Funding Rural Health Care
Capital Needs
Terry J. Hill,
Executive Director,
Rural Health Resource Center - Duluth, Minnesota
Rural Health Resource Center
• Located in Duluth, Minnesota
• Private, Non-profit
• National scope
• Multiple projects funded by HRSA’s ORHP
Small Hospitals Face Difficulty
with Access to Capital
• Findings from a recent survey of CFOs
of not-for-profit hospitals highlight the
current uneven access to capital for notfor-profit hospitals in the U.S.
• There is a widening gap between
hospitals identified as having broad
access to capital and those identified as
having limited access to capital.
March 2005. The Availability and Use of Capital by Critical Access Hospitals. Flex Monitoring Team
The GAP Widens
• This tightening was fueled by a marked drop in
market and lender confidence after a series of
major health care investment failures. Bond issues
dropped 30 percent between 1998 and 1999
followed by an additional 40 percent by 2000.
• The 2000–2001 recession further tightened capital
markets including local non-loan capital sources
as the national crisis continued and state deficits
reached record levels.
March 2005. The Availability and Use of Capital by Critical Access Hospitals. Flex Monitoring Team
Critical Access Hospital Survey:
U of MN
• Random Sample of 500
• Responding hospitals 474
- 259 included in past CAH surveys
- 215 certified between 5/1/01 – 12/1/01
• Response rate 95%
Immediate Capital Needs (N=200)
Average Cost = $2,380,000
• Remodel/Expand Plant
$ 2.0M
34%
• Remodel/Expand Clinic $ 1.7M
32%
• Clinic Equipment
$
.6M
17%
• Information Technology $
.5M
9%
$11.8M
8%
• Total Replacement
Capital Effort to Obtain Capital
(N=474)
• Facilities Pursuing Loans
42%
- 86% Successful Applications
• 46% Specified Capital Needs
- 14% Unsuccessful Applications
• 48% Specified Capital Needs
• Facilities Not Pursuing Loans
- 39% Specified Capital Needs
58%
Most Important Factors in
Loan Success
• Operating Revenue/Reserves
27%
• Solid Preparation/Business Plan
21%
• Find the Right Co-Signer
17%
• Improved Reputation Since CAH
10%
• Board Member Involvement
8%
• Demonstrated Need
6%
• Government Loan Guarantee
6%
• Strong Local Support
6%
Biggest Barriers to Capital
Loan Success
• Poor Financial History/Debt Too High 27%
• Poor Cash Flow/Reserves
21%
• Local Economy/Market Too Volatile
17%
• Organizational Indecisions/Resistance 10%
• Process of Pursuing Loan (paperwork) 8%
• Poor Community Support
6%
Non-Loan Capital Projects
March 2005. The Availability and Use of Capital by Critical Access Hospitals. Flex Monitoring Team
Non-Loan Funding Sources
March 2005. The Availability and Use of Capital by Critical Access Hospitals. Flex Monitoring Team
Key Findings
Key findings from this study include:
(For any of these findings you could insert rural health care)
• Critical Access Hospitals have significant
capital needs. The magnitude of the need
for our study sample suggests that a
conservative estimate of their capital need
exceeds $1.6 billion.
• CAHs have not been able to adequately
address the growing demands for health
information technologies.
March 2005. The Availability and Use of Capital by Critical Access Hospitals. Flex Monitoring Team
Key Findings Cont’d
• More than one-quarter of all CAHs are
using leasing arrangements to expand their
capacity to meet local health care needs.
Virtually all of the leasing arrangements
target the use of advanced clinical
technologies such as digital x-ray, CT scan,
and MRI equipment.
• Capital funds obtained through grants,
contributions and fundraising have become
a significant strategy for supporting major
CAH projects and are often bundled with
loan capital to implement large projects.
March 2005. The Availability and Use of Capital by Critical Access Hospitals. Flex Monitoring Team
Access to Hospital Capital Trends
• The mix of hospital capital has changed
- Bank loans decreased from 36% ($19.7B)
to 7% ($2.7B)
- Tax-exempt bonds increased from 39%
($21.2B) to 54% ($19.8B)
- Leasing increased from 7% ($3.7B) to 10%
($5.8B)
- Philanthropy increased from 5% ($2.7B) to
10% ($3.6B)
Search Tools
• Online
• Newsletters
• Publications
• Listservs
• Purchased programs or CD-ROM
• www.ruralcenter.org
• http://networkassist.ruralhealth.hrsa.gov/resources.shtml
Sources to Search
• Rural Assistance Center – www.raconline.org
• Department of Labor – www.dol.gov
• Office of Rural Health Policy –
www.ruralhealth.hrsa.gov
• Catalog of Federal Domestic Assistance –
www.cfda.gov
• The Federal Register –
www.access.gpo.gov/su_docs/aces/aces140.html
• The Office for the Advancement of Telehealth
(OAT) Grant – www.telehealth.hrsa.gov.
• USDA Community Facilities Program –
www.rurdev.usda.gov/recd_map.html. Direct loans,
loan guarantees and grants to construct, enlarge,
extend or otherwise improve community facilities that
provide essential services to rural populations.
• USDA Rural Utilities Services (RUS) –
www.usda.gov/rus/telecom/dlt/dlt.htm
Sources to Search
•
•
•
•
•
The Foundation Center – www.fdncenter.org . Publishes a
weekly free subscription newsletter with funding opportunities
across the country. The website also has funding sources
cataloged by category and a foundation locator.
