DOCKET NO: BOARD MEETING: PROJECT NO: PROJECT COST: A - 20 FACILITY NAME: December 15, 2004 04-017 CITY: Original: $4,615,750 Current: DuPage Eye Surgery Center Wheaton TYPE OF PROJECT: Substantive HSA: 8 PROJECT DESCRIPTION: The applicants propose to construct and establish a freestanding limited-specialty ambulatory surgical treatment center with three operating rooms. This project deferred from the October 20-22, 2004 State Board meeting. The State Agency Report has not changed.
I. The Proposed Project STATE AGENCY REPORT Wheaton Eye Clinic, LTD Dupage Eye Surgery Center, L.L.C. DuPage Eye Surgery Center Wheaton, Illinois #04-017 The applicants propose to construct and establish a freestanding limited-specialty ambulatory surgical treatment center ( ASTC ) with three operating rooms ( OR ) and 12 recovery bays in 8,250 gross square feet ( GSF ) of space. In addition, the applicants propose to construct a medical office building and space for medical records. The medical office building is non-clinical and not subject to the Health Facilities Planning Act. The total cost of the project is $4,615,750. The cost associated with the ASTC is $2,996,450. II. Summary of Findings A. The State Agency finds the proposed project does not appear to be in conformance with the provisions of Part 1110. B. The State Agency finds the proposed project does not appear to be in conformance with the provisions of Part 1120. III. General Information The applicants are DuPage Eye Surgery Center, L.L.C. and Wheaton Eye Clinic, LTD. The applicants propose to establish a limited-specialty ASTC with three ORs and 12 recovery bays in 8,250 GSF. In addition, the applicants propose to construct a medical office building and space for medical records. The total cost of the project is $4,615,750. The facility will be located in Wheaton, Illinois (HSA 8). There are currently eight other providers of outpatient surgical services within the applicants intended geographic service area ( GSA ). This is a substantive, category B project that is subject to both a Part 1110 and Part 1120 review.
Page 2 An opportunity for a public hearing was offered on this project. This hearing was held on May 21, 2004. A copy of the public hearing documents is contained in the State Board s materials. Project obligation will occur after the permit is issued. The anticipated project completion date is June 30, 2005. IV. The Proposed Project Details The applicants are DuPage Eye Surgery Center, L.L.C. and Wheaton Eye Clinic, LTD. The applicants propose to establish a limited-specialty ASTC with three ORs and 12 recovery bays. In addition, the applicants propose to construct a medical office building and space for medical records. The building and the land will be leased from 20-15 Realty Partnership. Currently, Wheaton Eye Clinic, LTD leases space from 20-15 Realty Partnership. The ASTC will comprise 8,250 GSF. Upon approval of the CON, it is the applicants intent to expand and reconfigure space to provide 15,500 GSF for three operating rooms with recovery rooms and medical office space. The total cost of the project is $4,615,750. V. Project Sources and Uses of Funds The project will be funded with cash and securities of $1,000,000, leases with a fair market value ( FMV ) of $618,750 and a bank loan of $2,997,000. Table One provides the project s cost information. Table One Project Costs and Sources of Funds Project Costs Total CON Non-CON Preplanning Costs 7,500 4,500 3,000 New Construction Contracts 3,137,503 1,897,503 1,240,000 Contingencies 90,000 54,000 36,000 Architectural/Engineering Costs 30,000 18,000 12,000 Consulting and Other Fees 67,500 40,500 27,000 Movable and Other Equipment 642,497 597,497 45,000 Interest 22,000 13,200 8,800 FMV of Lease Space 618,750 371,250 247,500 TOTAL $4,615,750 $2,996,450 $1,619,300 Sources of Funds Cash and Securities $1,000,000 649,105 350,895 Bank Loan 2,997,000 1,945,652 1,051,348 FMV of Lease Space 618,750 401,693 217,057 TOTAL $4,615,750 $2,996,450 $1,619,300
Page 3 VI. Review Criteria - Non-Hospital Based Ambulatory Surgery A. Criterion 1110.1540(a) - Scope of Services Provided The applicants must document the surgical specialties to be offered and whether the project will result in a limited or multi-specialty ASTC. The applicants propose a limited-specialty ASTC in Wheaton dedicated to ophthalmology procedures. The range and scope of services to be offered at the facility are referenced at Page 71 of the Application for Permit. B. Criterion 1110.1540(b) - Target Population The applicant must document its intended geographic service area and targeted population. According to the applicants, they will serve the population within 30 minutes travel time (in all directions) of the proposed facility. The applicants state the population of the GSA is 570,354. The applicants identified their target population and its intended GSA. C. Criterion 1110.1540(c) - Projected Patient Volume The applicant must provide documentation of the projected patient volume for each specialty offered at the proposed facility. The applicants submitted letters from physicians that documented the following: 1. The number of referrals anticipated annually. 2. For the past 12 months, the name and address of health care facilities to which patients were referred. 3. A statement that the projected patient volume will come from the GSA. 4. A statement that the information is true and correct to the best of his or her belief. The physician s referral letters indicate they will refer 3,983 patients to the new facility. The procedures will come from three facilities within the GSA. One facility has excess surgical capacity (Valley Ambulatory Surgery Center) based
