TYPE OF PROJECT: Substantive HSA: VII

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1 STATE OF ILLINOIS HEALTH FACILITIES AND SERVICES REVIEW BOARD WEST JEFFERSON ST. SPRINGFIELD, ILLINOIS (217) FAX: (217) DOCKET NO: H-01 BOARD MEETING: November 5, 2013 PROJECT NO: PROJECT COST: Original: $18,664,822 FACILITY NAME: Transitional Care Center of Naperville CITY: Naperville Current: $ TYPE OF PROJECT: Substantive HSA: VII DESCRIPTION: The applicants (Transitional Care Management and Transitional Care Center of Naperville, LLC), propose to establish a 120-bed skilled nursing facility in 68,200 GSF of space. The total cost of the project is $18,325,873. The project completion date is November 30, 2015.

2 EXECUTIVE SUMMARY PROJECT DESCRIPTION: The applicants (Transitional Care Management and Transitional Care Center of Naperville, LLC), propose to establish a 120-bed skilled nursing facility in 68,200 GSF of space. The total cost of the project is $18,664,822. The project completion date is November 30, WHY THE PROJECT IS BEFORE THE STATE BOARD: The applicants are before the State Board because the applicants are proposing the establishment of a category of service as defined by the State Board. PURPOSE OF THE PROJECT: The applicants note the purpose for the proposed project is to bring skilled nursing care into a new realm in terms of quality of care, acuity and coordination with other components of the health care continuum, patient comfort, satisfaction, and overall outcomes. NEED: To establish a long term care facility 1. there must be a calculated planning area need, 2. the proposed facility must serve the residents of the planning area, 3. there must be a demand for the service, 4. the proposed facility must improve access, 5. will not result in a mal-distribution of service or an unnecessary duplication of service, and 6. will not impact other area providers. There is a calculated excess of 69 beds in the 7-C health planning area. The applicants have attested that over 50% of the patients will come from within Dupage County. Referral documentation from Edward Hospital indicates that 400 patients a year will be referred to the proposed facility. However 37 (78%) of the 47 facilities within 30 minutes are operating below the State Board s target occupancy of 90%. There is no absence of long term care service in this planning area, nor has the applicants identified access limitations due to payor status. In addition the applicants did not identify any restrictive admission policies at other planning area providers, or identified that the area population and existing care system exhibit indicators of medical care problems. It also appears that the proposed facility would have an impact on other area providers. BACKGROUND/COMPLIANCE ISSUES: The applicants, Transitional Care Management and Transitional Care Center of Naperville, LLC, have no adverse background or compliance issues to report. The applicants were approved in June 2011(Project #11-006), to establish a 120 bed long term care facility in Arlington Heights in planning area 7-A approximately 45 minutes from the proposed project. In October 2011, the applicants were approved to establish a similar facility in Naperville (Project #11-055), on the corner of Arbiter Court and Diehl Road, but the applicants note the City of Naperville developed other uses for the site, and the application was abandoned. The applicants have projected a payor mix of 3% private, 18% Medicaid, 59% Medicare, and 20% HMO for the proposed facility. Page 2

3 PUBLIC HEARING/COMMENT No public hearing was requested and letters of support and opposition for this project were received by the State Board Staff. Jerome Donnelly M.D.stated in support On behalf of the physicians in our group, I am writing this letter in support of the proposed Transitional Care Center of Naperville application to construct and operate a 120-bed skilled nursing facility in Cook County, Illinois. Our physicians serve Naperville and surrounding communities, and we are familiar with the growing population of this area and the corresponding need to ensure quality health care for a growing population of residents. We anticipate that Transitional Care Center of Naperville will become a crucial discharge destination for IPC, and we look forward to the increased access to high quality postacute care that will be provided as a result of the proposed project. Furthermore, we are confident that Transitional Care Center of Naperville will provide a valuable service to the community members of the area. The physicians of IPC fully support the proposed Transitional Care Center of Naperville. Krishna Bathina, M.D.stated in support On behalf of the physicians in our group, I am writing this letter in support of the proposed Transitional Care Center of Naperville application to construct and operate a l20-bed skilled nursing facility in Cook County, Illinois. Our physicians serve Naperville and surrounding communities, and we are familiar with the growing population of this area and the corresponding need to ensure quality health care for a growing population of residents. We anticipate that Transitional Care Center of Naperville will become a crucial discharge destination for Naperville Family Practice, and we look forward to the increased access to high quality post-acute care that will be provided as a result of the proposed project. Furthermore, we are confident that Transitional Care Center of Naperville will provide a valuable service to the community members of the area. The physicians of Naperville Family Practice fully support the proposed Transitional Care Center of Naperville. Mark Silberman with Duane Morris stated in opposition in part We represent a group of facilities that have joined together to oppose Project No , Transitional Care Center of Naperville's ("Applicant") second proposal to establish a l20-bed long-term care facility in Naperville, Illinois ("Project " or the "Project"). Each of these facilities provide care to the Naperville community and include: St. Patrick's Residence ("St. Patrick's"), Community Nursing and Rehabilitation Center ("Community Nursing"), Tabor Hills Healthcare Facility ("Tabor Hills"), Wynscape Health and Rehabilitation ("Wynscape"), and Naperville Senior Care, LLC ("Monarch Landing"). There are an abundance of quality facilities in the Naperville area. S1. Patrick's has an overall rating of five stars and a five-star rating for quality measures. Community Nursing has a four star rating for both quality measures and staffing. Tabor Hills has an overall rating of five stars, including a five-star rating for quality measures. Wynscape has a five-star rating in every category identified on the Centers for Medicare and Medicaid Services' ("CMS") nursing home compare website. Monarch Landing, which was recently approved by the Illinois Health Facilities and Services Review Board ("Board") and is currently under construction, is scheduled to be completed by mid-2014 and will be adding a complement of 96 beds to the immediate area. In addition to these exceptional facilities, there are seven facilities with four- or five-star overall ratings within ten miles of Naperville (see Exhibit A). There is no lack of quality care available to the Naperville community. FINANCIAL AND ECONOMIC FEASIBILITY: The total project cost is $18,664,822, and the project will be funded through cash and securities totaling $664,822, and a mortgage in the amount of $18,000,000. Page 3

