DOCKET NO by lifemate

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									  DOCKET NO:         BOARD MEETING:          PROJECT NO:      PROJECT COST:

       A -1            April 25-26, 2006         05-036       Original: $241,341,057
                                                              Current:
           FACILITY NAME:                        CITY:
      Sedgebrook Retirement Center            Lincolnshire

TYPE OF PROJECT:        Substantive                           HSA: VIII

PROJECT DESCRIPTION: The applicants propose to construct a 132-bed nursing care
facility. This facility will be part of a Continuum of Care Retirement Community
(“CCRC”). In addition to the nursing care facility, the CCRC will also contain 1,400
independent living apartments and 96 assisted living units. The nursing care facility
will contain 79,773 gross square feet (“GSF”).
                               STATE AGENCY REPORT

                         Erikson Retirement Communities, LLC,
                             Lincolnshire Campus, LLC and
                                Sedgebrook, Inc., d/b/a
                                       Sedgebrook
                                  Lincolnshire, Illinois
                                     Project #05-036

I.     The Proposed Project

       The applicants propose to construct a 132-bed nursing care facility. This facility will
       be part of a Continuum of Care Retirement Community (“CCRC”). In addition to
       the nursing care facility, the CCRC will also contain 1,400 independent living
       apartments and 96 assisted living units. The nursing care facility will contain 79,773
       gross square feet (“GSF”). The total estimated project cost is $241,341,057, which
       includes the cost of the entire campus. The cost of the nursing care portion is
       $19,165,821. The State Agency notes only the nursing care portion of the project is
       reviewable under the Health Facilities Planning Act (“the Act”).

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 Erikson Retirement Communities, LLC, Lincolnshire Campus,
       LLC and Sedgebrook, Inc., d/b/a Sedgebrook. The facility will be located in
       Lincolnshire, in the Lake County Long-term Care Planning Area (HSA VIII). The
       applicants identified 48 long-term care facilities within 30 minutes travel time of the
       proposed facility that offer nursing care service.

       This is a substantive project that is subject to both a Part 1110 and Part 1120 review.

       An opportunity for a public hearing was offered on this project; however, one was
       not requested. In addition, no written comments were received by the State Agency.
State Agency Report
Project 05-036
Page 3

       Project obligation will occur after permit issuance.            The anticipated project
       completion date is March 1, 2010.

IV.    The Proposed Project - Details

       The applicants propose to construct a 132-bed nursing care facility, which will serve
       the needs of the CCRC. The campus will also contain 1,400 independent living
       apartments, several common areas and 96 assisted living units. The nursing care
       facility will contain 79,773 GSF.

V.     Project Costs and Sources of Funds

       The proposed project is being funded by cash and securities of $212,047,059 and
       $29,293,998 from other funds and sources. Table One displays the project’s cost
       information.

                                            TABLE ONE
                                              Nursing      Remainder of
                  Use of Funds                                                 Total
                                               Care          Campus
         Preplanning                             692,262        20,387,557     21,079,819
         Site Preparation                        751,372        10,708,648     11,460,020
         New Construction Costs               13,341,237       139,665,441    153,006,678
         Contingencies                           400,237         4,381,546      4,781,783
         Architectural / Engineering Fees      1,429,412         6,523,394      7,952,806
         Consulting / Other Fees               1,338,422        18,842,701     20,181,123
         Movable or Other Equipment              968,270        12,321,460     13,289.730
         Net Interest Expense                    244,609         9,344,489      9,589,098
         TOTALS                              $19,165,821      $222,175,236   $241,341,057
                                              Nursing      Remainder of
                 Sources of Funds                                              Total
                                               Care          Campus
         Cash and Securities                  16,839,472       195,207,587    212,047,059
         Other funds and Sources               2,326,349        26,967,649     29,293,998
         TOTALS                              $19,165,821      $222,175,236   $241,341,057

VI.    Review Criteria - Establishment of Additional Beds

       A.      Criterion 1110.320(b) - Allocation of Additional Beds

               This criterion requires the applicants document that the addition of this
               service will improve access. Documentation shall consist of one of the
               following:
State Agency Report
Project 05-036
Page 4

               “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.”

