DOCKET NO: BOARD MEETING: PROJECT NO: PROJECT COST: FACILITY NAME

DOCKET NO:

BOARD MEETING:

May 1-2, 2007

PROJECT NO:

06-079

FACILITY NAME:

Morris HealthCare & Rehabilitation Center

CITY:

Morris

PROJECT COST: Original: $15,069,425 Current: $

TYPE OF PROJECT: Substantive HSA: IX PROJECT DESCRIPTION: The applicants propose to discontinue a 142-bed long-term care facility located at 1335 Clay Street, Morris and establish a new 142-bed facility at the corner of Dupont and Edgewater in Morris. The State Agency notes this project is being reviewed as a discontinuation and establishment of a new facility. Since the discontinuation of the present facility will create a calculated bed need in the Grundy County Long-term Care Planning Area, the State Agency cannot make a positive finding on the discontinuation. However, the State Agency is positive on the need for the project because of the calculated need for long-term care beds in the planning area.

STATE AGENCY REPORT

Morris HealthCare and Rehabilitation Center, LLC and Morris Real Estate Holding 1, LLC

Morris, Illinois Project#06-079

I. The Proposed Project

The applicants propose to discontinue their 142-bed long-term care facility located at 1335 Clay Street in Morris and establish a new 142-bed facility at the corner of Dupont and Edgewater in Morris. The new facility will contain 62,490 gross square feet (“GSF”) and has an estimated project cost of $15,069,425. The proposed facility is approximately 1.5 miles from the current facility.

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 Morris Healthcare and Rehabilitation Center, LLC and Morris Real Estate Holdings 1, LLC. Morris Healthcare and Rehabilitation will be the operating entity / licensee while the site owner will be Morris Real Estate Holdings 1, LLC. The facility will be located in Morris (HSA IX), in the Grundy County Long-term Care Planning Area). HSA IX includes Grundy, Kankakee, Kendall, and Will Counties. The State Agency notes there are two long term care facilities located in Grundy County, both located in Morris (see Table Two). The State Agency notes the payor mix and utilization data listed in the table was obtained from the Illinois Department of Public Health’s (“IDPH”) 2005 long-term care facility profiles.

State Agency Report Project #06-079 - Morris Healthcare and Rehabilitation Center of 23

TABLE ONE Facilities Located in the Grundy County Long-term Care Planning Area

Facility

Authorized Beds

2005 Utilization

% Medicare Patients of Total

% of Medicaid Patients of Total

% of Other Patients of Total

Morris Healthcare & Rehab Ctr 142 79.9% 4.0% 69.9% 26.1% Walnut Grove Village * 117 86.7% 20.7% 37.8% 41.5% * Walnut Grove Village has 24 sheltered care beds that are not under the purview of the State Board.

IDPH’s April 15, 2007 update to the Inventory of Healthcare Facilities and Services and Need Determinations (“Inventory”), indicates a computed need for 41 long term care beds in the Grundy County long-term care planning area.

The State Agency notes that an Exemption for a Change of Ownership for Grundy County Nursing Home (n/k/a Morris Healthcare and Rehabilitation Center) was approved on October 18, 2005. This change of ownership allowed Morris Healthcare and Rehabilitation Center, LLC to lease the Grundy County Nursing Home and operate the nursing home through an operations transfer agreement contingent on the approval of the Illinois Health Facilities Planning Board. Morris Healthcare and Rehabilitation Center became the new licensee. This is a substantive project, subject to both a Part 1110 and Part 1120 review. A public hearing was held on March 2, 2007. The public hearing materials and written comments are provided as part of the package of information furnished to the State Board. At the hearing, four individuals expressed support for the project; while one individual expressed opposition. The State Agency did not receive any letters of support or opposition regarding this project. Project obligation will occur after permit issuance. The anticipated project completion is December 31, 2009. The cost of the land is $852,000. The State Agency notes the occupancy target for the addition of long term care beds is 90%.

IV. The Proposed Project - Details

The applicant proposes to discontinue the existing 142-bed facility located at 1338 Clay Street, Morris and construct a new facility in 62,490 GSF located at the corner of DuPont Avenue and Edgewater Drive, Morris. The new facility is approximately 1.5 miles and four minutes travel time from the present location.

V. Project Costs and Sources of Funds


The project is being funded with cash and securities of $920,425 and a mortgage insured by the United States Department of Housing and Urban Development. (“HUD”) of $14,148,000. Table Two displays the project’s cost information.

TABLE TWO Project Costs and Sources of Funds

Use of Funds Amount

Preplanning Costs 185,500

Site Survey and Soil Investigation 25,600

Site Preparation 840,400

Off Site Work 100,000

New Construction Contracts 9,642,000

Contingencies 924,000

Architectural/Engineering Fees 595,000

Consulting and Other Fees 936,600

Movable or Other Equipment 925,000

Bond Issuance Expense 77,000

Net Interest Expense During Construction 486,979

Other Costs to be Capitalized 331,346

TOTAL $ 15,069,425

Source of Funds Amount

Cash and Securities 921,425

Mortgage 14,148,000

TOTAL $ 15,069,425

Table Three displays the project’s cost/space requirements.

