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

DOCKET NO:

A - 6

BOARD MEETING:

January 15-16, 2008

PROJECT NO:

07-133

FACILITY NAME: Fresenius Medical Care

of Crawford County

CITY:

Robinson

PROJECT COST: Original: $1,338,960 Current:

TYPE OF PROJECT: Non-Substantive HSA: V PROJECT DESCRIPTION: The applicants propose to establish a six-station end stage renal disease (“ESRD”) facility in 4,000 gross square feet (“GSF”). The total estimated project cost is $1,338,960.

STATE AGENCY REPORT Project #07-133

Applicants Fresenius Medical Care of Illinois, LLC, d/b/a

Fresenius Medical Care of Crawford County, National Medical Care Inc., and Fresenius Medical Care Holdings

Facility Name Fresenius Medical Care of Crawford County Location Robinson, Illinois

Application Received September 24, 2007 Application Deemed Complete October 12, 2007

Scheduled Review Period Ended December 7, 2007 Review Period Extended by the State Agency? No

Public Hearing Held? November 5, 2007 Applicants’ Deferred Project? No

Can Applicants Request a Deferral? Yes Applicants’ Modified the Project? No

I. The Proposed Project

The applicants propose to establish a six-station ESRD facility in 4,000 gross square feet (“GSF”) of space. The total estimated project cost is $1,338,960.

II. Summary of Findings

A. The State Agency finds the proposed project appears 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 Fresenius Medical Care of Illinois, LLC., d/b/a Fresenius Medical Care of Crawford County, National Medical Care, Inc. and Fresenius Medical Care Holdings, Inc. The applicants state a developer will construct the facility and Fresenius Medical Care of Illinois will then lease 4,000 GSF to establish an ESRD facility. The State Agency notes the developer is not a co-applicants on the project because it did not meet the requirements to be a co-applicants (per 77 IAC 1130.220(b)). The total estimated project cost is $1,338,960. The facility will be established at 1413 East Main Street in Robinson (Crawford County). The proposed facility will be located in the HSA V ESRD planning area. HSA V is comprised of Alexander, Bond, Clay, Crawford, Edwards,

State Agency Report Project #07-133 Page 3 of 20

Effingham, Fayette, Franklin, Gallatin, Hamilton, Hardin, Jackson, Jasper, Jefferson, Johnson, Lawrence, Marion, Massac, Perry, Pope, Pulaski, Randolph, Richland, Saline, Union, Wabash, Washington, Wayne, White, and Williamson Counties. There are 14 ESRD facilities within the planning area. The December 2007 update to the Inventory of Health Care Facilities and Services and Need Determination (“Inventory”) shows a computed excess of 26 stations in the planning area. This is a non-substantive project that is subject to both a Part 1110 and Part 1120 review. A public hearing was held for this project on November 5, 2007. There were 24 individuals who attended the hearing. Of these individuals, 15 expressed opposition, five expressed support and four did not testify. Comment letters received at the hearing were three in support of the project and one in opposition. Comment letters on file with the State Agency are three in opposition and one in support of the project. Project obligation will occur after permit issuance. The anticipated project completion date is April 15, 2009.

IV. The Proposed Project – Details

The applicants propose to establish a six-station ESRD facility in 4,000 GSF of space. The total estimated project cost is $1,338,960. The applicants state they have an option to purchase the land where the clinic will be located. Upon exercising the option and purchasing the land, they will transfer ownership of the land to a developer who will construct the clinic and lease it back to Fresenius Medical Care. The lease, however, is contingent on permit issuance; therefore, neither a letter of intent nor a lease will be entered into until the permit is issued. Should the project not receive approval, the applicants will use the land for other purposes or transfer the land to the developer for alternative development.

Fresenius Medical Care of North America entered into an option to purchase the land for the proposed facility. Fresenius Medical Care of Illinois, LLC., d/b/a Fresenius Medical Care of Crawford County will be the operating entity/licensee.

V. Project Costs and Sources of Funds


The total project cost is $1,338,960, which includes $540,000 that represents the fair market value (“FMV”) of the leased space and $93,000 that represents the FMV of leased equipment. The applicants will fund all remaining costs from cash and securities. Table One displays the project’s cost information.

