Hospital expansion plan quizzed by councilors

Posted February 6, 2013 at 4:23 pm

by Steve Peterson

Hawarden councilors will consider the Hawarden Regional Healthcare proposal for funding through the United States Department of Agriculture (USDA) Rural Development to finance the hospital’s expansion and renovation project.

The matter was tabled after some discussion on Jan. 23 to the Feb. 13 councilors’ meeting.

“We looked at the different options for building at the hospital. We believe it is the right plan to provide health care services in Hawarden for years to come — for the next 20 to 30 years. USDA is the right finance option for the facility. We believe that a fixed rate loan of 30 years allows us to service the debt but also the interest,” said ———————-.

“If you put the pencil to it, it is about $4,000 for every man, woman and child in Hawarden,” said Hawarden Councilor Larry Bauder. “You need to say on camera how this will be paid for if things don’t go as well as we hope they will and what could happen.”

“When we looked at the financing for the building project, we wanted to have it function on its own and it’s all based off revenue. We wanted to make sure the city did not have an obligation to finance it. But if we are unable to pay our bill, the city is ultimately responsible. As we went through the financing process, we wanted to make sure we did not include any direct financing from the city,” said HRH CEO Jayson Pullman.

“It’s based on revenue. As long as revenue change did not happen, and it anticipates for growth, that should not be a problem,” said Pullman.

The interest rate will be 3.63 percent, said Pullman.

“So $10 million for 30 years at 3.63 percent, that takes $530,000 a year. I have not seen anything where the hospital has generated that much. Its revenue is all less than $530,000 a year and I’ve looked at the last six years,” said Councilor Monte Harvey.

“Last year we did,” said Pullman.

“With $250,000 from the city,” said Harvey.

There are other hospitals in the nation that have higher subsidies also, said Pullman.

“Nothing in here shows me you have the resources and financing to do this. You have bit off more than you can chew,” said Harvey.

“We have made significant changes in the hospital. The interest and debt service is larger for a Critical Access Facility (CAF) so we will get reimbursed higher through that methodology. That is why I think it makes more sense to do it this way,” said Pullman. “We’re not here to ask you for approval of the total financing of $10 million today. We’re here to ask for support to begin the USDA Rural Development application process. They will come in and look at our finances, and our auditor believes it is a solid plan. We will go through all the rigors of the USDA funding and if they still say that it is a doable project, than it is a doable project.”

“USDA has a very huge application process. You go through a very strict process. As a result of that process, they say ‘yes, it is feasible’ or ‘no, it is not feasible,’” said Councilor Patty Anderson. “You would have to meet their financial condition and the plan is laid out.”

“If the USDA comes back and says, ‘no, it’s not doable,’ I would not want to come back and say, ‘I still want you to approve it,’” said Pullman. “Seim Johnson, our local auditor, has looked at it, and with the analysis, it does make sense.”

The USDA process is three to six months. The application process costs $120,000.

“We want to make sure we are doing the right thing. If we can get through that process, we believe we can, and we believe we can pay it back,” said Pullman.

Hawarden Mayor Ric Porter asked about the local banks’ component.

“It is an 80/20 split, 80 percent USDA, 20 percent locally and there is a funding campaign. Steger Group will help us do the feasibility study for the fundraising campaign. Ultimately that will be a huge part of it,” said Pullman.

“The local banks’ interest rates will be competitive but be slightly higher because it is a conventional loan. With the USDA, you have low interest rates because you have USDA backing it, plus it is over 30 years,” said Pullman.

Porter asked if there was an independent entity to examine the plan. Pullman responded the hospital’s auditors and board of trustees have looked at multiple plans as well as the Samuels Group consultants’ plans, and came up with this one.

“We wanted to make sure it is the right thing, and it is something we’ve already done,” said Pullman.
“We believe it will make money and we’ve done our due diligence for the financing. I don’t believe you will find a better financing option than USDA. It’s the recommendation from the HRH Board of Directors,” said Pullman.

Pullman addressed the plans marked for the future.

“Phase II and III in the plan are in the future master plan. “They’re just what ifs. Can we expand if we need to? That’s why we did that. If we need to expand our MRI services we can, or our surgical services. The space is allocated.

“Critical Access Facilities encompass about 6 percent of the overall U.S. spending for health care. We are seeing increases in the applications to be a CAF. There are definitely some advantages for doing that. Hospitals are seeing that, legislation is seeing CAF is a good model to provide health care. I don’t see that ever going away. It will expand some. With four hospitals in the county, Hawarden really meets the definition of a CAF and I don’t think we will ever lose it,” said Pullman.

“We believe this is the right plan for our town,” said Pullman. “The key piece is to maximize the square footage and we can do it with Medicare reimbursement. At the end of the day, the government will pay for 50 percent of it. It addresses a lot of our needs for now and in the future: emergency room, surgical area, specialities appeal and modernization. It addresses the inpatient side where patients can have a private room with a bath and shower.”

“There is another aspect, the cost of not doing anything,” said Pullman.

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