4 CONCLUSIONS: The applicants addressed a total of 18 criteria and did not meet the following: State Board Standards Not Met Criteria Reasons for Non-Compliance (a) Bed Need Determination 37 of the 47 facilities (79%) within 30 minutes are operating below the target occupancy of 90% and there is an excess of 69 beds in Planning Area 7-C (b) Service to Planning Area Residents 37 of the 47 facilities (79%) within 30 minutes are operating below the target occupancy of 90% and it would appear the proposed project would have an impact on other area providers (d) Service Demand 37 of the 47 facilities (79%) within 30 minutes are operating below the target occupancy of 90% and there is an excess of 69 beds in Planning Area 7-C Service Accessibility Planning Are 7-C has an excess of 69 beds, and there are underutilized facilities in the service area Unnecessary Duplication/Maldistribution of Service 37 of the 47 facilities (79%) within 30 minutes are operating below the target occupancy of 90% and there is an excess of 69 beds in Planning Area 7-C Availability of Funds The applicants provided insufficient documentation to show sufficient financial resources to fund the project Financial Viability The applicants supplied insufficient financial viability ratios for 2017, the second full year after project completion. Page 4

5 STATE OF ILLINOIS HEALTH FACILITIES AND SERVICES REVIEW BOARD WEST JEFFERSON ST. SPRINGFIELD, ILLINOIS (217) FAX: (217) STATE BOARD STAFF REPORT Transitional Care Center of Naperville PROJECT # APPLICATION SUMMARY Applicants(s) Transitional Care Management Transitional Care Center of Naperville, LLC Facility Name Transitional Care Center of Naperville Location Naperville Application Received July 8, 2013 Application Deemed Complete July 18, 2013 Review Period Extended by the State Board Staff? No I. The Proposed Project The applicants propose to establish a 120-bed skilled nursing facility (SNF) in 68,200 GSF of newly constructed space. The cost of the project is $18,664,822. II. Summary of Findings A. The State Board Staff finds the proposed project does not appear to be in conformance with the provisions of Part B. The State Board Staff finds the proposed project does not appear to be in conformance with the provisions of Part III. General Information The applicants are Transitional Care Management and Transitional Care Center of Naperville, LLC. The proposed facility will be located on the southwest corner of Commons Raod and Mill Street, Naperville, in HSA 7, and Long Term Care ( LTC ) Planning Area 7-C. Long Term Planning Area 7-C consists of Dupage County. The September 2013 Inventory Update for General Long Term Care services shows an excess of 69 LTC beds in the planning area. The project is substantive and subject to Part 1110 and Part 1120 review. Obligation will occur after permit issuance. The anticipated project completion date is November 30, Summary of Support and Opposition Comments An opportunity for a public hearing was offered on this project; however, no hearing was requested. The State Board Staff has received letters in support of and in opposition to the proposed project. Table One displays information pertaining to other LTC providers within a 30-minute travel radius. Data includes authorized beds, distance and travel times from the applicants facility and respective occupancy rates. Data on authorized beds and occupancy rates were obtained from IDPH s 2012 Hospital and LTC profiles, distance