TABLE ONE Project cost Information

Use Of Funds Amount Modernization 476,000 Contingencies 47,600 Architectural/Engineering Fees 52,360 Movable or Other Equipment 130,000 Fair Market Value: Leases ($540,000) and Equipment ($93,000) 633,000 Total $1,338,960

Sources of Funds Amount Cash and Securities 705,960 Leases - FMV 633,000 Total $1,338,960

VI. Review Criteria - End Stage Renal Disease

A. Criterion 1110.1430(a) - Data System

The criterion states: “An applicant proposing to establish a renal dialysis facility must document that a chronic renal dialysis data system exists or will be established. This criterion shall not be applicable to existing renal dialysis facilities that are relocating or adding stations.” The applicants indicate they will establish a data system at the proposed facility in compliance with the requirements of this criterion. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE DATA SYSTEM CRITERION.

B. Criterion 1110.1430(b) - Minimum Size of Renal Dialysis Center

The criterion states: “The minimum facility size for establishment of a renal dialysis facility is: 1) three dialysis stations within the facility in areas not included in an


MSA or in an MSA of less than 500,000 people; 2) six dialysis stations in MSAs of over 500,000 population.”

The applicants attest the facility is not in an MSA and will contain six stations. Therefore, the proposal will be in conformance with the requirements of this criterion. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE MINIMUM SIZE OF A RENAL DIALYSIS CENTER CRITERION.

C. Criterion 1110.1430(c) - Variance to Station Need

The criterion states: “An applicants proposing to establish a renal dialysis facility or to add stations when no need for additional stations exists in the planning area must document one of the following: 1) a new facility will improve access in a geographic area that is

within 30 minutes travel time of the proposed facility site as evidenced by documentation that verifies:

A) all existing renal dialysis facilities in the area are operating at or in excess of the target utilization level for the latest 12 month period for which data is available; and

B) a sufficient number of patients is experiencing an access problem to justify the proposed number of stations at the minimum utilization level detailed in 77 Ill. Adm. Code 1100; and

C) the caseload at all existing renal dialysis facilities in the area will not be adversely affected; or

2) additional stations are needed to reduce high utilization of an existing facility as evidenced by documentation that verifies that the number of proposed stations will reduce the facility's experienced utilization level for the latest 12 month period for which data is available to the minimum utilization level detailed in 77 Ill. Adm. Code 1100. “

As noted, the applicants propose to establish a six-station facility in Robinson. The December 2007 Inventory update shows a computed


excess of 26 stations in the planning area; therefore, the applicants must address the criteria. Based on information furnished by the applicants and verified by the State Agency, there are no ESRD facilities within a 30-minute travel time of the proposed facility. Thus, a new facility will improve access in the area. As a result, a positive finding can be made. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE VARIANCE TO STATION NEED CRITERION.

D. Criterion 1110.1430(d) - Support Services

The criterion states: “The applicants proposing to establish a renal dialysis facility must document that clinical and pathological laboratory services, blood bank, nutrition, rehabilitation, psychiatric and social services, and self-care dialysis support services, will be available. Documentation shall consist of a narrative as to how such services will be provided. This criterion shall not be applicable to existing renal dialysis facilities that are relocating or adding stations.” The applicants certify that all services will be provided by Fresenius or under agreement arrangements. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE SUPPORT SERVICES CRITERION.

E. Criterion 1110.1430(e) - Affiliation Agreements

The criterion states: “The applicants proposing to establish a renal dialysis facility must document that a written affiliation agreement or arrangement is in effect for the provision of inpatient care and other hospital services. Documentation shall consist of copies of all such agreements. This criterion shall not be applicable to existing renal dialysis facilities that are relocating or adding stations.” The applicants provided documentation of a draft transfer agreement with Crawford Memorial Hospital (in Robinson) for acute care service and an


affiliation agreement with Memorial Medical Center (in Springfield) for transplant services. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE AFFILIATION AGREEMENTS CRITERION.

