Archive for the ‘Finance’ category

CONSEQUENCES OF THE AFFORDABLE CARE ACT by Bill Eide

July 12th, 2012

Well, the suspense is over, the last shoe has dropped with the Supreme Court upholding the majority of the Affordable Care Act. Now it is time to begin implementing the various aspects of the new law.

Throughout the last half of the 20th century the U.S. healthcare industry has been impacted, directed and increasingly regulated by the federal government.  Regulation, from the Hill-Burton Act of 1946, Medicare in 1965, Community Planning and it’s reliance on the Certificate of Need to regulate the supply of healthcare of the 1970s, to DRG’s in 1983 and the Balanced Budget Act of the mid 90s  - all have driven capital facility responses.  Every act has had it consequences.

The Affordable Care Act may be another and perhaps the first real serious step to controlling healthcare cost. Or it may be just another set of rules to be gamed by very smart healthcare, medical and insurance administrators.  Regardless, there are drivers that will have significant impact on the programming, planning, design and construction of healthcare facilities.  Two factors will drive the development of facilities:

1)   Tens of millions of Americans will have access to healthcare insurance.

2)   Reimbursement rates will go down.

These two factors more than anything else will become the challenge for facility design and construction – to support the institution in its efforts to maintain their economic viability and healthcare mission.

In my opinion, the most likely facility responses will include the demand for greater staff efficiency, the optimization of productive care and higher utilization rates.

Staff Efficiency

We’re going to hear a lot more about staff efficiency, which is having the right expertise, in the right place, at the right time and with the necessary tools at hand to support the care.  Every moment will count; it may not be life-supporting but it could make the difference in having a profitable operation and therefore having healthcare available.  Look for highly specialized medical treatment centers to develop around a specific medical need or procedure.  Efficiency will drive the further specialization (assuming the volume is there) to reduce the cost of the treatment.

Productive Medicine

Productive care will require that patients receive the least amount of care at the point that it does the greatest good.  Preventive and early intervention care will drive the need for more outpatient and physician support care centers. (Better to get a pneumonia vaccination before you get sick than a shot of penicillin when you get sick or spend a week in an intensive care unit fighting pneumonia).  Look for the development of more immediate care or walk-in care centers; the development of community, neighborhood and school-based clinics will lead the way to keep people out of the hospital.  Long term, the need for hospital beds should begin to decline as productive use of medicine drives down the demand for beds.  Hospitals should evolve into critical care centers and will only serve the sickest of the sick.

Utilization

Closely associated with Productive Medicine is the utilization of equipment and facilities.  Utilization rates must continue to increase.  Facility programming and design must allow for patient flow and staff efficiency that keeps the equipment and facility working.  An extra 80 to 100 square feet for an additional dressing room may be a great investment if it allows for another MRI test every 8 hours.  Planning will have to stop basing space programs on “average” patient utilization rates and start basing it on desired optimization rates and return on investment.

There will undoubtedly be other drivers and responses that will, from time to time, come to the surface and create opportunities for new facilities – this is after all the United States, home of entrepreneurs.  The basic intent of the Affordable Care Act is to make healthcare accessible to the millions of citizens without healthcare insurance and to reduce the total cost of healthcare.  However, it may be the unintended consequences that provide the greatest facility challenges and opportunities for the future.  Stay tuned to this blog as we explore the healthcare landscape for the first signs of the unintended consequences of more federal regulation.

Bill Eide has been developing, planning and building healthcare facilities ALMOST since the Hill-Burton Act was enacted.

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

January 31st, 2010

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:

HUD

http://portal.hud.gov/portal/page/portal/HUD/federal_housing_administration/healthcare_facilities

USDA

www.ruralhealth.hrsa.gov