6 and travel times were obtained from Map Quest, and the Medicare Star Rating was obtained from the Department of Health & Human Services Medicare website ( The data in the table is sorted by travel time. As Table One shows, there are 47 other providers of LTC service in a 30-minute drive radius. Of the providers identified in Table One, 10 (21.2%), achieved the State Board s target utilization (90%) for The State Board Staff notes the applicants manage two other LTC facilities. Evergreen Healthcare Center, Evergreen Park has a Medicare Star rating of 3 stars, and Warren Barr Pavilion, Chicago, has a Medicare Star rating of 2 stars. Facility TABLE ONE Facilities within 30 Minutes Travel Time City Page 6 Time (minutes) Medicare Star Rating Beds Occupancy % Occupancy Met Community Nursing & Rehab Ctr. Naperville % No St. Patrick s Residence Naperville % Yes Meadowbrook Manor Naperville % Yes Tabor Hills Healthcare Naperville % No Manor Care-Naperville Naperville % No Healthcare Center at Monarch Landing Naperville 9 N/A 96 N/A No Snow Valley Nursing & Rehab Lisle % No Westbury Care Center Lisle % No Winfield Wood Healthcare Ctr Wheaton % Yes Marianjoy Rehab Hospital Wheaton % No Wynscape Wheaton % No DuPage Convalescent Home Wheaton % No Aurora Living & Rehab Ctr. Aurora % No Alden Estates of Naperville Naperville % No West Chicago Terrace West Chicago % No Wheaton Care Center Wheaton % Yes Wood Glen Nursing & Rehab West Chicago % Yes Beacon Hill Lombard % Yes Provena Mcauley Manor Aurora % No Alden of Waterford Aurora % No Rest Haven West Downers Grove % No Lexington Health Care Ctr. Lombard % No Asbury Pavilion North Aurora N/A No North Aurora Care Ctr. North Aurora % No Geneva Nursing & Rehab Geneva % No Oak Brook Health Care Ctr. Oak Brook % No Windsor Park Manor Carol Stream % No Lexington of Elmhurst Elmhurst % No Manor Care of Westmont Westmont % No Fairview Baptist Home Downers Grove 24 N/A 160 N/A No Batavia Rehab & Healthcare Ctr. Batavia % No Countryside Care Ctr. Aurora % Yes Jennings Terrace Aurora % No Covenant Health Care Ctr. Batavia % No

7 Facility TABLE ONE Facilities within 30 Minutes Travel Time City Time (minutes) Medicare Star Rating Beds Occupancy % Occupancy Met Westmont Nursing & Rehab Ctr. Westmont % Yes Park Place Christian Village Elmhurst % No Manor Care of Hinsdale Hinsdale % No Tillers Nursing & Rehab Oswego % No Elmwood Terrace Healthcare Ctr. Aurora % No Rosewood Care Ctr. St. Charles % No Burgess Square Westmont % No Westchester Health & Rehab Ctr. Westchester % Yes Oakridge Nursing & Rehab Ctr. Hillside % No Meadowbrook Manor Bolingbrook % Yes Renaissance at Hillside Hillside N/A No West Suburban Nursing & Rehab Bloomingdale % No Meadowbrook Manor Geneva 30 N/A 150 N/A No Source: Occupancy % 2009 IDPH LTC Profiles Time and Distance determined by MapQuest and adjusted per 77 IAC Star rating determined from *Data unavailable/facility still under construction IV. The Proposed Project Details The applicants propose to establish a 120-bed short-term skilled rehabilitation skilled nursing facility (SNF) in Naperville. The two-story facility will contain 68,200 GSF of space, and all patient rooms will be private, one-bed skilled nursing rooms. The proposed facility will contain dining, nursing, occupational/recreational areas, with stateof-the-art equipment. Project cost: $18,664,822. V. Project Costs and Sources of Funds The applicants provided the project costs for both clinical and non-clinical aspects of the proposed project. Table Two shows the project costs and funding sources using these considerations. The cost of the land is $2,625,000 and the projected operating deficit is $963,192. TABLE TWO Project Costs and Source of Funds Project Transitional Care Center of Naperville Use of Funds Clinical Non -Clinical Total Preplanning Costs $156,969 93,031 $250,000 New Construction Contracts $8,736,781 $5,178,041 $13,914,822 Contingencies $188,363 $111,637 $300,000 Architectural & Engineering Fees $376,726 $223,274 $600,000 Consulting & Other Fees $565,088 $334,912 $900,000 Moveable & Other Equipment $941,814 $558,186 $1,500,000 Net Interest Expense During $408,119 $241,881 $650,000 Page 7

8 TABLE TWO Project Costs and Source of Funds Project Transitional Care Center of Naperville Construction Other Costs to be Capitalized $345,332 $204,668 $550,000 Totals $11,719,192 $6,945,630 $18,664,822 Source of Funds Cash & Securities $417,426 $247,396 $664,822 Mortgages $11,301,766 $6,698,234 $18,000,000 Total $11,719,192 $6,945,630 $18,664,822 VI. Cost/Space Requirements Table Two displays the project s space requirements for the clinical and non-clinical portions of the project. The definition of non-clinical as defined in the Planning Act [20 ILCS 3960/3] states, non-clinical service area means an area for the benefit of the patients, visitors, staff or employees of a health care facility and not directly related to the diagnosis, treatment, or rehabilitation of persons receiving treatment at the health care facility. TABLE THREE Space Requirements Department/Area Proposed GSF New Construction Modernized Cost Clinical Patient Rooms 20,240 20,240 0 $5,522,618 Patient Bathrooms 5,800 5,800 0 $1,582,568 Nurses Station/Med Prep 1,000 1,000 0 $272,857 Living Room/Dining Room/Activity 5,880 5,880 0 $1,604,397 Exam Room $79,128 Kitchen/Food Service 2,040 2,040 0 $556,627 PT/OT 4,775 4,775 0 $1,302,890 Laundry 1,750 1,750 0 $477,499 Janitor Closet $54,571 Clean/Spoiled Linen $129,607 Beauty/Barber Shop $136,428 Total Clinical 42,950 42,950 0 $11,719,192 Non-Clinical Office/Administrative 1,500 1,500 0 $412,612 Kitchen 1,200 1,200 0 $330,089 Employee Lounge $110,030 Locker/Training $110,030 Mechanical $220,060 Page 8

