plutonium. of Health Project 162380-C Department Public Health and Health Planning Council Rochester General Hospital Program: Purpose: Hospital Construction County: Monroe Acknowledged: November 16, 2016 . Executive Summary . Description Rochester General Hospital (RGH), a 528-bed, voluntary not-for?profit, Article 28 tertiary care hospital located at 1425 Portland Avenue in Rochester (Monroe County), requests approval to construct a new seven-story building connected to the northeast side of the existing hospital. The new building, called the Critical Care Building for planning purposes, will encompass 312,457 square feet of space and will contain 108 acUity adaptable private Medical/Surgical and Intensive Care Unit rooms, a 14-bed neonatal unit consisting of five Continuing Care, seven Intermediate Care and two Intensive Care beds, and 20 private post- partum rooms. The new building will also contain 20 replacement operating rooms, a 26? bed PACU, 54 pre-op and post-op patient areas and a new sterile processing area. The project will allow RGH to create 100% private rooms, accomplished via the new construction and conversion of the current semi- private rooms in the existing hospital to single- occupancy rooms. There will be no change to the number or type of inpatient beds or the number of operating rooms at completion of construction. The total number certi?ed beds will remain at 528 and the number of operating rooms will continue to be 23, with three operating rooms remaining in the existing hospital building. RGH, proposes the expansion and renovation project to provide significant and necessary improvements to address aged and obsolete facilities in both its inpatient and surgical program. The project includes renovation of existing hospital space as follows: 0 With no modification required, the current 108 semi-private rooms will be designated as private rooms when the new building Opens up. . The space currently occupied by the Intensive Care/Coronary Care Unit will be utilized by the Medical Observation Unit (MOU) after minor renovations are completed. - The existing MOU will be assigned to Emergency Services. a A small area within the existing Operating Room area will be renovated for Gastro Intestinal services. The remainder of the space will be decommissioned as operating rooms and repurposed. RU System, Inc. (System) is the active parent and co-operator of RGH and the entities within both the Rochester General Health System and Unity Health System, othenrvise known as Rochester Regional Health (the System). RGH is the ?agship hospital of the System and serves as itshub. The goal of the System is to provide high quality healthcare services in a strategic and cost effective manner to the communities served by the System, by continuing the existing RGH strategies in clinical integration, regional network development and population health. Recommendation Contingent Approval Project Exhibit Page 1 Need Summary Rochester General Hospital will become a 100% Raymond James &_Associates, '00. has. private bed hospital allowing the facility to prowdfed a letter of Interest for underwriting the address assorted patient acuities and improve bond financmg. The be Issued by efficiencies. 7 Monroe County Industrial Development Corporation. - Program Summary Based on the results of this review, a favorable Budget. Revenues ?gm? recommendation can be made regarding the Expenses 435 010 435 facility?s current compliance pursuant to 2802- of the New York State Public Health Law. Gain/(L053) $373594?) . . 5 Enterprise Budget: Year One ?"?mary Revenues $938,011,006 Total protect costs are $253,663,869, but due to Expenses 924 692 236 the inclusion of shell space, total reimbursable Gain/(Loss) $13,318,770 cost is limited to $243,997,457. Project costs of $253,663,869 will be met with equity of $102,290,812 and tax-exempt bonds for $151,373,057 with a maturity of 30 years bearing interest at 4.27% for tax~exempt debt. Project #162380-0 Exhibit Page 2 Health Systems Agency The HSA recommends approval for this project. Of?ce of Primary Care and Health Systems Management Approval contingent upon: 1. Submission of a check for the amount enumerated in the approval letter, payable to the New Yerk State Department of Health. Public Health Law Section 2802.? states that all construction applications requiring review by the Public Health and Health Planning Council shall pay an additional fee of fifty?five hundredths of one percent of the total capital vatue of the project, exclusive of CON fees. 2. Submission of a bond resolution, acceptable to the Department of Health. Included with the submitted bond resolution must be a sources and uses statement and debt amortization schedule, for both new and refinanced debt. . 