TABLE THREE Project’s Cost / Space Requirements

Department/Service Area Cost Existing Proposed Dietary Area 632,065 1,653 2,667 Dining Area 1,014,574 3,562 4,281 Nursing Department 745,111 2,843 3,144 Storage Area 510,487 5,028 2,154 Administrative Area 447,446 1,047 1,888 Patient Area 6,327,443 18,018 29,502 Physical/Occupational Therapy 579,926 810 2,447 Service Area 464,984 4,366 1,962 Personal Care Area 381,088 1,173 1,608 Treatment Area 88,636 70 374 Vertical Circulation 372,556 1,321 1,572 Horizontal Circulation 2,581,109 9,087 10,891


TABLE THREE Project’s Cost / Space Requirements

Department/Service Area Cost Existing Proposed Contingencies 924,000 TOTALS 15,069,425 48,978 62,490

Table Four displays the applicants’ payor mix for calendar year (“CY”)

2005. This information was obtained from IDPH’s 2005 long-term care profiles.

TABLE FOUR

Morris Healthcare and Rehabilitation 2005 Payor Mix Medicare 4.0%Medicaid 69.9%Other 26.1%Total 100.0%

VI. Discontinuation The criterion states: “Criterion 1110.130 Discontinuation a) The applicant must provide the following: 1) the reasons for the discontinuation; 2) the anticipated or actual date of discontinuation or the date the last

person was or will be discharged or treated, as applicable; 3) the availability of other services or facilities in the planning area

that are available and willing to assume the applicant’s workload without conditions, limitations, or discrimination;

4) a closure plan indicating the process used to provide alternative services or facilities for the patients prior to or upon discontinuation; and

5) the anticipated use of the physical plant and equipment after discontinuation has occurred and the anticipated date of such use.

b) Each application for discontinuation will be analyzed to determine: 1) that the stated reasons for the proposed discontinuation are valid

and are of such a nature to warrant discontinuation. 2) that the discontinuation project will not adversely affect the

services needed by the planning area as calculated in the appropriate Appendix of this Subchapter;

3) that the discontinuation project will not have an adverse affect on the health delivery system by creating demand for services which cannot be met by existing area facilities;

State Agency Report Project #06-079 - Morris Healthcare and Rehabilitation Center of 23 4) that the discontinuation project is in the public interest and would

not cause planning area residents unnecessary hardship by the limitation of access to needed services including the effect of the proposed discontinuation on the ability of low income persons, racial and ethnic minorities, women, handicapped persons, the elderly and other underserved groups to obtain needed health care;

5) that (in every project for discontinuation except the discontinuation of a total health care facility) the anticipated use to which the physical plant and equipment will be put once the discontinuation takes place and the date such action will occur is appropriate.”

The applicants provided the following information to address the discontinuation criterion (application page 50 and supplemental information dated April 10, 2007 - pages 265-272 of the information submitted to the State Board).

1. The applicants state the current facility is 40 years old and is too

costly to modernize. The facility does not meet physical plant guidelines for Medicare, has no private rooms and clinical isolation cases, has a deteriorating infrastructure and has poor lighting and ventilation. The applicants also state it would be very difficult to modernize the facility while simultaneously meeting the needs of patients.

2. The effective date of the closing of the current facility will be upon

the opening of the new facility which is tentatively scheduled for December 2009.

3. There is one additional facility within the Grundy County Long-Term Care Planning Area (see Table One). For 2005, that facility had an 86.7% utilization, which is below the State standard of 90%. Based on the April 2007 update to the Inventory, there is a computed need for 41 additional long-term care beds in the planning area. Should the State Board approve this discontinuation and remove these beds from the Inventory, there will be a calculated need for 183 long-term care beds in the planning area.

4. The applicants state that all of the current patients will be

transferred to the new facility upon project completion.

5. The applicants state the old facility will be used for by Grundy County for offices upon project completion.


The Grundy County Long-term Care Planning Area currently has a computed need for 41 additional long-term care beds. The discontinuation of the current facility will result in a calculated need for 183 long-term care beds in the planning area. It appears the reasons for discontinuation are valid. However, the creation of a computed bed need within the planning area prevents the State Agency from making a positive finding for this criterion.

THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE DISCONTINUATION CRITERION (77 IAC 1110.130).

VII. Bed Related Review A) Criterion 1110.320 (b) - Allocation of Additional Beds

The criterion states: “The applicant proposing to establish a category of service must

document that access to the service will be improved. Documentation shall consist of at least one of the following:

1) the proposed service is not available within the planning area; 2) existing facilities have restricted admission policies resulting in

access limitations; 3) existing service providers are experiencing occupancy levels in

excess of the category of service target levels; 4) the travel time to existing service providers is excessive (exceeds 45

minutes) for area residents to be served by the project.

1. The proposed service is available in the planning area, including the current facility operated by the applicants. There is one additional facility in the planning area, Walnut Grove Village located in Morris.

2. Documentation has not been provided that indicates existing facilities have restrictive admission policies.

3. With the proposed discontinuation of the existing facility, there will be a calculated need for 183 long term care beds within the Grundy County Long-term Care Planning Area.

4. Travel time is not excessive to the existing service provider. There are 19 long term care facilities within 45 minutes of the proposed site. Average utilization for these facilities is 81%, which is below the State Board target utilization of 90%. Table Five displays this information. The State Agency


notes authorized beds and utilization rates for these facilities were obtained from IDPH’s 2005 long-term care profiles. Distance and travel times were obtained from Map Quest.

