaign with the community

Step 4:  Construction – duration 12 – 26 months

Project management will be key during this phase to ensure the construction is completed within expected milestone dates and budget.  At the close of the project, the costs will be finalized and loan amortization begins.

At the end of this Step, the hospital should have achieved these goals:

  • Substantial Completion of the facility
  • Occupation of the Hospital
  • Cost certification
  • Final Closing of Loan

My deepest gratitude to Mr. Calvin Green, former CEO of Franklin Foundation Hospital.  Without Mr. Green’s support and leadership, Franklin’s replacement hospital would not have been such an enjoyable, successful and delightful project.  The City of Franklin truly has a hospital reflective of the magnificent people and history of their community.

For more on the HUD and USDA programs visit these websites below:




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