3. The submission of State Hospital Code (SHC) Drawings for review and approval, as described in BAEFP Drawing Submission Guidelines DSG-02. Approval conditional upon: 1. The project must be completed within five years from the date of the Public Health and Health Planning Council recommendation letter. Failure to complete the project within the prescribed time shall constitute an abandonment of the application by the applicant and an expiration of the approval. 2. Construction must start on or before March 31, 2017 and construction must be completed by August 30, 2022, presuming the Department has issued a letter deeming all contingencies have been satisfied prior to commencement. In accordance with 10 Section if construction is not started on or before the start date this shall constitute abandonment of the approval. It is the responsibility of the applicant to request prior approval for any changes to the start and completion dates. 3. The staff of the facility must be separate and distinct from staff of other entities. 4. The signage must clearly denote the facility is separate and distinct from other adjacent entities. - 5. The entrance to the facility must not disrupt any other entity's clinical program space. 6. The clinical space must be used exclusively for the approved purpose. Council Action Date March 9, 2017 Project #1623804: Exhibit Page 3 . Need Analysis I Background Coronary Care . 6 Intensive Care 34 Maternity 26 Medical I Surgical 378 Neonatal Continuing Care 5 Neonatal Intensive Care 2 Neonatal Intermediate Care 7 Pediatric 24 Physical Medicine and Rehabilitation 16 Ps chiatric - 30 Rochester General Hospital will become a 100% private bed hospital allowing the facility to address different patient acuities. Currently, approximately 43. 9 percent of beds are in double rooms. The creation of private rooms will improve the throughput of patients by reducing isolation, gender, and patient preference requirements. Conclusion Improving patient throughput and efficiency .by becoming an all-private, one bed per room hospital will enable Rochester General Hospital to retain its status as a flagship facility. Recommendation From a need perspective, approval is recommended. I Program Analysis I - Project Proposal Staffing is expected to increase by 58.6 FTEs in Year One of the completed project and remain at that level through Year Three. There will be no change to the number of certified beds or operating rooms. With this expansion project, semi-private rooms will be converted to private rooms. By creating all private rooms, RGH aims to reduce noise and infection, thus enhancing healing. Further, having all private rooms will assist with movement of patients through the system by decreasing the restrictive qualities of a semi- private rooms (such as requirements for isolation, gender, and patient preference). Compliance with Applicable Codes, Rules and Regulations This facility has no outstanding Article 28 surveillance or enforcement actions and, based on the most recent surveillance information, is deemed to be currently operating in substantial compliance with all . applicable State and Federal codes, rules and regulations. This determination was made based on a review of the files of the Department of Health, including all pertinent records and reports regarding the facility?s enforcement history and the results of routine Article 28 surveys as well as investigations of reported incidents and complaints. Recommendation From a programmatic perspective, approval is recommended. Project #162380-6 Exhibit Page 4 Financial Analysis Total Project Cost - Total project cost for new construction, renovations and movable equipment is estimated at $253,663,869, but total reimbursable cost is limited to $243,997,457, broken down as follows: Article 28 Non-Article 28 Iotal New Construction $129,893,214 $7,377,132 $137,270,346 Renovation and Demolition 28,510,232 0 28,510,232 Temporary Utilities 566,819 0 566,819 Design Contingency 9,394,092 377,130 9,771,222 Construction Contingency 9,394,092 377,130 9,771,222 Planning Consultant Fees 424,041 0 424,041 Architect/Engineering Fees 8,166,994 - 1,124,157 9,291,151 Construction Manager Fees 3,213,989 410,863 3,624,852 Other Fees (Consultant) 5,031,156 0 5,031,156 Movable Equipment 39,222,552 0 39,222,552 Telecommunications 5,843,641 0 5,843,641 Financing Costs 3,000,000 0 3,000,000 CON Fee 2,000 0 2,000 . Additional Processing Fee 1,334,635 9 1,334,635 Total Project Cost $243,997,457 $9,666,412 $253,663,869 Project costs are based on a construction start date of March 31, 2017, with a completion date of August 30, 2022. The Bureau of Architectural and Engineering Review has determined that this project includes shell space costs of $9,666,412 for non-Article 28 space. As a result, the total approved project cost for reimbursement purposes shall be limited to $243,997,457. The applicant?s financing plan appears as follows: Equity $102,290,812 Tax-Exempt fixed rate bonds (4.27% interest, 30-year term) $151,373,057 Total $253,663,869 BFA'Attachment B, the September 30, 2016 financial summary, shows RGH will obtain their equity through Board Designated