TABLE FIVE

Long-term Care Facilities within 45 minutes Travel Time of the Proposed Facility

Facility Distance (miles)

Travel Time (minutes) City Beds Utilization

Walnut Grove Village 1.4 5 Morris 117 86.7% Deerbrook Care Center 21.6 24 Joliet 214 71.3% Glenwood Care Center 21.8 25 Joliet 203 67.5% Joliet Terrace 21.3 25 Joliet 120 90.8% Provena Villa Franciscan 22.1 25 Joliet 176 89.7% Heritage Manor Dwight 19.9 26 Dwight 92 71.5% Sunny Hill NSG Home of Will Co. 23.3 26 Joliet 300 70.2% Hillside Rehab & Care Cntr. 21.4 27 Yorkville 79 82.8% Our Lady of Angels Retirement Home 23.1 28 Joliet 50 92.4% Rosewood Care Center of Joliet 24.8 28 Joliet 120 83.1% River Shore Rehab & Nursing Ctr. 20.7 28 Marsailles 103 82.3% Salem Village Nursing and Rehab 24.1 29 Joliet 266 79.0% Lakewood Nursing & Rehab Center 26.7 32 Plainfield 103 92.4% Hillcrest Healthcare Center 25.8 33 Joliet 168 84.0% Ottawa Pavilion 26.9 34 Ottawa 119 73.9% Pleasant View Luther Home 27.0 34 Ottawa 210 82.6% Embassy Care Center, Inc. 21.7 35 Wilmington 178 82.8% Tillers Health Care Residence 26.9 36 Oswego 99 73.9% LaSalle County Nursing Home 30.1 40 Ottawa 104 85.9%

With the proposed discontinuation of the present facility, there will be a calculated need for 183 long-term care beds in the planning area. However with the approval of the new facility, the calculated bed need will reduce to 41 beds. It is also noted that the other planning area facility (Walnut Grove Village) experienced an 86.7% utilization rate for 2005. It could not accommodate all of the applicants’ patients. Therefore, access will improve in the planning area and the State Agency is able to make positive finding.

THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO MEET THE ALLOCATION OF ADDITIONAL BEDS CRITERION (77 IAC 1110.320(b)).

VIII. General Long-Term Care

A) Criterion 1110.1730 (a) - Facility Size The criterion states:


The maximum size of a general long-term care facility is 250 beds, unless

the applicant documents that a larger facility would provide personalization of patient care and documents provision of quality care based on the experience of the applicant and compliance with IDPH's licensure standards.”

The applicants proposing a facility with a 142 long-term care beds. This

meets the requirements of this criterion.

THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE FACILITY SIZE REVIEW CRITERION (77 IAC 1110.1730(a)).

B) Criterion 1110.1730 (b) - Community Related Functions

The criterion states: “The applicant must document cooperation with and the receipt of the endorsement of community groups in the town or municipality where the facility is or is proposed to be located, such as, but not limited to, social, economic or governmental organizations or other concerned parties or groups. Documentation shall consist of copies of all letters of support from such organizations.”

Letters of endorsement from community groups were provided

(application pages 117-118).

THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE COMMUNITY RELATED FUNCTIONS CRITERION (77 IAC 1110.1730(b)).

C) Criterion 11110.1730 (c) - Zoning

The criterion states: “The applicants must document one of the following:

1) the property to be utilized has been zoned for the type of facility to be developed;

2) zoning approval has been received; or 3) a variance in zoning for the project is to be sought.”


The applicants provided information regarding the appropriate zoning of the property for the proposed facility (application pages 121-139).

THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE ZONING CRITERION (77 IAC 1110.1730(c)).

D) Criterion 1110.1730 (d) - Variances to Computed Nursing Care Bed

With the discontinuation of the current facility, there will be a computed need for 183 additional long-term care beds in the Grundy County Long-term Care Planning Area. As a result, this criterion is not applicable to this project.

THE STATE AGENCY FINDS THE VARIANCE TO COMPUTED BED NEED CRITERION (77 IAC 1110.1730(d)) IS NOT APPPLICABLE TO THIS PROJECT.

E) Criterion 1110.1730 (e) – Staffing The criterion states:

“Applicants must document that the supply of manpower currently available in the area is sufficient to meet the health service needs in that area. Documentation should include, but is not limited to, letters from employment services in the area indicating the number of potential health care employees on their rolls; letters from local health departments, in whose jurisdiction the applicant is located, indicating the availability of personnel in the planning area; actual applications for employment on file with the applicant; and surveys performed by persons other than the applicant regarding the availability of manpower.”

The applicants indicate that all current staff at the discontinued facility will be offered employment at the new facility. In supplemental information, the applicants have attested that a contract with AFSCME 31 is nearing completion. AFSCME will be the representative of bargaining unit employees at the facility.

THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE STAFFING CRITERION (77 IAC 1110.1730(e)).

State Agency Report Project #06-079 - Morris Healthcare and Rehabilitation Center of 23 IX. General Review Criteria

A. Criterion 1110.230(a) - Location The criterion states: “An applicant who proposes 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: 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. Documentation for existing facilities shall include patient origin information for all admissions for the last 12 months. Patient origin information must be presented by zip code and be based upon the patient's legal residence other than a health care facility for the last six months immediately prior to admission. For all other projects for which referrals are required to support the project, patient origin information for the referrals is required. Each referral letter must contain a certification by the health care worker physician that the representations contained therein are true and correct. A complete set of the referral letters with original notarized signatures must accompany the application for permit.

2) that the location selected for a proposed project will not create a maldistribution of beds and services. Maldistribution is typified by such factors as: a ratio of beds to population (population will be based upon the most recent census data by zip code), within 30 minutes travel time under normal driving conditions of the proposed facility, which exceeds one and one half times the State average; an average utilization rate for the last 12 months for the facilities providing the proposed services within 30 minutes travel time under normal driving conditions of the proposed project which is below the Board's target occupancy rate; or the lack of a sufficient population concentration in an area to support the proposed project.