9 TABLE THREE Space Requirements Department/Area Proposed GSF New Construction Modernized Cost Lobby 1,700 1,700 0 $467,627 Storage/Maintenance 2,500 2,500 0 $687,686 Corridor/Public Toilets 11,800 11,800 0 $3,245,879 Structure/Misc. 3,200 3,200 0 $880,238 Stairs/Elevator 1,750 1,750 0 $481,380 Total Non-Clinical 25,250 25,250 0 $6,945,630 TOTAL 68,200 68,200 0 $18,664,822 VII. Project Purpose, Background and Alternatives A. Criterion Background of Applicant The criterion: An applicant must demonstrate that it is fit, willing and able, and has the qualifications, background and character, to adequately provide a proper standard of health care service for the community. [20 ILCS 3960/6] In evaluating the qualifications, background and character of the applicant, HFPB shall consider whether adverse action has been taken against the applicant, or against any health care facility owned or operated by the applicant, directly or indirectly, within three years preceding the filing of the application. A health care facility is considered "owned or operated" by every person or entity that owns, directly or indirectly, an ownership interest. If any person or entity owns any option to acquire stock, the stock shall be considered to be owned by such person or entity (refer to 77 Ill. Adm. Code 1100 and 1130 for definitions of terms such as "adverse action", "ownership interest" and "principal shareholder"). The applicant entity does not currently operate any licensed facilities, but the applicants Chief Executive Officer (CEO), Brian Cloch, and its President, Jason Schreiber, have extensive career experience in managing these types of facilities, and provided vitaes on page 77 of the application. The individual applicants currently manage two other Long Term Care facilities, and supplied the required licensing information. The applicants have provided representations attesting that no adverse actions have been taken against any facility under their management, and the State Board Staff can access any and all information to determine whether adverse actions have been taken against the applicant. The applicant provided all the necessary information required to address this criterion. B. Criterion Purpose of the Project According to the applicants, the purpose of the project is to bring skilled nursing facilities into a new realm in terms of quality of care, acuity and coordination with other components of the healthcare delivery continuum, and patient comfort and Page 9

10 satisfaction. The proposed project seeks to provide high-acuity care at a lower cost than other settings, in a more coordinated manner, and in a physical location far more desirable than the typical skilled nursing facility (SNF). The applicants identified a measurable goal by serving 300 residents requiring skilled nursing/rehabilitative therapy and having these patients discharged to a home environment by The State Board Staff notes there is a current excess of 69 Long Term Care beds in LTC Planning Area 7-C. C. Criterion Alternatives to the Proposed Project The applicant considered five alternatives for project #11-055, and felt these alternatives applicable to the proposed project. In light of application # s disposition, the applicants felt it necessary to add the following two alternatives to its list: 1. Abandon Permit # When the application for project # was submitted, there was a need for 841 LTC beds in the planning area, and the option of abandonment was not considered. However, circumstances made it necessary to relocate the proposed LTC facility, which ultimately made the abandonment of this permit a necessity. The applicants chose this alternative, with the plan to adopt the second alternative listed below. The applicants identified no costs with this alternative. 2. Construct Transitional Care Center of Naperville at the New Site The applicants viewed this alternative as most acceptable, based on the circumstances surrounding their need to pursue Option #1, and note the new site holds all of the advantages of the initial site, and deliver the same advantages to the residents of the planning area. The applicants identified no costs with this alternative. The applicant has supplied the information requested in accordance with this criterion. VIII. Establishment of Services or Facility A. Criterion (a) Bed Need Determination The criterion states: a) Bed Need Determination 1) The number of beds to be established for general LTC is in conformance with the projected bed need specified and reflected in the latest updates to the HFSRB Inventory. Page 10

