PROJECT NO: Original: $16,958,861 FACILITY NAME: CITY: Current: $ Silver Cross Hopsital and Medical Center. Joliet

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1 DOCKET NO: BOARD MEETING: PROJECT NO: PROJECT COST: A-7 July 19, Original: $16,958,861 FACILITY NAME: CITY: Current: $ Silver Cross Hopsital and Medical Center Joliet TYPE OF PROJECT: Non-Substantive HSA: 9 PROJECT DESCRIPTION: The applicants propose to construct a four-story medical office building.

2 I. The Proposed Project STATE AGENCY REPORT Silver Cross Hospital and Medical Center and Silver Cross Health System Joliet, Illinois Project # The applicants propose to construct a four-story medical office building. The total estimated project cost is $16,958,861. II. Summary of Findings A. The State Agency finds that the proposed project does not appear to be in conformance with the provisions of Part B. The State Agency finds that the proposed project does not appear to be in conformance with the provisions of Part III. General Information The applicants are Silver Cross Hospital and Silver Cross Health Systems located in HSA 9, Will County. This is a non-substantive project which is subject to both a Part 1110 and a Part 1120 review. Obligation is not requested at the time of permit issuance. The anticipated project completion date is April 30, An opportunity for a public hearing was offered on this project; however, no hearing was requested. IV. The Proposed Project - Details The applicants are proposing to establish a four-story medical office building to provide a central access point for cardiac rehabilitation, cardiac testing, nuclear medicine, and one cardiac cath laboratory. In addition, physician office space will be provided. The

3 Page 2 proposed medical office building will be located adjacent to the hospital on land owned by the hospital. The hospital will lease the land to the Silver Cross Health System who will own the proposed medical office building. The hospital will lease space in the medical office building. V. Project Sources and Uses of Funds The applicants propose to fund the project with a bond issue of $16,958,861. The following table outlines the proposed uses of funds. The FMV of the land lease is $84,864. Table I Proposed Uses of Funds Preplanning $225,520 Site Survey and Soil Investigation 626,445 Offsite Work 555,445 New Construction 10,099,003 Contingencies 1,009,900 Architectural/Engineering Fees 676,532 Consulting and Other Fees 775,109 Movable or Other Equipment 1,420,000 Bond Issue Expense 681,568 Net Interest Expense During Construction 889,339 Total Project Costs $16,958,861 Table II details the cost and GSF by department for the CON portion and the non-clinical portions of the project.

4 Page 3 Table II Gross Square Feet Amount of Proposed Total GSF Department Cost Existing Proposed New Const. As Is Vacated Cardiac Cath $383,139 3,240 2,767 1,567 1,200 2,040 Nuclear Med 268,955 2,900 3,664 1,100 2, Cardiac Testing 494,144 1,460 2,831 2, Cardiac Rehab 746,229 2,880 3,052 3,052 2,880 Clinical Support 726,180 2,970 2,970 Medical Records* 61, Adminstrative* 175, Patient Family/Waiting 1,527,422 6,247 6,247 Physician Office Building 7,310,697 29,900 29,900 Staff Support* 154, Infrastructure* 2,735,766 11,189 11,189 Stairs/Elevators* 1,662,633 6,800 6,800 Mechanical Equipment* 712,977 2,916 2,916 Total $16,958,861 10,480 73,934 69,360 4,574 5,906 * Denotes non-clinical areas of the project which were not reviewed for need. Table III outlines the bed capacity and utilization for Silver Cross Hospital and Medical Center for the period October 1, 1999 to September 30, Table III Category of Service # of Beds Occupancy % ALOS ADC Medical Surgical % 5 81 Pediatrics 39 8% 2 3 Obstetrics 26 42% 2 11 Intensive Care 18 61% 4 11 AMI 20 35% 4 7 Rehab % 12 3 Total 287