The applicants provided admission data for the prior 12 month as required for the present facility. Evidence of site ownership and appropriate zoning was provided as well. With the discontinuation of the present facility, no maldistribution of beds and services is expected to occur because of the calculated need for 183 additional long-term care


beds in the planning area. In addition, there are 15 providers of long-term care service within a 30 minute drive time of the proposed facility (see Table Six). Only one of these facilities (Walnut Grove Village) is in the planning area. For 2005, this facility experienced an 86.7% occupancy rate. This is below the 90% target utilization rate. However, this facility could not accommodate all of the applicants’ patients. The State Agency notes data in Table Six regarding authorized beds and utilization was obtained from IDPH’s 2005 long-term care profiles. Information on distance and travel time was obtained from Map Quest.

TABLE SIX Facilities within 30 minutes of the proposed site

Facilities Distance (miles)

Travel Time (minutes) City Beds Utilization

Walnut Grove Village 1.4 5 Morris 117 86.7% Deerbrook Care Center 21.6 24 Joliet 214 71.3% Joliet Terrace 21.3 25 Joliet 120 90.8% Provena Villa Franciscan 22.1 25 Joliet 176 89.7% Glenwood Care Center 21.8 25 Joliet 203 67.5% Heritage Manor Dwight 19.9 26 Dwight 92 71.5% Sunny Hill NSG Home of Will Co. 23.6 26 Joliet 300 70.2% Hillside Rehab & Care Cntr. 21.4 27 Yorkville 79 82.8% River Shore Rehab & Nursing Ctr. 20.7 28 Marsailles 103 82.3% Our Lady of Angels Retirement Home 23.1 28 Joliet 50 92.4% Rosewood Care Center of Joliet 24.8 28 Joliet 120 83.1% Salem Village Nursing and Rehab 24.1 29 Joliet 266 79.0% Hillcrest Healthcare Center 25.8 33 Joliet 168 84.0% Pleasant View Luther Home 27.0 34 Ottawa 210 82.6% Ottawa Pavilion 26.9 34 Ottawa 119 73.9%

It appears the primary purpose of the project is to provide care to the residents of the planning area. The location selected will not create a maldistribution of service due to the calculated need for additional long- term care beds within the planning area. As a result, a positive finding can be made. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO MEET THE LOCATION CRITERION 1110.230(a).

B. Criterion 1110.230(b) - Background of Applicants The criterion states:


“The applicant shall demonstrate that it is fit, willing and able, and has the qualifications, background and character to adequately provide a proper standard of health care service for the community. [20 ILCS 3960/6] In evaluating the fitness of the applicant, the State Board shall consider whether adverse action has been taken against the applicant, or against any health care facility owned or operated by the applicant, directly or indirectly, within three years preceding the filing of the application.” The applicants provided a list of all facilities they currently own. Also, licensure and certification information was provided as required. Additional information on the annual surveys was also provided along with responses to allegations made at the public hearing regarding the ownership of the facility by the applicants (see pages 264-342 of the information submitted to the State Board regarding the fitness of the applicants). The applicants also certified they have not had any adverse actions within the past three years. It appears the applicants are fit, willing and able and have the qualifications, background and character to adequately provide a proper standard of healthcare service for the community.

THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE BACKGROUND OF THE APPLICANT CRITERION (77 IAC 1110.230(b)).

C. Criterion 1110.230(c) – Alternatives The criterion states:

“The applicant must document that the proposed project is the most

effective or least costly alternative. Documentation shall consist of a comparison of the proposed project to alternative options. Such a comparison must address issues of cost, patient access, quality, and financial benefits in both the short and long term. If the alternative selected is based solely or in part on improved quality of care, the applicant shall provide empirical evidence including quantifiable outcome data that verifies improved quality of care. Alternatives must include, but are not limited to: purchase of equipment, leasing or utilization (by contract or agreement) of other facilities, development of freestanding settings for service and alternate settings within the facility.”

The applicants considered these alternatives: 1. Do Nothing;


2. Build a new facility The applicants rejected the “do nothing“ alternative because it would not alleviate the poor condition of the existing facility or address the calculated need for 183 long term care beds as a result of the discontinuation of the present facility. It is noted that there is no cost associated with the first alternative. The applicants chose the alternative of building a new structure to serve the long-term care needs of the planning area. With the discontinuation of the present facility and the computed need for a 183 long term care beds, the State Agency can make a positive finding. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE ALTERNATIVES CRITERION (77 IAC 1110.230(c)).

D. Criterion 1110.230(d) - Need for the Project

The criterion states: “The project must be needed.

1) If the State Board has determined need pursuant to Part 1100, the proposed project shall not exceed additional need determined unless the applicant meets the criterion for a variance.

2) If the State Board has not determined need pursuant to Part 1100, the applicant must document that it will serve a population group in need of the services proposed and that insufficient service exists to meet the need. Documentation shall include but not be limited to: A) area studies (which evaluate population trends and service

use factors); B) calculation of need based upon models of estimating need

for the service (all assumptions of the model and mathematical calculations must be included);

C) historical high utilization of other area providers; and D) identification of individuals likely to use the project. 3) If the project is for the acquisition of major medical equipment that

does not result in the establishment of a category of service, the applicant must document that the equipment will achieve or exceed any applicable target utilization levels specified in Appendix B within 12 months after acquisition.”