11 2) The number of beds proposed shall meet or exceed the occupancy standard specified in Section (c). The applicants cited a bed need from the 2011 Inventory for LTC facilities, which showed a need for 841 additional LTC beds in Planning Area 7c. The applicants supplied a listing of 141 zip codes within a 20-minute radius of the proposed facility. However, the September 2013 Update to the Bed Need Inventory shows an excess of 69 LTC beds, and Table One of this report shows there are underutilized facilities in the service area. It appears as though the proposed project will only exacerbate this overage, and a positive finding cannot be made for this criterion. THE STATE BOARD STAFF FINDS THE PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE BED NEED DETERMINATION CRITERION. REVIEW CRITERION (77 IAC (a)). B. Criterion (b)-Service to Planning Area Residents The criterion states: 1) Applicants proposing to establish or add beds shall document that the primary purpose of the project will be to provide necessary LTC to the residents of the area in which the proposed project will be physically located (i.e., the planning or geographical service area, as applicable), for each category of service included in the project. 2) Applicants proposing to add beds to an existing general LTC service shall provide resident/patient origin information for all admissions for the last 12-month period, verifying that at least 50% of admissions were residents of the area. For all other projects, applicants shall document that at least 50% of the projected resident volume will be from residents of the area. 3) Applicants proposing to expand an existing general LTC service shall submit resident/patient origin information by zip code, based upon the resident's/patient's legal residence (other than an LTC facility). The applicants supplied data from the June 2013 Update to the Long Term Care Bed Inventory. The update illustrated a need for 841 LTC beds in Planning Area 7-C. However, the September 2013 Update has erased this need, and shows an excess of 69 LTC beds in the 7-C LTC Planning Area. Board Staff also notes there are underutilized LTC facilities in the service area (Table One). Based on these updated data, a negative finding has been made for this criterion. THE STATE BOARD STAFF FINDS THE PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE SERVICE TO PLANNING AREA RESIDENTS REVIEW CRITERION. REVIEW CRITERION (77 IAC (B)). Page 11

12 IX. Section Service Demand Establishment of General Long Term Care Review Criteria a) The number of beds proposed to establish a new general long-term care service is necessary to accommodate the service demand experienced annually by the existing applicant facility over the latest two-year period, as evidenced by historical and projected referrals, or if the applicant proposes to establish a new LTC facility, the applicant shall submit projected referrals. The applicant shall document subsection (c) and subsection (d) or (e). b) If the applicant is not an existing facility and proposes to establish a new general LTC facility, the applicant shall submit the number of annual projected referrals, as required in subsection (d) or (e). c) Historical Referrals If the applicant is an existing facility and is proposing to establish this category of service, the applicant shall document the number of referrals to other facilities, for each proposed category of service, for each of the latest two years. Documentation of the referrals shall include: resident/patient origin by zip code; name and specialty of referring physician or identification of another referral source; and name and location of the recipient LTC facility. d) Projected Referrals An applicant proposing to establish a category of service or establish a new LTC facility shall submit the following: 1) Letters from referral sources (hospitals, physicians, social services and others) that attest to total number of prospective residents (by zip code of residence) who have received care at existing LTC facilities located in the area during the 12-month period prior to submission of the application. Referral sources shall verify their projections and the methodology used; 2) An estimated number of prospective residents whom the referral sources will refer annually to the applicant's facility within a 24- month period after project completion. The anticipated number of referrals cannot exceed the referral sources' documented historical LTC caseload. The percentage of project referrals used to justify the proposed expansion cannot exceed the historical percentage of applicant market share, within a 24-month period after project completion; 3) Each referral letter shall contain the referral source's Chief Executive Officer's notarized signature, the typed or printed name of the referral source, and the referral source's address; and Page 12

13 4) Verification by the referral sources that the prospective resident referrals have not been used to support another pending or approved Certificate of Need (CON) application for the subject services. The applicants supplied a referral letter from IPC, The Hospitalist Company, attesting to the referral of 135 patients annually to Transitional Care Center, upon project completion. The applicants further attest that these referrals do not exceed IPC s total discharges to LTC facilities in the last year, and these referrals have not been used to support another pending or approved CON application. However, there are underutilized facilities in the planning area, and a positive finding cannot be made for this criterion. THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE SERVICE DEMAND REVIEW CRITERION (77 IAC (d). B) Criterion Service Accessibility a) Service Restrictions The applicant shall document that at least one of the following factors exists in the planning area, as applicable: 1) The absence of the proposed service within the planning area; 2) Access limitations due to payor status of patients/residents, including, but not limited to, individuals with LTC coverage through Medicare, Medicaid, managed care or charity care; 3) Restrictive admission policies of existing providers; 4) The area population and existing care system exhibit indicators of medical care problems, such as an average family income level below the State average poverty level, or designation by the Secretary of Health and Human Services as a Health Professional Shortage Area, a Medically Underserved Area, or a Medically Underserved Population; 5) For purposes of this Section only, all services within the 45- minute normal travel time meet or exceed the occupancy standard specified in Section (c). Board Staff complied a table (See Table One), using data from the September 2013 LTC Inventory Update. Of the 47 facilities identified in Table One, 10 (21.2%) are operating at or in excess of the State Board standard. These findings support the existence of underutilized facilities in the planning area, and a positive finding cannot be made for this criterion. THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE SERVICE ACCESSIBILITY REVIEW CRITERION (77 IAC ). Page 13