Page 4 upon 2002 IDPH data. The applicants provided sufficient documentation to justify the projected patient volume. Table Two displays the physician referral data. Surgeon Table TWO Number of Procedures Pledged by Physician and Facility Referrals Center for Central DuPage Pledged Surgery Hospital Valley Ambulatory Surgery Center 1 150 150 0 0 2 1541 337 381 823 3 250 0 250 0 4 400 0 400 0 5 212 212 0 0 6 511 500 11 0 7 589 589 0 0 8 330 330 0 0 Total 3,983 2,118 1,042 823 D. Criterion 1110.1540(d) - Treatment Room Need Assessment The applicant must document that the proposed number of operating rooms are needed. As referenced above, the referral letters indicate that 3,983 procedures will be performed at the proposed facility. The applicants state that each procedure will take at least 75 minutes (including clean-up and set-up time). If the procedures materialize, the applicants can justify four ORs and the 12 recovery bays (3,983 procedures x 75 minutes = 298,725 minutes/60 minutes = 4,979 / 1,500 = 3.3 OR s) The applicants propose three ORs for the facility. E. Criterion 1110.1540(e) - Impact on Other Facilities The applicant must document the impact the proposed project will have on other ASTCs and hospitals within the intended geographic service area. Table Three provides surgical utilization data for all hospitals and ASTCs, as identified by the applicants, within 30 minutes travel time of the applicants proposed facility.
Page 5 TABLE THREE Hospitals and ASTCs within the proposed Geographic Service Area Total Total Total ORs Total Hours of Number of Equivalent Justified Hours of Outpatient Operating Outpatient per State Surgery Hospitals Surgery Rooms ORs Standard Central Dupage Hosp. 35,352 17,867 23 12 24 Glen Oaks Hospital 2,142 1,328 5 1 2 Ambulatory Surgery Treatment Centers ASTCs Number of Operating Rooms Hours of Surgery Operating Rooms Justified The Center for Surgery 8 15,913 11 Suburban Surgery Center-Dupage 4 539 1 Midwest Center for Day Surgery 5 5,809 4 Loyola ASC at Oakbrook 3 5,053 4 The Oakbrook Surgical Center 4 1,860 2 Valley Ambulatory Surgery Center* 7 6,293 4 Information obtained from IDPH Hospital and Ambulatory Surgical Treatment Center Profiles for 2002 * According to the applicants, the surgery center no longer accepts ophthalmologic procedures. As noted in Table Three, there is excess surgical capacity in the applicants intended GSA and it appears the proposed facility will have an adverse impact on other facilities within the GSA. THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION. F. Criterion 1110.1540(f) - Establishment of New Facilities Under the requirements of this criterion, the applicants must document one of the following: 1) There are no other ASTCs within the intended geographic service area of the proposed project under normal driving conditions; or 2) All of the other ASTCs and hospital equivalent outpatient surgery rooms within the intended geographic service area are utilized at or above the 80% occupancy target; or 3) The applicants can document that the facility is necessary to improve access to care. Documentation shall consist of evidence that the facility
Page 6 will be providing services which are not currently available in the geographic service area, or that the existing underutilized services in the geographic service area have restrictive admission policies; or 4) The proposed project is a co-operative venture sponsored by two or more persons at least one of which operates an existing hospital. The applicants must document: A) that the existing hospital is currently providing outpatient surgery services to the target population of the geographic service area; B) that the existing hospital has sufficient historical workload to justify the number of operating rooms at the existing hospital and at the proposed ASTC based upon the Treatment Room Need Assessment methodology of Subsection D of this Section; C) that the existing hospital agrees not to increase its operating room capacity until such time as the proposed project s operating rooms are operating at or above the target utilization rate for a period of 12 full months; and D) that the proposed charges for comparable procedures at the ASTC will be lower than those of the existing hospital. There are currently eight facilities offering outpatient surgical service in the proposed GSA. As noted, there is excess surgical capacity in the intended GSA. The applicants stated that existing ASTCs within the GSA have restrictive admission policies. According to the applicants, other ASTCs within the GSA have not made a commitment to treat residents of its service area regardless of their financial standing or ability to pay. The applicants further state it should be noted that two hospitals within the proposed GSA as nonprofits accepts patients regardless of the patient s ability to pay. Specifically, The Center for Surgery and Valley Ambulatory Surgical Center, where Wheaton Eye Clinic surgeons refer most of their outpatient surgery, have not made a commitment to treat the residents of its service area regardless of their ability to pay. The unfortunate reality is that while the hospital systems accept uninsured patients, the appropriate technology and the experienced staff to perform ophthalmic procedures is lacking. For quality of care purposes, the Wheaton Eye Clinic surgeons continue to refer to the facilities with the best technology and staff available to them. One significant benefit that the proposed project will provide for the community, therefore, is a facility that will offer both the best staff and technology as well as a commitment to provide outpatient ophthalmologic services to all patients regardless of their ability to pay. The applicants provided a list of facilities within the proposed GSA that accept patients from the DuPage Community Clinic ( DCD ) or Access Dupage ( AC), both of which provide care to the area s uninsured. This list is displayed in Table Four.