Chronicle of Philanthropy
Grantmakers in Health – www.gih.org. This organization for
healthcare grantmakers publishes a biweekly bulletin that
includes information regarding new grant programs and recent
grant initiatives of it’s members.
The Grantsmanship Center– www.tgci.com/funding . This
site publishes and archives Federal Register grant
announcements daily. Usually updated by 10:00 am CST.
National Rural Health Association (NRHA) –
www.nrharural.org/pagefile/grants.html . The NRHA
publishes grant announcements for the Multi-Plan/NRHA grant
program and other programs, including some federal
announcements.
Federal Agencies to Investigate
• Department of Health and Human Services
- Federal Office of Rural Health Policy
www.ruralhealth.hrsa.gov
• Department of Housing and Urban Development (HUD)
• Department of Agriculture (USDA)
• Department of Education
• Department of Commerce
• Department of Transportation
• Department of Labor
• Department of Justice
• Department of Defense
• Environmental Protection Agency
• National Highway Traffic Safety Administration (NHTSA)
USDA
• Rural Utilities Services (RUS) Grant/Loan
Program
- Distance Learning/Telemedicine
• Essential Community Facilities Program
- Capital improvements/building
Distance Learning and
Telemedicine (DLT) Grant Program
Features
• Annual Application Period
• Competitive Application Process
• 15% Required Matching Contribution
• $50,000 Minimum
• $500,000 Maximum
Community Essential Facilities
Program
• Community Programs provides grants to assist in the
development of essential community facilities in rural areas
and towns of up to 20,000 in population.
• Grants are authorized on a graduated scale.
• Applicants located in small communities with low populations
and low incomes will receive a higher percentage of grants.
• Grants are available to public entities such as municipalities,
counties, and special-purpose districts, as well as non-profit
corporations and tribal governments.
• In addition, applicants must have the legal authority
necessary for construction, operation, and maintenance of
the proposed facility and also be unable to obtain needed
funds from commercial sources at reasonable rates and
terms.
Amount of Grant
• The amount of grant assistance for project
costs depends upon the median household
income and the population in the community
where the project is located and the availability
of grant funds.
• In most instances, projects which receive grant
assistance have a high priority and are highly
leveraged with other loan and grant awards.
Grant assistance may be available for up to
75% of project costs.
Fund Uses
• Grant funds may be used to assist in the
development of essential community facilities.
• Grant funds can be used to construct, enlarge,
or improve community facilities for health care,
public safety, and community and public
services. This can include the purchase of
equipment required for a facility's operation.
• A grant may be made in combination with other
CF financial assistance such as a direct or
guaranteed loan, applicant contributions, or
loans and grants from other sources.
How to Apply
• Applications are filed with the USDA
Rural Development field offices.
• Rural Development staff will be glad to
discuss a community's needs and the
services available from Rural
Development and sister agencies within
USDA.
• Detailed information and applications for
financial assistance are available
through Rural Development State
Offices
HUD 242
• Established in 1968, the HUD 242 Mortgage
Insurance Program provides "urgently needed"
hospitals with access to affordable financing.
Administered by the US Department of Housing
and Urban Development (HUD) and Health and
Human Services (HHS), HUD 242 Mortgage
Insurance acts as a loan guarantee that
enhances the creditworthiness of hospitals,
enabling facilities of all sizes throughout the
United States to obtain AAA credit ratings on
their debt obligations
• HUD is now actively pursuing a strategy of
geographic diversification and an expansion of
its loan portfolio to include smaller hospitals.
HUD 242 Applications
• Construction
• Modernization
• Remodeling
• Expansion
• Equipment Purchase
• Refinancing
• Acquisition
General Terms
• Loan-to-value of 90%.
• Hospital's 10% equity requirement may
consist of a combination of property, plant,
equipment, and cash.
• HUD insures 99% of the loan amount.
• Remaining 1% of the loan is covered by a
letter-of-credit.
• Maximum loan term is 25 Years (plus the
construction period).
• No limit on the amount that can be insured.
Limitations of HUD 242
• Only 3-5 project completed in last few years
despite new emphasis on small rural
• Very long process 18 months-3 years
• Is not a loan program, it’s mortgage insurance
• Normally need a broker to help facilitate --www.ruralcenter.org/consult
For More Information on HUD 242
• Call the FHA at 1-877-263-0763 to start the
discussion
• Find your local HUD office by calling HUD
at 202-708-1112
State Resources
• Minnesota Health Department
• Minnesota Office of Rural Health and Primary
Care: http://www.health.state.mn.us/divs/chs/grants.htm
• EMSRB
• Office of Public Safety
Private Foundations that Fund
Capital in MN
• Andersen Foundation
• Bayport Foundation
• Otto Bremer Foundation
• General Mills Foundation
• Ordean Foundation
• The Southways Foundation
• The McKnight Foundation
• U.S. Bankcorp
• Minnesota Council on Private Foundations
http://www.mcf.org/
Other Sources
• Bond Issues
• Tax Levies and Districts
• Local Banks
• National Capital Sources
- e.g. Pine Creek Healthcare Capital
Things to Keep in Mind:
• Know where you’re going. Capital needs
should be driven by strategies.
• Know how each potential capital investment will
contribute to strategic performance.
• Capital should be part of your overall strategy –
Don’t think about it on a project by project
basis.
• Plan early and give yourself adequate time.
• Hardest time to be looking for funding is when
you need it most.
Things to Keep in Mind cont…
• Hardest non-loan funds to acquire are for
capital and equipment.
• Start local first, the more national in scope,
the more competition and usually, a longer
process.
• Look to non-traditional sources of capital.
• Know the story you want to tell.