Press Release
Complete New HATP Regulations

NEW JERSEY REGISTER

 

ISSUE: VOLUME 37, NUMBER 12
ISSUE DATE: June 20, 2005
SUBJECT: RULE PROPOSALS
AGENCY: HEALTH AND SENIOR SERVICES
NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY

 

37 N.J.R. 2198(a)

 

Proposed New Rules: N.J.A.C. 8:95-2
Proposal Number: PRN 2005-226.

 

Hospital Asset Transformation Program

 

Authorized By: New Jersey Health Care Facilities Financing Authority, Mark E. Hopkins, Executive Director.
Authority: N.J.S.A. 26:2I-1 et seq.
Calendar Reference: See Summary below for explanation of exception to calendar requirement.

 

Submit written comments by August 19, 2005 to:
Mark E. Hopkins
Executive Director
New Jersey Health Care Facilities Financing Authority
Station Plaza--Building Four
22 South Clinton Avenue
Trenton, New Jersey 08625
Email: mhopkins@njhcffa.com
Fax: (609) 292-6007

 

The agency proposal follows:

 

Summary

 

The Hospital Asset Transformation Program (the "Program") was established as a program of the New Jersey Health Care Facilities Financing Authority (Authority) pursuant to P.L. 2000, c.98. The Advisory Commission (Commission) on Hospitals Final Report (1999) stated that the "oversupply of beds is the root cause of many of the problems that contribute to the weak financial condition of the New Jersey hospital industry." That "oversupply means that the industry is not generating enough revenue to adequately cover its fixed costs . . . Closing entire hospitals offer much more potential for improving the financial condition of the State's hospitals as a whole. Remaining hospitals will gain additional patients and will likely be able to treat them without significantly increasing their fixed costs eliminating excess capacity by closing hospitals rather than across the board downsizing could increase revenues to remaining hospitals by as much as $ 1 billion without any aggregate increase in payments . . . Hospital trustees worry about the welfare of the community the hospital services, the people it employs, and the debts for which it is obligated . . . without assistance in addressing the broad range of issues, hospital management may not be able to bring about a managed downsizing of the system." The Commission clearly understood the problem posed by the outstanding debt of a closed hospital. Based on its recommendations, the Hospital Asset Transformation Program (Program) was created. That Program contemplated direct subsidies to surviving entities to assist in paying debt service on closed facilities. It also led to a revision of the New Jersey Health Care Facilities Financing Authority Law to permit the Authority to enter into a debt service support payment contract with the State Treasurer.

 

To be eligible for financing under the Program, a hospital needs to show that it is closing, or has, since the effective date of P.L. 2000, c.98 (August 29, 2000), closed, all acute care services at a particular site. This is in keeping with the finding of the Advisory Commission on Hospitals that closing an entire facility offers greater benefit to the State and surviving hospitals and is required by the authorizing legislation.

 

Since the Program was conceived to provide assistance with outstanding bonds, the hospital should demonstrate that existing debt service obligations will impose a financial hardship on the organization. In the case of closure, the hardship arises because the closed facility no longer generates revenue but the facility is still obligated to make debt service payments. The appropriate way to measure this hardship is the ratio of annual debt service to total operating revenues. A higher ratio indicates less revenue with which to cover debt service payments. Most hospitals in New Jersey have a ratio below four percent.

 

The State has a policy interest in making sure that the indigent have appropriate access to health care services. Therefore, it is appropriate that limited State resources should be directed to facilities with a demonstrated commitment to treating uninsured patients. The ratio that measures a hospital's commitment to the uninsured is the percent of gross revenues derived from Medicaid, Charity Care, and self-pay patients. A higher ratio indicates a greater share of uninsured patients. Most hospitals in New Jersey derive less than 21 percent of revenues from these payer sources.

 

To further ensure that limited State resources go only to those facilities needing support, the hospital should demonstrate that it sought assistance from other sources. Most importantly, if the hospital is part of a system, it should demonstrate that it has received all potential aid from the parent or affiliated corporations. Even though the individual facility can demonstrate financial hardship, if the larger corporation is in sound financial condition, State support is unnecessary. In order words, the Program should be a solution of last resort.