5 Page 4 VI. Review Criteria - Modernization A. Criterion b., Modern Facilities The applicant must document that the proposed project meets one of the following: The proposed project will result in the replacement of equipment of facilities which have deteriorated and need replacement. The proposed project is necessary to provide expansion for diagnostic treatment, ancillary training, or other support services to meet the requirements of existing services or services previously approved to be added or expanded. 1. Cardiac Cath. The applicants are proposing 2,767 GSF for the two cardiac cath labs that will be operated by the hospital. One lab will remain in the hospital, the second lab will be located in the proposed adjacent and contiguous medical office building. According to the applicants, the modernization of this lab is necessary because the existing lab is over 15 years old. According to the applicants, the location of the lab in the medical office building will allow the applicants to provide outpatient cardiac services in one location. Historical utilization of 772 procedures in CY 2000 justifies the two units. The proposed GSF of 2,767 GSF is below the State Agency standard of 3,192 GSF. The applicants can justify the two labs in the proposed GSF. 2. Nuclear Medicine The applicants are proposing 4 procedure rooms for nuclear medicine. Three procedure rooms will remain in the hospital. One procedure room will be located in the medical office building. Based upon the State Agency standard of 2,000 visits per piece of equipment and the CY 2000 workload of 7,461 procedures, the applicant can justify the 4 rooms. It appears that the applicants can justify the 4 rooms in the proposed 3,664 GSF.

6 Page 5 3. Cardiac Testing The applicants are proposing 2,831 GSF for cardiac testing. 2,021 will be new construction. 810 GSF will remain the same. The State Agency does not have standards for this service. EKG, EEG and stress testing will be performed in this space. According to the applicants, cardiac testing volume has grown by 18% between 1998 and The applicants have provided workload data for the CY 1998 (20,688 visits), CY1999 (22,531 visits) and CY 2000 (24,356 visits) that appears to demonstrate that the modernization and consolidation of this department is reasonable. 4. Cardiac Rehab. The applicants are proposing 3,052 GSF of new construction for cardiac rehab. The State Agency does not have standards for this department. According to the applicants, cardiac rehab. volume has grown over 8% between 1998 and The applicants have provided workload data for CY 1998 (5,567 visits), CY 1999 (5,692 visits) and CY 2000 (6,025 visits) that appears to demonstrate that the modernization and consolidation of this department is reasonable. 5. Clinical Support The applicants are proposing 2,970 GSF of new construction for clinical support. This space will be used for office space for nurses, work stations and space for support for patients receiving cardiac treatment. The State Agency does not have standards for this department. It appears that given the need for the modernization of the clinical functions proposed, modernization of clinical support is reasonable.

7 Page 6 6. Patient/ Family/Waiting The applicants are proposing 6,247 GSF of new construction for this space. This area will include areas for private consultation, a refreshment center, a resource center-library and public bathrooms. The State Agency does not have standards for this department, however, the modernization appears reasonable given the need for the modernization of the clinical functions. 7. Physician Office Building The applicants are proposing 29,900 GSF of new construction for physician office space. The applicants have provided a study of the projected demand for office space in the area. The applicants have also provided a copy of the lease as well as the names of physician groups that have committed to lease space in the office building. The applicants have signed lease commitments for 82% of the office space. The applicants have also certified that patient revenues will not be used to fund the project. It appears from the information provided by the applicants that the applicants can justify the new space for the physician office building. 8. Infrastructure The applicants are proposing 11,189 GSF of new construction for the infrastructure of the building. This space includes bathrooms, corridors, atrium space and public space. The construction of this space appears reasonable.