With the discontinuation of the present facility, there will be a computed need for 183 additional long-term care beds within the Grundy County Long-term Care Planning Area. Because of the computed need, the State Agency is able to make a positive recommendation regarding this criterion. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE ALTERNATIVES CRITERION (77 IAC 1110.230(c)).

E. Criterion 1110.230(e) - Size of the Project

The criterion states: “The applicant must document that the size of a proposed project is

appropriate. 1) The proposed project cannot exceed the norms for project size

found in Appendix B of this Part unless the additional square footage beyond the norm can be justified by one of the following: A) the proposed project requires additional space due to the

scope of services provided; B) the proposed project involves an existing facility where the

facility design places impediments on the architectural design of the proposed project;

C) the proposed project involves the conversion of existing bed space and the excess square footage results from that conversion; or

D) the proposed project includes the addition of beds and the historical demand over the last five year period for private rooms has generated a need for conversion of multiple bed rooms to private usage.”

1. Size

The applicants propose to establish a 142-bed facility in 62,490 GSF, which is 440.1 GSF per bed. The State standard is 414 GSF per bed. The applicants exceed 26.1 GSF per bed, or 6.3%. Considering the total GSF proposed, the applicants exceed the standard by 3,706.2 GSF. The applicants stated that to comply with current standards of care the size of the facility is not unreasonable.


2. Utilization

When the State Board has established utilization targets for

the beds or services proposed, the applicant must document that in the second year of operation the annual utilization of the beds or service will meet or exceed the target utilization. Documentation shall include, but not be limited to, historical utilization trends, population growth, expansion of professional staff or programs (demonstrated by signed contracts with additional physicians) and the provision of new procedures which would increase utilization.

The applicants project the facility will achieve the 90% target occupancy by December 2011, which is the second year after project completion. Although the applicants demonstrated the facility will achieve target occupancy within the required time frame, the State Agency cannot make a positive since the GSF per bed will exceed the State standard.

THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE SIZE OF THE PROJECT CRITERION (77 IAC 1110.230(e)).

X. Review Criteria - Financial Feasibility

A. Criterion 1120.210(a) - Financial Viability The criterion states: “1) Viability Ratios Applicants (including co-applicants) must document compliance

with viability ratio standards detailed in Appendix A of this Part or address a variance. Applicants must document compliance for the most recent three years for which audited financial statements are available. For Category B applications, the applicant also must document compliance through the first full fiscal year after project completion or for the first full fiscal year when the project achieves or exceeds target utilization pursuant to 77 Ill. Adm. Code 1100, whichever is later, or address a variance.

State Agency Report Project #06-079 - Morris Healthcare and Rehabilitation Center of 23 2) Variance for Applications Not Meeting Ratios Applicants not in compliance with any of the viability ratios must

document that another organization, public or private, shall assume the legal responsibility to meet the debt obligations should the applicant default.”

Table Five provides the financial viability ratios for Morris Healthcare and

Rehabilitation Center, LLC.

TABLE FIVE Financial Ratio Data on Morris Healthcare and Rehabilitation Center, LLC

Ratio Standard 2004 2005 2006 2010 Current ratio >1.5x NA NA 1.03 1.42 Net Margin Percentage >2.50% NA NA 4.18% 4.05% Percent Debt to Total Capitalization <80.00% NA NA N/A 82.83% Projected Debt Service Coverage >1.50% NA NA 0 1.95 Days Cash on Hand >75 NA NA 0 129 Cushion 3 NA NA 0 3

The applicants provided financial ratios for Morris Healthcare and Rehabilitation Center, LLC. The State Agency notes that Morris Real Estate Holding 1 LLC is a new entity; therefore, no financial data was provided. The only asset of this entity is the building and real estate of the new structure. Projected financial information was provided for Morris Healthcare and Rehabilitation Center, LLC, however. For 2006, Morris Healthcare and Rehabilitation Center, LLC did not meet the Current Ratio but met the Net Margin Percentage Ratio. For 2010, the applicant is projected to meet all financial viability ratios except the Current and Percent Debt to Total Capitalization ratios. The State Agency notes that unaudited financial statements were provided for the Morris Healthcare and Rehabilitation Center, LLC in response to questions regarding Part 1120 criteria. Unaudited financial statements contain no assurance that procedures were performed to test the accuracy and reliability of the information presented. This lack of assurance limits the usefulness of the financial information provided. When the application was submitted, the applicants certified the following: “that he or she has the authority to execute and file this application for permit on behalf of the applicant entity and that the data and information provided herein, and appended herein are complete and correct to the best of his or her knowledge and belief.”


Below is a brief description of the financial viability ratios as presented. 1. Current Ratio - is an indication that an entity has the ability to meet

its current obligations by measuring if a business has enough assets to cover its liabilities.

2. Net Margin Percentage - is an indication of the amount of profit

being realized on every dollar of sales.

3. Percent Debt to Total Capitalization - measures the amount of a company’s assets that are financed by long-term debt.

4. Projected Debt Service Coverage Ratio - calculates the amount of

cash available to meet debt obligations. 5. Days of Cash on Hand - is an indication of the number of days the

facility could operate if no future revenue is provided.

6. Cushion Ratio - is an indication of the amount of cash, short-term investment and unrestricted long-term investments remaining after paying all fixed debt expenses (annual principal and interest payments).

The applicants did not provide documentation that a person or other entity will assume the legal responsibility should the applicants or co-applicants default. The State Agency is unable to make a positive finding on this criterion.

THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE FINANCIAL VIABILITY CRITERION (77 IAC 1110.210(a)).

B. Criterion 1120.210(b) - Availability of Funds

The criterion states: “The applicant must document that financial resources shall be available

and be equal to or exceed the estimated total project cost and any related cost.”

The project is being funded with cash and securities of $921,425. A review of the unaudited balance sheet information (dated September 30, 2006)

http://www.investorglossary.com/cash.htm

http://www.investorglossary.com/debt.htm


indicates sufficient cash and securities are not available to fund this portion of the project (application page 142). The applicants have stated that the cash will come from continuing operations of the facility and the current cash deficit is due to “timing differences” as the result of the State of Illinois payment cycle. The State Agency is unable to make a positive finding regarding this criterion.

THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO BE IN CONFORMANCE WITH THE AVAILABILITY OF FUNDS CRITERION (77 IAC 1120.210(b)).

D. Criterion 1120.210(c) - Start-Up Costs

The criterion states:

“The applicant must document that financial resources shall be available

and be equal to or exceed any start-up expenses and any initial operating deficit.”

The applicants indicate there are no start-up costs for this project.

THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE START-UP COSTS CRITERION (77 IAC 1120.210(c)).

XII. Review Criteria - Economic Feasibility

A. Criterion 1120.310(a) - Reasonableness of Financing Arrangements The criterion states: “This criterion is not applicable if the applicant has documented a bond rating of "A" or better pursuant to Section 1120.210. An applicant that has not documented a bond rating of "A" or better must document that the project and related costs will be: 1) funded in total with cash and equivalents including investment

securities, unrestricted funds, and funded depreciation as currently defined by the Medicare regulations (42 USC 1395); or

2) funded in total or in part by borrowing because: A) a portion or all of the cash and equivalents must be retained

in the balance sheet asset accounts in order that the current ratio does not fall below 2.0 times; or


B) borrowing is less costly than the liquidation of existing investments and the existing investments being retained may be converted to cash or used to retire debt within a 60 day period. The applicant must submit a notarized statement signed by two authorized representatives of the applicant entity (in the case of a corporation, one must be a

member of the board of directors) that attests to compliance

with this requirement.” The applicants have attested that all cash and equivalents are being used

for project funding prior to borrowing. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE REASONABLENESS OF FINANCING ARRANGEMENTS CRITERION (77 IAC 1110.310(a)).

B. Criterion 1120.310(b) - Conditions of Debt Financing

The criterion states: “The applicant must certify that the selected form of debt financing the project will be at the lowest net cost available or if a more costly form of financing is selected, that form is more advantageous due to such terms as prepayment privileges, no required mortgage, access to additional indebtedness, term (years), financing costs, and other factors. In addition, if all or part of the project involves the leasing of equipment or facilities, the applicant must certify that the expenses incurred with leasing a facility and/or equipment are less costly than constructing a new facility or purchasing new equipment. Certification of compliance with the requirements of this criterion must be in the form of a notarized statement signed by two authorized representative (in the case of a corporation, one must be a member of the board of directors) of the applicant entity.”

The applicants have attested that HUD financing is contingent on CON approval. This loan will be amortized over a 40-year term (90% loan value) at a rate of 6.5%. The applicants have also attested that the costs for this type of loan are higher; however, it is advantageous due to its non recourse provision and lower equity requirements. A Nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the

http://en.wikipedia.org/wiki/Secured_loan

http://en.wikipedia.org/wiki/Security_interest

http://en.wikipedia.org/wiki/Collateral_%28finance%29

http://en.wikipedia.org/wiki/Default_%28finance%29


lender's recovery is limited to the collateral. If the property is insufficient to cover the outstanding loan balance (for example, if real estate prices have dropped), the lender is simply out the difference. Thus, non-recourse debt is typically limited to an 80% or 90% loan-to-value ratio, so that the property itself provides "over collateralization" of the loan.

Non-recourse debt is typically used to finance commercial real estate and similar projects with high capital expenditures, long loan periods, and uncertain revenue streams. Because most commercial real estate is owned in a partnership structure (or similar tax pass-through), non-recourse borrowing gives the real estate owner the tax benefits of a tax-pass-through partnership structure (that is, loss pass-through and no double taxation), and simultaneously limits personal liability to the value of the investment. A lender of non-recourse debt depends on an accurate assessment of the credit of the borrower and a sound knowledge of the underlying assets.

THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE CONDITIONS OF DEBT FINANCING CRITERION (77 IAC 1120.310(b)).

C. Criterion 1120.310(c) - Reasonableness of Project Cost

The State Agency notes only the clinical costs were reviewed against the established standard in this subpart of Part 1120 (see page 244 of the application which lists the miscellaneous costs associated with this project).

Preplanning Costs - These costs total $185,500, or 1.6% of construction, contingencies and equipment costs of $11,509,000. This appears reasonable compared to the State standard of 1.8%. Site Survey, Soil Investigation and Site Preparation - These costs total $866,000 which is more than 8.2% of new construction and contingency costs. This appears high compared to the State standard of 5%. Under the standard, the applicants would be allowed $528,300 for this expense. The applicants’ proposed cost exceeds the standard by $337,700, or 63.9%. Table Six displays the State Agency’s finding.