F. Criterion 1110.1430(f) - Self-Care and Home Dialysis

The criterion states: “The applicants proposing to establish a renal dialysis facility must document that self-care dialysis, self-care instruction, home dialysis and home training will be provided at the applicant facility or that a written agreement with another facility for the provision of these services exists. Documentation shall consist of a certification that services are provided by the applicants or copies of all agreements for provision of such services. This criterion shall not be applicable to existing renal dialysis facilities that are relocating or adding stations. “ The applicants certified that self-care instruction and home dialysis training will be provided at the proposed facility. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE SELF-CARE AND HOME DIALYSIS CRITERION.

G. Criterion 1110.1430(g) - Relocation of Facilities H. Criterion 1110.1430(h) - Addition of Stations

These criteria are not applicable because the project is to establish a new dialysis facility.

I. Criterion 1110.1430(i) - Quality of Care

The criterion states: “The applicants must document the following: 1) that greater than 65% of its patients achieve a urea reduction ratio

(URR) of 0.65 or better; and


2) that greater than 65% of its patients achieve a hematocrit level of 31% or better.”

The applicants provided data illustrating that Fresenius Illinois patients consistently exceeded these quality standards. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE QUALITY OF CARE CRITERION.

VII. General Review Criteria

A. Criterion 1110.230(a) - Location

The criterion states: “An applicants 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 potential patient origin information by initials and categorized by zip code. This information show there are 14 current ESRD patients and 15 pre-ESRD patients (for a total of 29 patients) from area zip codes that will use the facility at the end of two years. This projected volume translates into an 80.6% utilization rate, which exceeds the State Board target utilization rate of 80%. A notarized physician referral letter accompanied the patient list. The State Agency notes the referral letter states the physician intends to attract new, additional patients as a result of his plan to provide an outpatient renal office, inpatient renal consultations, inpatient and outpatient hemodialysis and peritoneal services. The physician further states there is an agreement with Crawford Memorial Hospital to provide acute dialysis services to inpatients. However, Crawford Memorial Hospital formally denied any such agreement exists and they do not have any interest, desire or need for inpatient hemodialysis services.

In addition to providing a volume of referrals that exceeds target utilization, the applicants conform to part two of the criterion due to the absence of a dialysis facility within a 30-minute travel time. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE LOCATION REVIEW CRITERION.

B. Criterion 1110.230(b) - Background of Applicants

The criterion states: “The applicants 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 applicants, the State Board shall consider whether adverse action has been taken against the applicants, or against any health care facility owned or operated by the applicants, directly or indirectly, within three years preceding the filing of the application.”


The applicants certified they have not had any adverse actions taken by Medicare or Medicaid, or any State or Federal regulatory authority 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 APPLICANTS CRITERION.

C. Criterion 1110.230(c) - Alternatives

The criterion states: “The applicants 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 applicants 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 only considered one alternative to the proposed project: 1. Do nothing The applicants rejected this alternative due to patients continuing to experience excessive travel times. The applicants state this alternative would prevent Crawford Memorial from providing inpatient dialysis. However, Crawford Memorial Hospital denies any interest in doing so. It is noted there is no cost associated with this alternative.

The December 2007 Inventory update shows a computed excess of 26 stations in the planning area. However there are no providers within a 30- minute or 45-minute travel time of the proposed facility. The applicants


also demonstrated a sufficient number of referrals to attain target utilization at the facility. Based on these factors, it appears the applicants chose the most appropriate alternative. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE REQUIREMENTS OF THE ALTERNATIVES CRITERION.

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

The criterion states: “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 applicants 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 applicants must document that the equipment will achieve or exceed any applicable target utilization levels specified in Appendix B within 12 months after acquisition.”

The December 2007 Inventory update shows a computed excess of 26 stations in the planning area. However, there are no ESRD providers within a 30 or 45-minute travel time from the proposed facility and the applicants demonstrated a sufficient number of referrals to attain target utilization. Finally, the applicants were successful in address the Variance to Station Need Criterion. As a result, a positive find can be made.


THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE NEED FOR THE PROJECT CRITERION.

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

The criterion states: “The applicants 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.

2) When the State Board has established utilization targets for the beds or services proposed, the applicants 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 propose to establish a six-station facility in 4,000 GSF. The applicants state 1,180 GSF will be used for Peritoneal Dialysis, administrative and support space. Removing this GSF results in 2,820 GSF dedicated for hemodialysis, which translates into 470 GSF per station. This appears reasonable compared to the State standard of 470 GSF per station.