14 C) Criterion Unnecessary Duplication & Maldistribution a) The applicant shall document that the project will not result in an unnecessary duplication. The applicant shall provide the following information: 1) A list of all zip code areas that are located, in total or in part, within 30 minutes normal travel time of the project's site; 2) The total population of the identified zip code areas (based upon the most recent population numbers available for the State of Illinois); and 3) The names and locations of all existing or approved LTC facilities located within 30 minutes normal travel time from the project site that provide the categories of bed service that are proposed by the project. b) The applicant shall document that the project will not result in maldistribution of services. Maldistribution exists when the identified area (within the planning area) has an excess supply of facilities, beds and services characterized by such factors as, but not limited to: 1) A ratio of beds to population that exceeds one and one-half times the State average; 2) Historical utilization (for the latest 12-month period prior to submission of the application) for existing facilities and services that is below the occupancy standard established pursuant to Section (c); or 3) Insufficient population to provide the volume or caseload necessary to utilize the services proposed by the project at or above occupancy standards. c) The applicant shall document that, within 24 months after project completion, the proposed project: 1) Will not lower the utilization of other area providers below the occupancy standards specified in Section (c); and 2) Will not lower, to a further extent, the utilization of other area facilities that are currently (during the latest 12-month period) operating below the occupancy standards. The applicants supplied a list containing 141 zip codes within a 30-minute travel radius of the proposed facility. The applicants note the proposed project will not lower the utilization at area facilities, and provided certification attesting to this, based largely on a planning area need for 841 LTC beds in Planning area 7C in Page 14

15 June Board Staff notes the most recent inventory update (September 2013) for the same Planning area shows an excess of 69 LTC beds, and that 37 (78.8%) of the 47 facilities in a 30-minute radius are not operating at the prescribed State Board standard. Based on these findings, a positive finding cannot be made. THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE UNNECESSARY DUPLICATION/MALDISTRIBUTION REVIEW CRITERION (77 IAC ). D) Criterion Staffing Availability The applicant shall document that relevant clinical and professional staffing needs for the proposed project were considered and that staffing requirements of licensure, certification and applicable accrediting agencies can be met. In addition, the applicant shall document that necessary staffing is available by providing letters of interest from prospective staff members, completed applications for employment, or a narrative explanation of how the proposed staffing will be achieved. The applicants note the existence of its administrative personnel, and that its professional nursing staff can be recruited from the existing labor pool, and from nursing schools in the Chicago area (Application p. 120). It appears the applicants have met the requirements of this criterion. THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT TO BE IN CONFORMANCE WITH THE STAFFING AVAILABILITY CRITERION (77 IAC (h)). E) Criterion Bed Capacity The maximum bed capacity of a general LTC facility is 250 beds, unless the applicant documents that a larger facility would provide personalization of patient/resident care and documents provision of quality care based on the experience of the applicant and compliance with IDPH's licensure standards (77 Ill. Adm. Code: Chapter I, Subchapter c (Long-Term Care Facilities)) over a two-year period. The applicants are proposing to establish a 120-bed skilled nursing facility in Naperville. A positive finding has been made for this criterion. THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT IS IN CONFORMANCE WITH THE WITH THE BED CAPACITY CRITERION (77 IAC (i)). F) Criterion Community Related Functions The applicant shall document cooperation with and the receipt of the endorsement of community groups in the town or municipality where the facility is or is proposed to be located, such as, but not limited to, social, Page 15

16 economic or governmental organizations or other concerned parties or groups. Documentation shall consist of copies of all letters of support from those organizations. The applicants note the 70 support letters for project #11-055, are still pertain to the proposed project, and the support from these entities remain. THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT TO BE IN CONFORMANCE WITH THE WITH THE COMMUNITY RELATED FUNCTIONS CRITERION (77 IAC ). G) Criterion Project Size The applicant shall document that the amount of physical space proposed for the project is necessary and not excessive. The proposed gross square footage (GSF) cannot exceed the GSF standards of Appendix A, unless the additional GSF can be justified by documenting one of the following: a) Additional space is needed due to the scope of services provided, justified by clinical or operational needs, as supported by published data or studies; b) The existing facility's physical configuration has constraints or impediments and requires an architectural design that results in a size exceeding the standards of Appendix A; c) The project involves the conversion of existing bed space that results in excess square footage. The applicants propose to establish a 120-bed skilled nursing facility in 68,200 GSF of space in Naperville. This amounts to 568 GSF per bed, which is in compliance with State Board standards. Table Four Project # Transitional Care Center Naperville Dept./Service Proposed GSF State Standard Difference Met Standard? General Long Term Care 568 GSF/Bed BGSF/Bed N/A Yes THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT TO BE IN CONFORMANCE WITH THE WITH THE ASSURANCES REVIEW FUNCTIONS CRITERION (77 IAC (k)). H) Criterion Zoning The applicant shall document one of the following: a) The property to be utilized has been zoned for the type of facility to be developed; Page 16