Page 7 TABLE FOUR Facility City Accept DCD/AC The Center for Surgery Naperville No Glen Oaks Hospital Glendale Height Yes Central DuPage Hospital Winfield Yes Suburban Surgery Center of DuPage Addison No Midwest Center for Day Surgery Downers Grove No Loyola ASC at Oakbrook Oak Brook No The Oakbrook Surgical Center Oak Brook No By rule, the applicants must document that the facility will be providing services that are not currently available or that the existing underutilized services have restrictive admission policies. The applicants proposed services are currently available within the GSA. Documentation of restrictive admission policies at other facilities within the GSA was not received by the State Agency. Therefore, the State Agency is unable to determine if restrictive admission policies exists within the proposed GSA. There is excess surgical capacity within the proposed GSA; therefore, it appears there is sufficient access to care. THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION. G. Criterion 1110.1540(g) - Charge Commitment The applicants provided a list of charges and certified that all charges will not be increased for a two-year period as required by rule. H. Criterion 1110.1540(h) - Change in Scope of Service This criterion is not applicable. VII. General Review Criteria A. Criterion 1110.230(a) - Location Applicants who propose to establish a new health care facility or a new category of service or who proposes to acquire major medical equipment that is not located in a health care facility and that is not being acquired by or on behalf of a health care facility must document the following:
Page 8 1) that the primary purpose of the proposed project will be to provide care to the residents of the planning area in which the proposed project will be physically located. 2) that the location selected for a proposed project will not create a maldistribution of beds and services. The applicants provided a map outlining the proposed GSA, the name and location of all other facilities providing the same service within the proposed GSA and the distance and travel time from the applicants facility to each of the facilities identified. The applicants provided zip code data for the anticipated patient origins and it appears all of the zip codes identified were within 30 minutes travel time of the new facility. It does appear the new facility will serve the residents in the proposed service area. However, it appears the facility will contribute to an already existing maldistribution of service. There are existing providers within the intended GSA that have additional surgical capacity. THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION. B. Criterion 1110.230(b) - Background of Applicants The applicants have attested that they have not any adverse actions taken against them at pages 25 and 26 of the Application for Permit. C. Criterion 1110.230(c) - Alternatives The applicants must document that the proposed project is the most cost-effective or least costly alternative. The applicants considered the following alternatives to the proposed project: 1. Do nothing. 2. Joint Venture. 3. Purchasing an existing ASTC. 4. Use underutilized space at area ASTCs. 5. Utilize hospital outpatient departments. The do nothing alternative was rejected since inefficiencies exist at multispecialty ASTCs. The joint venture did not meet the needs of the applicants in the areas of control and patient services. Purchasing an existing ASTC, using
Page 9 underutilized space at area ASTCs, and utilizing hospital outpatient departments did not allow the applicants to build an ASTC next to the surgeons practice. There is excess surgical capacity within the proposed GSA. It appears the least costly alternative would be to utilize this existing capacity. THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION. D. Criterion 1110.230(d) - Need for the Project The applicants must document that the proposed project is needed. For those projects in which need has not been determined by the State Board the applicants must document that it will serve a population group in need of the service and that insufficient service exists to meet the need. There is excess surgical capacity within the proposed GSA and the applicants have failed to demonstrate a need for the project. THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION. E. Criterion 1110.230(e) - Size of the Project The applicants must document that the size of the proposed project is appropriate. The proposed ASTC will comprise 8,250 GSF and have three OR s and one room with 12 recovery bays. Based on the State Board s guideline of 2,750 GSF per OR and 180 GSF per recovery room, the proposed facility meets the size standard of the State Board. The applicants projected utilization for the second full year of operation appears to allow the facility to be fully utilized (based upon the State Board s target utilization.) It appears the proposed project is appropriately sized. VIII. Review Criteria - Financial Feasibility A. Criterion 1120.210(a) - Financial Viability