 

N.J.A.C. 8:95-2.1 establishes the Program as a joint program of the Department of Treasury and the Authority. N.J.A.C. 8:95-2.2 sets forth the definitions used in the proposed rules. N.J.A.C. 8:95-2.3 requires the submission of an application for assistance in a form approved by the State Treasurer and the Authority. N.J.A.C. 8:95-2.4 sets forth the criteria for the evaluation of applications for assistance and certain minimum requirements of such applications. N.J.A.C. 8:95-2.5 states that the Treasurer in consultation with the Authority shall determine the amount of financial assistance, if any, which shall be made available to the applicant. This section provides flexibility in permitting the assistance to take whatever form is permitted by the Act, as may be in the best interests of the State. N.J.A.C. 8:95-2.6 provides that waivers from the provisions of these regulations may be granted when such a waiver would not contravene the provisions of the Act and upon a finding that such a waiver will promote the statutory purposes of the Act.

 

As the Authority has provided a 60-day comment period for this notice of proposal, this notice is excepted from the rulemaking calendar requirement pursuant to N.J.A.C. 1:30-3.3(a)5.

 

Social Impact

 

The proposed new rules will have a beneficial social impact. The rules provide a mechanism for the implementation of the Program which provides assistance to a not for profit health care organization terminating acute care services at a specific location. The provisions of the proposed new rules provide criteria to allocate this assistance while conserving State funds.

 

Economic Impact

 

There will be a positive economic impact on health care organizations that receive financial assistance from the Authority through the Program. The specific terms of these rules may make such financial assistance unavailable to some health care organizations which might appear to be otherwise eligible under the terms of the Act. However, the criteria for eligibility have been chosen with regard to the limited nature of the State resources and the factors set forth above in the Summary. In addition, the requirement concerning Charity Care in N.J.A.C. 8:95-2.4(a)6 may increase an applicant's costs, depending on the level of available reimbursement for Charity Care. Furthermore, the provisions for waiver in the Program allow the consideration of applications which may not on their face meet the specific requirements set forth in the proposed new rules.

 

Federal Standards Statement

 

The proposed new rules are not subject to any Federal standards or requirements; therefore, a Federal standards analysis is not required.

 

Jobs Impact

 

The proposed new rules will not result in the generation or loss of any jobs.

 

Agriculture Industry Impact

 

The proposed new rules will have no impact on the agriculture industry.

 

Regulatory Flexibility Statement

 

All acute care non-profit hospitals in the State employ more employees than 100 employees and, therefore, do not qualify as a "small business" as specified in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq.

 

Smart Growth Impact

 

The proposed new rules will have no impact on the achievement of smart growth or the implementation of the State Development and Redevelopment Plan.

 

Full text of the proposed new rules follows:

 

CHAPTER 95 NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY

 

SUBCHAPTER 1. (RESERVED)

 

SUBCHAPTER 2. HOSPITAL ASSET TRANSFORMATION PROGRAM

 

8:95-2.1 Establishment of Hospital Asset Transformation Program

 

There is hereby established a joint program of the Department of Treasury and the New Jersey Health Care Facilities Financing Authority to be known as the Hospital Asset Transformation Program (the "Program"). The Program shall make aid available under the terms of these rules and subsection g of section 7 of P.L. 1972, c.29 (N.J.S.A. 26:2I-7g).

 

8:95-2.2 Definitions

 

As used in this subchapter, the following words and terms shall have the following meanings, unless the context clearly indicates otherwise:

 

"Act" shall mean the New Jersey Health Care Facilities Financing Authority Law, P.L. 1972, c.29 (N.J.S.A. 26:2I-1 et seq.).

 

"Applicant" shall mean a not-for-profit, non-municipal hospital, which terminates, or has, since the effective date of P.L. 2000, c.98 (August 29, 2000), terminated, the provision of all hospital acute care services at a specific location that may no longer be necessary or useful for such purpose and which is applying for financial assistance under the Program. The applicant could also be an affiliated surviving hospital providing services to the affected population.