17 b) Zoning approval has been received; or c) A variance in zoning for the project is to be sought. The applicants note the proposed building site has not yet received zoning approval from the City of Naperville. The applicants supplied a letter from the City Zoning Administrator, noting the application for rezoning of the site has commenced. THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT TO BE IN CONFORMANCE WITH THE WITH THE ZONING REVIEW CRITERION (77 IAC ). I) Criterion Assurances a) The applicant representative who signs the CON application shall submit a signed and dated statement attesting to the applicant's understanding that, by the second year of operation after the project completion, the applicant will achieve and maintain the occupancy standards specified in Section (c) for each category of service involved in the proposal. b) For beds that have been approved based upon representations for continuum of care (Section (a)) or defined population (Section (b)), the facility shall provide assurance that it will maintain admissions limitations as specified in those Sections for the life of the facility. To eliminate or modify the admissions limitations, prior approval of HFSRB will be required. The applicants provided a notarized statement attesting to making every attempt to achieve and maintain occupancy standards established by the State Board. THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT TO BE IN CONFORMANCE WITH THE WITH THE ASSURANCES REVIEW CRITERION (77 IAC ). IX Availability of Funds The applicant shall document that financial resources shall be available and be equal to or exceed the estimated total project cost plus any related project costs by providing evidence of sufficient financial resources from the following sources, as applicable: a) Cash and Securities statements (e.g., audited financial statements, letters from financial institutions, board resolutions) as to: Page 17

18 1) the amount of cash and securities available for the project, including the identification of any security, its value and availability of such funds; and 2) interest to be earned on depreciation account funds or to be earned on any asset from the date of applicant's submission through project completion; b) Pledges for anticipated pledges, a summary of the anticipated pledges showing anticipated receipts and discounted value, estimated time table of gross receipts and related fundraising expenses, and a discussion of past fundraising experience. Provide a list of confirmed pledges from major donors (over $100,000); c) Gifts and Bequests verification of the dollar amount, identification of any conditions of use, and the estimated time table of receipts; d) Debt a statement of the estimated terms and conditions (including the debt time period, variable or permanent interest rates over the debt time period, and the anticipated repayment schedule) for any interim and for the permanent financing proposed to fund the project, including: 1) For general obligation bonds, proof of passage of the required referendum or evidence that the governmental unit has the authority to issue the bonds and evidence of the dollar amount of the issue, including any discounting anticipated; 2) For revenue bonds, proof of the feasibility of securing the specified amount and interest rate; 3) For mortgages, a letter from the prospective lender attesting to the expectation of making the loan in the amount and time indicated, including the anticipated interest rate and any conditions associated with the mortgage, such as, but not limited to, adjustable interest rates, balloon payments, etc.; 4) For any lease, a copy of the lease, including all the terms and conditions, including any purchase options, any capital improvements to the property and provision of capital equipment; e) Governmental Appropriations a copy of the appropriation Act or ordinance accompanied by a statement of funding availability from an official of the governmental unit. If funds are to be made available from subsequent fiscal years, a copy of a resolution or other action of the governmental unit attesting to this intent; f) Grants a letter from the granting agency as to the availability of funds in terms of the amount and time of receipt; Page 18

19 g) All Other Funds and Sources verification of the amount and type of any other funds that will be used for the project. The total estimated project cost is $18,664,822 and the applicants will fund the project through cash and securities totaling $664,822, and a mortgage in the amount of $18,000,000. The applicants also provided a letter from Capital Funding, LLC (application p. 135), expressing interest to fund the HUD-insured mortgage portion of the project cost. The letter on page 135, does not constitute a willingness to finance, but simply an invitation to apply for said funding. Based on these findings, a negative finding has been made for this criterion. THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO MEET THE REQUIREMENTS OF THE AVAILABILITY OF FUNDS CRITERION (77 IAC ) XI Financial Viability a) Financial Viability Waiver The applicant is NOT required to submit financial viability ratios if: 1) all project capital expenditures, including capital expended through a lease, are completely funded through internal resources (cash, securities or received pledges); or HFSRB NOTE: Documentation of internal resources availability shall be available as of the date the application is deemed complete. 2) the applicant's current debt financing or projected debt financing is insured or anticipated to be insured by Municipal Bond Insurance Association Inc. (MBIA), or its equivalent; or HFSRB NOTE: MBIA Inc is a holding company whose subsidiaries provide financial guarantee insurance for municipal bonds and structured financial projects. MBIA coverage is used to promote credit enhancement as MBIA would pay the debt (both principal and interest) in case of the bond issuer's default. 3) the applicant provides a third-party surety bond or performance bond letter of credit from an A rated guarantor (insurance company, bank or investing firm) guaranteeing project completion within the approved financial and project criteria. b) Viability Ratios The applicant or co-applicant that is responsible for funding or guaranteeing funding of the project shall provide viability ratios for the latest three years for which audited financial statements are available and for the first full fiscal year at target utilization, but no more than two years following project completion. When the applicant's facility does not have facility specific financial statements and the facility is a member of a health care system that Page 19