8 Page 7 VII. Review Criteria Cardiac Catheterization A. Criterion a, Peer Review The applicants have provided documentation of the peer review program in place at the hospital. B. Criterion b, Establishment of Expansion of Cardiac Cath Services C. Criterion c, Unnecessary Duplication of Services These criteria are not applicable to this application. D. Criterion d, Modernization of Existing Cardiac Cath Laboratories The applicants are proposing to discontinue one lab located in the hospital and relocate the lab into the new office building. The applicants are basing the modernization of cardiac lab services on the projected growth in the population in both the service and planning areas and the need to centralize functions dispersed throughout the hospital. The applicants have provided census data and a projected population study for Silver Cross Hospital s service area. The study indicates that the population within the service area is expected to grow over 13% between 2000 and Outpatient cardiac procedures are projected to grow by 18% between 2000 and The applicants have provided documentation that 772 cardiac cath procedures have been performed in the year The applicants have met the minimum utilization standards of 400 procedures per year. E. Criterion e, Support Services The applicants have provided documentation of the availability of the services listed in the criteria. The applicants have met the criteria.

9 Page 8 F. Criterion f, Laboratory Location Due to safety considerations, in the event of a technical breakdown, it is preferable to group laboratory facilities. Thus, in projects proposing to establish additional catheterization laboratories, such units must be located in close proximity to existing laboratories unless such location is architecturally infeasible. The applicants are proposing to relocate an existing cardiac cath lab to the proposed professional office building to centralize outpatient cardiac services. The professional office building will be located adjacent and contiguous to the hospital. The applicants have not documented compliance with this criterion. DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW G. Criterion g, Staffing The applicant has provided documentation that the personnel listed in the criterion are in place. H. Criterion h, Continuity of Care The applicants have an agreement in place to transfer patients to St. Joseph Medical Center in Joliet in case the need arises. According to the applicant, this may occur only once a year.

10 Page 9 VIII. Review Criteria - General A. Criterion a, Location The applicants are not establishing a health care facility nor establishing a category of service or proposing to acquire major medical equipment, therefore, this criterion is not applicable. B. Criterion b, Background of Applicants The State Agency has examined the licensure and certification records of the applicants and the facilities affiliated with the applicants and found no evidence that any adverse action has been taken against the applicants in the last three years. It appears that the applicants have demonstrated that they are fit, willing and able and have the qualifications, background and character to adequately provide a proper standard of health care services for the community. C. Criterion c, Alternatives The criterion states that the applicants must document that the proposed project is the most effective or least costly alternative. Documentation must consist of a comparison of the proposed project to alternative options. Such comparisons must address issues of cost, patient access, quality, and financial benefits in both the long and short run. The applicants have examined a number of different alternatives: do nothing, using other area facilities, using other underutilized space in the facility, construct a different structure or have a private developer construct, finance and own the project. All were rejected by the applicants because the alternatives identified did not address the needs identified by this project or were too costly. A review of the information provided by the applicants at Attachment GRC -3 of the application appears to demonstrate that the alternative chosen best meets the needs of the community at the lowest possible cost. D. Criterion d, Need for the Project

11 Page 10 The applicants have provided a physician demand survey, a space and rent study, area population trends and a study completed by the Department of Health and Human Services that designates Silver Cross s target area as a Health Professional Shortage Area. All of the studies indicated a lack of physician office space in the area. Historical and projected utilization data was also provided for the clinical services being modernized. The applicants have also provided Intent to Lease letters that demonstrate that 82% of the proposed medical office building will be leased. It appears from the information provided that there is a need for the modernization project. E. Criterion e, Size of the Project Table IV State Agency St. Proposed Over (Under) Cardiac Cath 1,596 GSF/room 2,767 GSF (425) Nuclear Medicine 1,135 GSF/room 3,664 GSF (876) Cardiac Testing No standard 2,831 GSF Cardiac Rehab. No standard 3,052 GSF Clinical Support No standard 2,970 GSF Medical Records No Standard 250 GSF Administrative No Standard 718 GSF Patient/Family/Waiting No Standard 6,247 GSF Physician Office Space No Standard 29,900 GSF Staff Support No Standard 630 GSF For the clinical services provided by the applicants in the proposed new structure, it appears that the space requested is reasonable. For the remaining space, the State Agency does not have published standards. However, when compared to previously approved projects, the space proposed appears reasonable. The applicants have provided census data and a projected population study for Silver Cross Hospital s service area. The study indicates that the population within the service area is expected to grow over 13% between 2000 and Outpatient cardiac procedures are projected to grow by 18% between 2000 and