The applicants demonstrated they will achieve target utilization in the second year of operation by attaining 29 patient referrals, which would result in a utilization rate of 80.6%. The State Agency notes the applicants’ state they expect patient volume to increase further with the addition of inpatient dialysis at Crawford Memorial Hospital. However, Crawford Memorial Hospital has formally denied their interest in providing this service. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE IN CONFORMANCE WITH THE SIZE OF THE PROJECT CRITERION.

VIII. 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. Co-applicants must document compliance for the most recent three years for which audited financial statements are available. For Category B applications, the applicants 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.

2) Variance for Applications Not Meeting Ratios Co-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 applicants default.”

The review criterion specifies that certain ratios be met as an indication of financial viability for applicants that do not have a bond rating of “A” or better. The applicants are Fresenius Medical Care of Illinois, LLC., d/b/a


Fresenius Medical Care of Crawford County, National Medical Care, Inc. and Fresenius Medical Care Holdings, Inc. The applicants provided audited financial statements and historical ratios for Fresenius Medical Care Holdings, Inc. According to the applicants, “Ratios provided are for Fresenius Medical Care, Holdings, Inc. Fresenius Medical Care of Illinois, LLC and National Medical Care, Inc., do not maintain audited financial statements. Fresenius Medical Care Holdings, Inc. is willing and able to provide financial support to National Medical Care, Inc. and hence Fresenius Medical Care of Illinois, LLC if necessary.” The applicants also state that “Because of SEC Regulation Fair Disclosure, FMCH is unable to provide potentially material non-public financial information concerning future performance.” Thus, no viability ratios were available for the Projected Year of completion.

The historical financial viability ratios for Fresenius Medical Holdings, Inc. are displayed in Table Four.

TABLE FOUR Fresenius Medical Holdings, Inc.

Historic Data Projection Ratio

Standard 2004 2005 2006 2009*

Current Ratio >=1.5 1.0 0.8 1.0 Net Margin Percentage >=3.5% 5.9 5.8 5.8 Percent Debt to Total Capitalization <=80% 30.3 32.6 41.8 Projected Debt Service Coverage >=1.75 0.01 0.03 0.02 Days Cash on Hand >=45 0.003 2.371 6.416 Cushion Ratio >=5 0.00 0.17 0.55 * Precluded from providing projections due to U.S. SEC regulations.

The applicants do not meet the Current, Projected Debt Service Coverage, Days Cash on Hand and Cushion Ratios for all years presented. The 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. Projected Debt Service Coverage Ratio (otherwise known as the Times Interest Earned Ratio) is earnings before interest and taxes for a given reporting period divided by the period’s interest payments. It measures a firm’s ability to satisfy its annual borrowing costs from current operations. Days Cash on Hand indicates the number of days the facility could operate if no future revenue was provided. The Cushion Ratio


indicates the amount of cash, short-term investments and unrestricted long-term investments remaining after paying all fixed-debt expenses. The applicants did not provide an explanation for not meeting the viability ratio standards. The applicants did not document that another organization will assume the legal responsibility to meet the debt obligations should the applicants default. As a result, the applicants do not meet the requirements for the variance and a positive finding cannot be made. THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT APPEAR TO MEET THE FINANCIAL VIABILITY CRITERION.

B. Criterion 1120.210(b) - Availability of Funds

The criterion states: “The co-applicants must document that financial resources shall be available and be equal to or exceed the estimated total project cost and any related cost.”

The applicants propose to fund the project with $705,960 from cash and securities, and the FMV of leases in the amount of $633,000. Sufficient resources are available for the project. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO MEET THE AVAILABILITY OF FUNDS CRITERION.

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

The criterion states: “The applicants 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 identified $33,174 in start-up costs and indicated funding is available from cash and securities. A review of the applicants’ financial information indicates sufficient funds are available to cover these costs. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO


MEET THE START-UP COSTS CRITERION. IX. 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;

B) or 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 applicants must submit a notarized statement signed by two authorized representatives of the applicants entity (in the case of a corporation, one must be a member of the board of directors) that attests to compliance with this requirement.

C) The project is classified as a Class B project. The co-applicants do not have a bond rating of “A”. No capital costs, except fair market value of leased space and used equipment, are being incurred by the co-applicants.