 

"Authority" shall mean the New Jersey Health Care Facilities Financing Authority.

 

"Charity Care" shall have the same meaning as under the Health Care Facilities Planning Act, P.L. 1992, c.160, as amended from time to time.

 

"Capital ratio" shall mean that ratio obtained by dividing the applicant's or affiliated surviving hospital's annual principal of payment plus interest expense by the total operating revenue of the applicant or affiliated surviving hospital.

 

"Program" shall mean the Hospital Asset Transformation Program established pursuant to subsection g of section 7 of P.L. 1972, c.29 (N.J.S.A. 26:2I-7g) and these rules.

 

"Treasurer" shall mean the State Treasurer.

 

8:95-2.3 Form of application for assistance

 

An applicant shall submit an application to the Authority for aid under the Program. Such application shall be in a form approved by the Treasurer and the Authority, which shall require, at a minimum, information establishing the applicant's eligibility pursuant to N.J.A.C. 8:95-2.4.

 

8:95-2.4 Evaluation of applications for assistance

 

(a) The Authority shall make an initial evaluation of the application in order to determine the general eligibility of the project and the applicant for financing under the Act and that the applicant is a not-for-profit, non-municipal organization and has received all permits, licenses and approvals for the proposed project. The Authority shall evaluate each application for completeness based on the following:

 

1. The applicant must provide evidence that it is to be, or has been, since the effective date of P.L. 2000, c.98 (August 29, 2000), involved in the termination of all acute care services at a specific hospital site. An application for aid under the Act must be submitted no more than one year prior to the anticipated termination of acute health care services at the site and no later than the later of 90 days after the effective date of these rules or three months following the termination of acute care services at such site.

 

2. The applicant must submit materials which demonstrate that the termination of acute care services at the site imposes or has imposed a financial hardship upon the applicant, which material must show, at a minimum, an expected or actual capital ratio of four percent or greater for the first full year after the termination.

 

3. The applicant must provide evidence to demonstrate that it has received all potential forms of aid, including aid from a parent or affiliated corporation, prior to applying for aid under the Program. Failure of a parent or affiliated corporation to provide aid to the applicant shall disqualify the applicant from receiving financial assistance under the Program unless the applicant can demonstrate that such failure is a result of a lack of financial capacity on the part of such parent or affiliated corporation.

 

4. The applicant must provide evidence that it has had a strong commitment to an indigent population. Such commitment may be demonstrated, inter alia, by the applicant deriving no less than 25 percent of its total gross revenue from Medicaid, self-pay and Charity Care as of the most recent New Jersey Acute Care Hospitals Cost Report.

 

5. The applicant must be deemed to be in compliance with all reporting requirements of its outstanding Authority debt.

 

6. The applicant must agree to provide Charity Care services of a per annum value satisfactory to the Treasurer. Such value shall be annually adjusted in accordance with the Consumer Price Index for all urban consumers in the New York City and the Philadelphia areas as reported by the United States Department of Labor.

 

8:95-2.5 Terms of financial assistance

 

(a) The Treasurer, in consultation with the Authority, shall determine the amount of financial assistance, if any, which shall be made available for debt restructuring of each applicant. Such determination of the Treasurer, in consultation with the Authority, shall be deemed conclusive. Assistance to qualifying applicants shall be made available solely on the following terms:

 

1. Such assistance may take whatever form is permitted by the Act, as determined by the Treasurer, in consultation with the Authority, to be in the best interests of the State.

 

2. The Treasurer, in consultation with the Authority, may require the applicant to enter into an agreement with the Authority to repay any funds advanced by the Authority and to provide such security as may be required by the Treasurer, in consultation with the Authority.

 

8:95-2.6 Waivers

 

Any party desiring a waiver or release from the express provisions of any of the rules in this subchapter may submit a written request to the Treasurer with a written copy to the attention of the Executive Director of the Authority. Waivers may be granted only by the Treasurer, upon consultation with the Authority, when such waiver would not contravene the provisions of the Act and upon a finding that, in granting the waiver, the Treasurer will be promoting the statutory purposes of the Act.

 

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