Page 10 The applicants provided the viability ratios for the first full year after project completion. The applicants have not met the days of cash on hand or the cushion ratios. The applicants stated the financial viability ratios are within the acceptable ranges of the standards. Wheaton Eye Clinic LTD. will assume the debt obligation of the new ASTC in event the new entity defaults. The applicants provided the financial viability ratios for Wheaton Eye Clinic, LTD. for 2002-2004. Wheaton Eye Clinic, LTD. has not met the Current Ratio for all three years presented or the Net Margin Percentage for 2002 and 2003, or the Days Cash on Hand for all three years. Tables Five and Six provide the financial ratio information. TABLE FIVE DuPage Eye Center Ratio Standard 2006 Current Ratio 1.5 3.3 Net Margin Ratio 3.5 12.4 Percent Debt to Total Capitalization 80 67.8 Projected Debt Service 1.75 2.6 Days Cash on Hand 45 22.6 Cushion Ratio 5.0.80 TABLE SIX Wheaton Eye Clinic, LTD. Ratio Standard 2002 2003 2004 Current Ratio 1.5 1.31 1.33 1.34 Net Margin Ratio 3.5.82 1.14 1.96 Percent Debt to Total Capitalization 80 9.04 5.22 3.74 Projected Debt Service 1.75 2.42 4.17 4.69 Days Cash on Hand 45 15.99 15.99 28.10 Cushion Ratio 5.0 27.83 39.98 298.3 THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.
Page 11 B. Criterion 1120.210(b) - Availability of Funds The applicants provided a letter of interest from Bank One to provide funding for the proposed project. In supplemental information requested by the State Agency, the applicants provided the estimated terms and conditions of the bank loans. See the supplemental information provided in the material presented to the State Board. C. Criterion 1120.210(c) - Start-Up Costs The applicants project start-up costs are approximately $125,000, which includes six weeks of personnel costs ($67,183), 3 weeks of supply costs ($17,817) and $40,000 of miscellaneous costs. These costs appear reasonable compared to similar projects. IX. Review Criteria - Economic Feasibility A. Criterion 1120.310(a) - Reasonableness of Financing Arrangements The applicants state that all available cash and cash equivalents are being used prior to borrowing. B. Criterion 1120.310(b) - Conditions of Debt Financing The applicants certified that the selected form of financing is the lowest net cost available. C. Criterion 1120.310(c) - Reasonableness of Project Cost Preplanning Costs - These costs are $4,500, which is less than 1% of new construction costs ($1,897,503) contingency costs ($54,000) and equipment costs ($597,497). These costs include feasibility assessments, identifying and securing
Page 12 of site, and organizational developments. This is below the State standard of 1.8%. New Construction ($1,897,503) and Contingencies Costs ($54,000) These costs total $1,951,503, which is $236.55/gsf. This is below the State standard of $239.50/gsf. Contingencies Costs These costs totaled $54,000, or 2.9% of new construction costs. This is below the State standard of 10%. A/E Costs- These costs total $18,000, which is less than 1% of new construction ($1,897,503) and contingency costs ($54,000). This is within the State standard of 4.35%-9.95%. Consulting Fees - These costs totaled $40,500 and include consulting services for CON, equipment planning, and facility commissioning; legal fees, accounting fees, local permit fees, and CON permit fees. Movable and Other Equipment Costs - These costs totaled $597,497, which is $199,166/OR. This is below the State standard of $431,940. Net Interest Expense During Construction These costs total $13,200 and are reasonable compared to similar projects. FMV of Leased Space - These costs total $371,250. This appears reasonable compared to previous projects. D. Criterion 1120.310(d) - Projected Operating Costs The applicants project direct operating costs of $343.50 per procedure in the first full year of operation. These costs appear reasonable compared to similar projects. E. Criterion 1120.310(e) - Capital Costs The applicants estimate capital costs in the first full year of approximately $592,497, or $149.16 per procedure.
Page 13 F. Criterion 1120.310(f) - Non-Patient Related Services These criteria are not applicable to this project.