The applicants attest that entering into a lease is less costly than the liquidation of existing investments, which would be required for the applicants to buy property and build a structure itself to house a dialysis clinic. Further should the applicants be required to pay off the lease in full, its existing investments and capital retained could be converted to cash or used to retire the outstanding lease obligations within a sixty (60) day period.


THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO MEET THE REASONABLENESS OF FINANCING ARRANGEMENTS CRITERION.

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

This criterion states: “The applicants 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 applicants 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 applicants entity.” The applicants attest there is no debt financing and the project is funded with cash and leasing and that the leasing expenses are less costly than constructing a new facility or purchasing new equipment. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO MEET THE CONDITIONS OF DEBT FINANCING CRITERION.

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

The criteria states: “1) Construction and Modernization Costs

Construction and modernization costs per square foot for non-hospital based ambulatory surgical treatment centers and for facilities for the developmentally disabled, and for chronic renal dialysis treatment centers projects shall not exceed the standards detailed in Appendix A of this Part unless the applicants


documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities. For all other projects, construction and modernization costs per square foot shall not exceed the adjusted (for inflation, location, economies of scale and mix of service) third quartile as provided for in the Means Building Construction Cost Data publication unless the applicants documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities.

2) Contingencies Contingencies (stated as a percentage of construction costs for the stage of architectural development) shall not exceed the standards detailed in Appendix A of this Part unless the applicants documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities. Contingencies shall be for construction or modernization only and shall be included in the cost per square foot calculation. BOARD NOTE: If, subsequent to permit issuance, contingencies are proposed to be used for other line item costs, an alteration to the permit (as detailed in 77 Ill. Adm. Code 1130.750) must be approved by the State Board prior to such use.

3) Architectural Fees Architectural fees shall not exceed the fee schedule standards detailed in Appendix A of this Part unless the applicants documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities.

4) Major Medical and Movable Equipment A) For each piece of major medical equipment, the applicants

must certify that the lowest net cost available has been selected, or if not selected, that the choice of higher cost equipment is justified due to such factors as, but not limited to, maintenance agreements, options to purchase, or greater diagnostic or therapeutic capabilities.

B) Total movable equipment costs shall not exceed the standards for equipment as detailed in Appendix A of this


Part unless the applicants documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities.

5) Other Project and Related Costs The applicants must document that any preplanning, acquisition, site survey and preparation costs, net interest expense and other estimated costs do not exceed industry norms based upon a comparison with similar projects that have been reviewed.”

Modernization and Contingencies – The costs are $523,600, or $130.90 per GSF. This appears reasonable compared to the adjusted State standard of $131.74 per GSF. Contingencies – The contingency allocation is $47,600, or 10% of modernization costs. This appears reasonable compared to the State standard of 10% - 15%. Architects and Engineering Fees – These costs total $52,360, or 10% of modernization and contingency costs. This appears reasonable and falls within the Capital Development Board’s fee structure of 5.75% - 12.65% that is utilized as the State standard. Movable or Other Equipment – Equipment costs total $130,000, or $21,666 per station. This appears reasonable compared to the adjusted State Agency standard of $34,589 or less per station ($26,485 for base year 2000 annually inflated by 3% through 2010, the year the facility is projected to achieve target occupancy). Fair Market Value of Leased Space – These costs are $540,000. The State Board does not have a standard for this cost. Fair Market Value of Leased Equipment – These costs are $93,000. The State Board does not have a standard for this cost. THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO MEET THE REASONABLENESS OF PROJECT COST CRITERION.

D. Criterion 1120.310(d) - Projected Operating Costs


The criterion states: “The applicants 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 cost means the fully allocated costs of salaries, benefits, and supplies for the service.”

The applicants identified a cost per unit of $117.58. The State Board does not have a standard for this cost.

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

The criterion states: “The applicants must provide the total projected annual capital costs (in current dollars per equivalent patient day) for the first full 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 identified a cost per unit of $14.54. The State Board does not have a standard for this cost.

F. Criterion 1120.310(f) - Non-Patient Related Services This criterion is not applicable.

G:\FAC\SAR\sar-2007\07-133, Fresenius Medical Care of Crawford County.doc KK – Review completed 12/18/07

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