TABLE SIX Applicants’ Proposed Site Survey, Soil Investigation and Site Preparation Costs

Applicants’ Proposed Costs State Standard Difference $866,000 $528,300 $337,700

http://en.wikipedia.org/wiki/Loan-to-value


New Construction and Contingency Costs - These costs total $10,566,000, or $169.08 per GSF. This appears reasonable compared to the adjusted State standard of $267.38 per GSF. Contingencies - These costs are $924,000 or 9.6% of new construction costs. This appears reasonable compared to the State standard of 10% - 15%. Architectural and Engineering Fees - These costs total $595,000, or 5.6% of new construction and contingencies. This appears reasonable compared to the State standard of 4.40% - 11.20%. Consulting and Other Fees - These costs total $936,000. The State Board does not have a standard for these costs.

Equipment - These costs total $925,000, or $6,514.08 per bed. This appears reasonable compared to the adjusted State standard of $6,709.50 per bed. Bond Issuance Expense – These costs total $77,000. The State Board does not have a standard for this cost. Net Interest Expense during Construction – These costs total $486,979. The State Board does not have standards for these costs. Other Costs to be Capitalized – These costs total $331,346. The State Board does not have standards for these costs. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE REASONABLENESS OF PROJECT COST CRITERION (77 IAC 1120.310(c)).

D. Criterion 1120.310(d) - Projected Operating Costs

The criterion states: “The applicant must provide the projected direct annual operating costs (in current dollars per equivalent patient day or unit of service) for the first full fiscal year after project completion or the first full fiscal year when the project achieves or exceeds target utilization pursuant to 77 Ill. Adm. Code 1100, whichever is later. Direct costs mean the fully allocated costs of salaries, benefits, and supplies for the service.”


The applicants project $157.66 of direct annual operating costs per patient day for the first full year after project completion. The State Board does not have a standard for this cost.

THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE PROJECTED OPERATING COSTS CRITERION (77 IAC 1120.310(d)).

E. Criterion 1120.310(e) - Total Effect of the Project on Capital Costs

The criterion states: “The applicant must provide the total projected annual capital costs (in current dollars per equivalent patient day) for the first full fiscal year after project completion or the first full fiscal year when the project achieves or exceeds target utilization pursuant to 77 Ill. Adm. Code 1100, whichever is later.” The applicants project $29.57 in annual capital costs per equivalent patient day for the first full year after project completion. The State Board does not have a standard for these costs.

THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE TOTAL EFFECT OF PROJECT ON CAPITAL COSTS CRITERION (77 IAC 1120.310(e)).

F. Criterion 1120.310(f) - Non-Patient Related Services

This criterion is not applicable. THE STATE AGENCY NOTES THE NON-PATIENT RELATED SERVICES CRITERION (77 IAC 1120.310(f)) IS NOT APPLICABLE TO THE PROJECT.

G:\FAC\SAR\2006-SAR\06-079 MORRIS HEALTHCARE AND REHAB CTR.doc MBC – Review Completed 4/20/07

30 Minute Drive Time FACNAME ADDRESS CITY ZIP

Pleasant View Lutheran Home 505 College Avenue Ottawa 61350-0000 Ottawa Pavilion 800 East Center Street Ottawa 61350-0000 Rivershores Rehab & Nursing Ctr 578 West Commercial Street Marseilles 61341-0000 Heritage Manor - Dwight 300 East Mazon Avenue Dwight 60420-0000 Walnut Grove Village 1095 Twilight Drive Morris 60450-0000 Morris Hlthcare & Rehab Ctr 1300 Clay Street Morris 60450-0000 Hillside Rehab & Care Center 1308 Game Farm Road Yorkville 60560-0000 Joliet Terrace 2230 Mcdonough Joliet 60436-0000 Provena Villa Franciscan 210 North Springfield Avenue Joliet 60435-0000 Glenwood Care Center 222 North Hammes Joliet 60435-0000 Deerbrook Care Centre 306 North Larkin Avenue Joliet 60435-0000 Our Lady Of Angels Ret Home 1201 Wyoming Avenue Joliet 60435-0000 Sunny Hill Skilled Rehab Ctr 421 Doris Avenue Joliet 60433-0000 Rosewood Care Center 3401 Hennepin Drive Joliet 60435-0000 Salem Village Nursing & Rehab 1314 Rowell Avenue Joliet 60433-0000 Hillcrest Healthcare Center 777 Draper Joliet 60432-0000

2005 ILLINOIS DEPARTMENT OF PUBLIC HEALTH LONG-TERM CARE FACILITY PROFILES

009 063 063 6003875MORRIS HEALTHCARE&REHABILITATION CE1338 CLAY STREETMORRIS, IL. 60450

AdministratorSUZANNE DAYContact Person and TelephoneSuzanne Day815-942-3255Registered Agent InformationNATIONAL REGISTERED AGENTS,I200 WEST ADAMS STREET CHICAGO , IL 60450

DateCompleted

6/21/2006

FACILITY OWNERSHIPLIMITED LIABILITY CO

Refernce NumbersAggressive/Anti-Social 1Chronic Alcoholism 0Developmentally Disabled 0Drug Addiction 0Medicaid Recipient 0Medicare Recipient 0Mental Illness 0Non-Ambulatory 0Non-Mobile 0Public Aid Recipient 0Under 65 Years Old 0Unable to Self-Medicate 0Other Restrictions 0No Restrictions 0