12 Page In addition, the applicants also provided a study completed by a national healthcare real estate development expert that concluded, that there is current physician demand for 56,000 gross square feet of office space in the proposed service area. It appears that there will be sufficient demand for the services proposed by this project. IX. Review Criteria - Financial Feasibility A. Criterion a, Financial Viability The applicants have submitted evidence that they have a bond rating of A or better. B. Criterion b, Availability of Funds C. Criterion c, Start-Up Costs These criterion are not applicable to this project. X. Review Criteria - Economic Feasibility A. Criterion a, Reasonableness of Financing Arrangements This criterion is not applicable to this project. B. Criterion b, Conditions of Debt Financing The applicants have certified that the selected form of debt financing for the above referenced project is at the lowest net cost available. The term of bonds is 30 years and the expected interest rate is 4.5% to 6.5%. The term of the land lease is 30 years. C. Criterion c., Reasonableness of Project and Related Cost

13 Page 12 Preplanning Costs - These costs amount to $225,520 which is 1.8% of new construction ($10,099,003) contingency ($1,009,900) and equipment costs ($1,420,000) of $12,528,903. This is reasonable when compared to the State Agency standard of 1.8%. Site Preparation - These costs amount to $626,445 which is 5.6% of new construction ($10,099,003) and contingencies ($1,009,900) of $11,108,903. These costs include survey costs of $12,000, soil boring costs of $18,000, earthwork costs of $208,456, concrete and site drainage costs $161,124, utility costs of $150,000, landscaping costs of $40,000 and lighting costs of $36,865. This is high when compared to the State Agency standard of 5%. Offsite Work - These costs amount to $555,445. These costs include drainage, pipes and sewage of $146,124, utilities of $180,093 and roads and walks of $229,228. These costs appear reasonable. New Construction ($10,099,003) and Contingencies ($1,009,900) - These costs amount to $11,108,903, which is $160.16/GSF. This appears reasonable when compared to the Means Third Quartile Estimate of $ per GSF. Contingencies - These costs amount to $1,009,900 or 10% of new construction costs. This appears reasonable when compared to the State standard of 10%. Architectural and Engineering Fees - These costs amount to $676,532 or 6.1 % of new construction and contingency costs of $11,108,903. This amount appears reasonable when compared to the State Standard of 6.1% Consulting and Other Fees - These costs amount to $ 775,109 or 7.7% of new construction costs of $10,099,003. These cost include interior design of $280,000, legal services of $80,000, signage/graphics of $30,000, computer software of $30,000, project insurance of $25,000, permits and fees of $70,000 and project management of $260,109. The State Agency does not have standards for these costs, however, they appear reasonable when compared to other projects of this type. Equipment - These costs amount to $1,420,000. The State Agency does not have standards for these costs, however, they appear reasonable when compared to other projects. These costs include cath lab of $1,200,000, monitoring equipment of $150,000 and furnishings of $70,000.

14 Page 13 Bond Issuance Expense - These costs amount to $681,568. The State Agency does not have standards for these costs, however, they appear reasonable when compared to other projects. Net Interest Expense During Construction - These costs amount to $889,339. The State Agency does not have standards for these costs, however, they appear reasonable when compared to other projects. DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW D. Criterion d, Projected Operating Costs The applicants have provided projected operating costs as required. E. Criterion e, Capital Costs The applicants have provided capital costs per equivalent patient day as required. F. Criterion f, Non-Patient Related Services The applicants have documented that the portion of the project that involves nonpatient related services will be self supporting and not result in increased charges to the patient.

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