Funds. A letter from the Secretary of the Board of Directors has been submitted stating that the Board confirms approval of the use of Board Designated Funds for this project. RGH will borrow $151,373,057 at a true interest cost of 4.27% over the life of the 30-year tax-exempt bond issuance. The par amount of the bonds will be $135,105,000 and have a coupon rate of which will yield $151,373,057 bond proceeds. It is not anticipated that a debt service reserve fund (DSRF) will be required to market the bonds, based on the bond rating of RGH of A- from Moody?s and the Global. If capital markets determine a DSRF is necessary, RGH will inform the Department during the contingency resolution phase of the CON process. Raymond James Associates, Inc. has provided a letter of interest for underwriting the bond financing. The bonds will be issued by Monroe County Industrial Development Corporation. Raymond James Financial is an American diversified holding company providing financial services to individuals, corporations and municipalities through its subsidiary companies that engage primarily in investment and financial planning, in addition to investment banking and asset management. Project #162380?6 Exhibit Page 5 Operating Budget The applicant has submitted inpatient operating budgets, in 2017 dollars, for the Current Year and for Year One of operations, as shown below: . Current Year Year One Inpatient Revenues Per Disch. lgtal Per Disch. Iptil Commercial MC $15,804 $102,993,398 $16,121 $105,060,979 Medicare FFS $15,257 82,781,303 $15,649 84,914,088 Medicare MC . . - $15,050 129,971,353 $15,436 133,309,774 Medicaid FFS $8,738 12,617,471 $8,932 12,898,205 Medicaid MC $8,271 49,993,328 $8,431 50,964,432 Private Pay $3,753 1,313,721 $3,756 1,314,439 Other" $12,655 9,099,245 $13,099 9,418,102 Total Inpatient Revenue $388,769,819 $397,880,019 Inpatient Expenses Operating $12,453 $383,225,587 $12,686 $390,398,396 Capital $931 28,641,347 $1.454 44,742,039 Total Inpatient Expenses $13,384 $411,866,934 $14,140 $435,140,435 Inpatient Gain/(Loss) ?g2?,0g7,11?1 ?g37,260,41?1 Discharges (Inpatient) 30,773 30,773 *Other Revenues are made up of Workers Compensation, No Fault and Elderty Care Facilities. Utilization by payor source for the current year and first year of operation is anticipated as follows: Current Year and Year One Inpatient Discharges Commercial MC 6,517 21.2% Medicare FFS 5,426 17.6% Medicare MC 8,636 28.1% Medicaid FFS 1,444 4.7% Medicaid MC 6,045 19.6% Private Pay 350 1 .1 Other 719 2.3% Charity Care - 1,636 5.3% Total 30,773 100.0% The following is noted with respect to the submitted budget: . Inpatient revenues and expenses are based upon current experience in operating the hospital. An increase in revenues is budget for Year One clue to the expected increase in patient acuity. . - Utilization assumptions remain consistent with current performance since the number of beds remain the same. RGH's enterprise budget, inclusive of outpatient services, is as follows: Enterprise Budget: Year One Revenues $938,011,006 Expenses 924 692 236 Gain/(Loss) $13,318,770 Overall, RGH expects to be pro?table in the first year. Project #1623804: Exhibit Page 6 Capability and Feasibility Project costs of $253, 663, 869 will be met with equity of $102, 290 812 and tax-exempt bonds for $151, 373, 057 with a maturity of 30 years bearing interest at 4. 27% for tax-exempt debt. As shown on BFA Attachment B, RGH has enough liquid assets to cover the project?s equity requirement. Working capital requirements are estimated at $72,523,406, which is equivalent to two months of year one expenses. The applicant will provide the entire amount of the working capital from operations. As shown on BFA Attachment the applicant has enough liquid assets to cover the working capital requirement BFA Attachment A is 2014?201 5 certified financial statements, which. shows the facility generated an average net Income of $20, 518, 973 and had average positive net asset and working capital positions for the period shown According to the Enterprise Budget, the organization expects to generate a surplus of $13,318,770 in the first year. The submitted inpatient budget indicates a net loss of $37,260,416 for Year One. The net loss for Inpatient is partially due to the increase in capital expense and is offset by Outpatient revenues. Revenues are based on the current reimbursement methodologies for hospitals. The submitted budget Is reasonable. Subject to the noted contingency, the applicant has demonstrated the capability to proceed in a financially feasible manner. Recommendation From a financial perspective, contingent approval02109I2017 is recommended. Attachments BFA Attachment A 2014-2015 Certified Financial Statements for Rochester General Hospital BFA Attachment September 30, 2016 Internal Financial Statements for Rochester General Hospital BFA Attachment Rochester Regional Health System, Inc. Organization Chart Project #1623804: Exhibit Page 7