ADMISSION RESTRICTIONS

Note: 1 equals restrictionsused by facility

Nursing Care 142LEVEL OF CARE BEDS

LICENSED

Skilled Under 22 0Intermediate DD 0Sheltered Care 0TOTAL BEDS 142

142

PEAKBEDS

SET-UP

000

142

142

PEAKBEDSUSED

000

142

123

BEDSIN USE

000

123

0

MEDICARECERTIFIED

0

142

MEDICAIDCERTIFIED

142

00

LICENSED BEDS, BEDS IN USE, MEDICARE/MEDICAID CERTIFIED BEDS

142

BEDSSET-UP

000

142

Under 18 018 to 44 045 to 59 160 to 64 1

AGE GROUPS Male

65 ro 74 575 to 84 985 Over 14TOTALS 30

0025

13

Female

225193

NURSING CARE

00000

Male

000

00000

Female

000

SKL UNDER 22

00000

Male

000

00000

Female

000

INTERMED. DD

00000

Male

000

00000

Female

000

SHELTERED

00115

Male

91430

0025

13

Female

225193

TOTAL

0036

18

TOTAL

3165

123

GRANDRESIDENTS BY AGE GROUP, SEX AND LEVEL OF CARE - DECEMBER 31, 2005

Nursing Care 1658

PATIENT DAYS OF CARE - 2005BY LEVEL OF CARE AND PATIENT TYPE

LEVELOF CARE Medicare

SklUnd22 0ICF/DDShelterTOTALS 1658

28968

Medicaid

00

28968

10812

Other

00

108120

41438

TOTAL

00

414380

79.9

Occ. Pct.

0.00.0

79.90.0

License

79.9

Occ. Pct.

0.00.0

79.90.0

Set UpNursing 1658OF CARELEVEL Medicare

Pat. days

SklUnd22ICF/DDTOTALS 1658

Occ. Pct.

0.0

0.0

MedicaidPat. days Occ. Pct.

2896800

28968

55.90.00.0

55.9

PATIENT DAYS BY PAYMENT SOURCE

Neoplasms 10Endocrine/Metabolic 18Blood Disorders 2

Alzheimer Disease 29Mental Illness 12Developmental Disability 0

*Nervous System 0

Circulatory System 25Respiratory System 9Digestive System 6Genitourinary System Disorders 0Skin Disorders 0Musculo-skeletal Disorders 4Injuries and Poisonings 2Other Medical Conditions 6Non-Medical Conditions 0

RESIDENTS BY PRIMARY DIAGNOSISDIAGNOSIS

TOTALS 123

Source: Health Systems DevelopmentIllinois Department of Public Health525 West JeffersonSpringfield, Illinois Phone: 217/782-3516

*Does not include Alzheimer diagnoses.

Note: Numbers preceding each section refer to thenumber of the question in the survey.

Page 1499 of 2404 10/10/2006

2005 ILLINOIS DEPARTMENT OF PUBLIC HEALTH LONG-TERM CARE FACILITY PROFILES

Nursing Care 16

RESIDENTS BY PAYMENT SOURCE AND LEVEL OF CARE

LEVELOF CARE Medicare

SklUnd22ICF/DDShelterTOTALS

0

16

Medicaid

7600

76

Public

000

0

Other

0

Insurance

000

00

Pay

3100

31

Private

0

Care

000

0

Charity

0

TOTALS

12300

1230

MORRIS HEALTHCARE&REHABILITATIO 009 6003875A. Residents on January 1, 2005 114

B. Total Admissions 2005 88

C. Total Discharges 2005 79

D. Residents on December 31, 2005 123

ADMISSIONS AND DISCHARGES - 2005

White 123

Black 0

RACE Nursing

Indian 0Asian 0

Hawaiin or Pacific Islander 0

Unknown 0Total 123

ETHNICITYHispanic 1Not Hispanic 122Unknown 0Total 123

0

0

SklUnd22

00

0

00

0000

0

0

ICF/DD

00

0

00

0000

0

0

Shelter

00

0

00

0000

123

0

Totals

00

0

0123

1122

0123

RESIDENTS BY RACIAL/ETHNICITY GROUPING

Nursing Care 134

AVERAGE DAILY PAYMENT RATES

Skilled Under 22 0

LEVEL OF CARE

Intermediate DD 0Shelter 0

SINGLE127

000

DOUBLE

Under 18 0

MedicareMale

0Female

18 to 44 0 045 to 59 0 060 to 64 0 065 to 74 2 375 to 84 3 185 Over 3 4TOTALS 8 8

0

MedicaidMale Female

0001327

13

0259

173063

0

Other PublicMale Female

00000000

0000000

AGE GROUPS0

InsuranceMale Female

00000000

0000000

0

Private PayMale Female

00100449

00014

1722

0

CharityMale Female

00000000

0000000

0

TOTALSMale Female

001159

1430

025

13225193

GRANDTOTAL

0036

183165

123

RESIDENTS BY AGE GROUP, SEX AND PAYMENT SOURCE- DECEMBER 31, 2005

Administrators 1.00Physicians 0.00Director of Nursing 1.00Registered Nurses 11.00LPN's 8.00Certified Aides 53.00Other Health Staff 5.00Non-Health Staff 34.00Totals 113.00

STAFFINGEMPLOYMENT CATEGORY FULL-TIME EQUIVALENT

FACILITY NOTESName Change 10/31/2005Formerly "Grundy County Home".

Source: Health Systems DevelopmentIllinois Department of Public Health525 West JeffersonSpringfield, Illinois Phone: 217/782-3516

*Does not include Alzheimer diagnoses.

Note: Numbers preceding each section refer to thenumber of the question in the survey.

Page 1500 of 2404 10/10/2006

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