20 has combined or consolidated financial statements, the system's viability ratios shall be provided. If the health care system includes one or more hospitals, the system's viability ratios shall be evaluated for conformance with the applicable hospital standards. The latest three years' audited financial statements shall consist of: 1) Balance sheet; 2) Revenues and expenses statement; 3) Changes in fund balance; and 4) Changes in financial position. HFSRB NOTE: To develop the above ratios, facilities shall use and submit audited financial statements. If audited financial statements are not available, the applicant shall use and submit Federal Internal Revenue Service tax returns or the Federal Internal Revenue Service 990 report with accompanying schedules. If the project involves the establishment of a new facility and/or the applicant is a new entity, supporting schedules to support the numbers shall be provided documenting how the numbers have been compiled or projected. c) Variance Applicants not in compliance with any of the viability ratios shall document that another organization, public or private, shall assume the legal responsibility to meet the debt obligations should the applicant default. The review criterion specifies that certain ratios be met as an indication of financial viability for applicants that do not have a bond rating of A or better. The co-applicants are Transitional Care Management, LLC, and Transitional Care Center of Naperville, LLC. Table Five provides financial ratio information for the applicants. TABLE FIVE Transitional Care Center of Naperville, LLC. Ratio State Historical Projected Standard Current Ratio >=1.5 N/A N/A N/A 5.83 Net Margin Percentage >=3.5% N/A N/A N/A 7.21% Percent Debt to Total Capitalization <=80% N/A N/A N/A 78% Projected Debt Service Coverage >=1.75 N/A N/A N/A 2.82 Days Cash on Hand >=45 N/A N/A N/A 923 Cushion Ratio >=5 N/A N/A N/A 2.21 The State Board Staff notes the applicants did not supply historical viability data due to its recent establishment, and furnished projected financial viability ratios for 2017, the first full year after project completion. The applicant did not meet the following ratios: Page 20

21 Cushion Ratio for 2017 The applicants supplied a response for the substandard Cushion Ratio on page 143 of the application. Based on these findings, a positive finding cannot be made. THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO MEET THE REQUIREMENTS OF THE FINANCIAL VIABILITY CRITERION (77 IAC ) XII. Review Criteria - Economic Feasibility A. Criterion (a) - Reasonableness of Financing Arrangements The criterion states: This criterion is not applicable if the applicant has documented a bond rating of "A" or better pursuant to Section An applicant that has not documented a bond rating of "A" or better must document that the project and related costs will be: 1) funded in total with cash and equivalents including investment securities, unrestricted funds, and funded depreciation as currently defined by the Medicare regulations (42 USC 1395); or 2) funded in total or in part by borrowing because: A) a portion or all of the cash and equivalents must be retained in the balance sheet asset accounts in order that the current ratio does not fall below 2.0 times; B) or borrowing is less costly than the liquidation of existing investments and the existing investments being retained may be converted to cash or used to retire debt within a 60 day period. The applicant must submit a notarized statement signed by two authorized representatives of the applicant entity (in the case of a corporation, one must be a member of the board of directors) that attests to compliance with this requirement. C) The project is classified as a Class B project. The co-applicants do not have a bond rating of A. No capital costs, except fair market value of leased space and used equipment, are being incurred by the co-applicants. The total estimated project cost is $18,664,822 and the applicants have attested to funding the project through cash and securities totaling $664,822, and a HUDinsured mortgage totaling $18,000,000. The applicants have attested the related costs will be funding in part through borrowing, because a portion or all of the cash and equivalents must be retained in balance sheet assets accounts in order to maintain an acceptable ratio. THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT APPEARS TO MEET THE REQUIREMENTS OF THE REASONABLENESS OF FINANCING CRITERION (77 IAC (a)) Page 21

22 B. Criterion (b) - Conditions of Debt Financing This criterion states: The applicant must certify that the selected form of debt financing the project will be at the lowest net cost available or if a more costly form of financing is selected, that form is more advantageous due to such terms as prepayment privileges, no required mortgage, access to additional indebtedness, term (years), financing costs, and other factors. In addition, if all or part of the project involves the leasing of equipment or facilities, the applicant must certify that the expenses incurred with leasing a facility and/or equipment are less costly than constructing a new facility or purchasing new equipment. Certification of compliance with the requirements of this criterion must be in the form of a notarized statement signed by two authorized representative (in the case of a corporation, one must be a member of the board of directors) of the applicant entity. The total estimated project cost is $18,664,822 and the applicants will fund the project cash and securities totaling $18,664,822 and a mortgage totaling $18,000,000. A notarized statement was provided as per the criterion (application p. 148). THE STATE BOARD STAFF FINDS THE PROPOSED PROJECT APPEARS TO MEET THE REQUIREMENTS OF THE TERMS OF DEBT FINANCING CRITERION (77 IAC (b)) C. Criterion (c) - Reasonableness of Project Cost The criteria states: 1) Construction and Modernization Costs Construction and modernization costs per square foot for nonhospital based ambulatory surgical treatment centers and for facilities for the developmentally disabled, and for chronic renal dialysis treatment centers projects shall not exceed the standards detailed in Appendix A of this Part unless the applicants documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities. For all other projects, construction and modernization costs per square foot shall not exceed the adjusted (for inflation, location, economies of scale and mix of service) third quartile as provided for in the Means Building Construction Cost Data publication unless the applicants documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities. 2) Contingencies Contingencies (stated as a percentage of construction costs for the stage of architectural development) shall not exceed the standards Page 22