               The applicants propose a 132-bed skilled care facility that will serve the
               residents of the CCRC. For calendar year (“CY”) 2004 (the most recent data
               available), there were 19 nursing care providers in the planning area that
               operated below the State Board’s target occupancy (90%).

               It does not appear the applicants can document compliance with the
               criterion. This is based on the following: 1) the service is available in the
               planning area, 2) no documentation was provided to demonstrate existing
               providers have restrictive admission policies, 3) not all existing providers are
               experiencing occupancy levels that exceed the State Board’s standard of 90%
               and 4) travel times to existing providers is not excessive. As a result, a
               positive finding cannot be made.

               THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT
               APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW
               CRITERION.

       B.      Criterion 1110.320(c) - Addition of Beds to Existing Facilities

               This criterion is not applicable, as the applicants are not proposing the
               addition of beds to an existing service.

               THE STATE AGENCY FINDS THAT THE ABOVE REFERENCED
               CRITERION IS NOT APPLICABLE TO THIS PROJECT.

VII.   Review Criteria - General Long-Term Care

       A.      Criterion 1110.1730(a) - Facility Size
               The facility will have 132 beds upon project completion. This is below the
               maximum 250-bed level.
State Agency Report
Project 05-036
Page 5

               THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE
               IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.

       B.      Criterion 1110.1730(b) - Community Related Functions

               The applicants submitted three letters of community support for the project.

               THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE
               IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.

       C.      Criterion 1110.1730(c) - Zoning

               The applicants provided the required letter indicating the facility is
               appropriately zoned.

               THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE
               IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.

       D.      Criterion 1110.1730(d)(2) – Continuum of Care Variance to the Computed
               Bed Need

               The March 15, 2006 update to the Inventory of Health Care Facilities, Services
               and Need Determinations (“Inventory”) identified a need for 24 additional
               nursing care beds in the Lake County Long-term Care Planning Area. The
               applicants propose to establish a 132-bed facility. According to the
               requirements of the variance, the applicants must document that the nursing
               care facility will be constructed on the same campus as the remaining
               residential units and serve only the residents of the CCRC. In addition, the
               project must be one inseparable project in which the need for the housing
               units has been documented. Finally, the nursing care portion of the campus
               must be constructed either concurrently or after the construction of the
               residential units is completed.

               According to the applicants, the 132-bed facility will be constructed on the
               residential campus. Construction of the facility will commence after a
               portion of the residential units is built and concurrently with other units on
               the campus. The applicants provided documentation which demonstrates
               the need for the housing units. The documentation shows that only residents
               of the CCRC will be admitted as patients to the nursing care facility. No
               individuals from outside the CCRC will be admitted. Based on the
State Agency Report
Project 05-036
Page 6

               applicants’ documentation, it appears the requirements of the variance have
               been met.

               THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO
               BE IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.

       E.      Criterion 1110.1730(l) – Staffing

               The applicants submitted documentation which demonstrated that the
               supply of manpower in the planning area is sufficient to meet the needs of
               the proposed facility.

               THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO
               BE IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.

VIII. General Review Criteria

       A.      Criterion 1110.230(a) - Location

               The applicants submitted a map outlining all facilities within 30 minutes
               travel time offering nursing care service. The primary service area for the
               project is a 25 mile radius from the proposed facility. Based on this
               determination, the applicants identified 48 providers of nursing care service
               within 30 minutes travel time of the proposed facility. The applicants also
               submitted the required zoning letter and proof of ownership. It appears the
               primary purpose of the project is to provide nursing care service to the
               residents of the CCRC. Further since the applicants’ successfully
               demonstrated adherence to the requirements of the variance, no adverse
               impact is anticipated for existing providers. As a result, a positive finding
               can be made.

               THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO
               BE IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.

       B.      Criterion 1110.230(b) - Background of Applicants

               The applicants provided licensure and certification information as required.
               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
State Agency Report
Project 05-036
Page 7

               has 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 ABOVE REVIEW CRITERION.

       C.      Criterion 1110.230(c) - Alternatives

               The applicants must document that the proposed project is the most effective
               or least costly alternative. The applicants submitted a cost analysis
               examining the alternatives considered.

               The applicants considered these alternatives:

               1.     Construct a free-standing nursing care facility.
               2.     Initiate a transfer agreement to utilize existing planning area
                      facilities.

               The applicants rejected the alternative of transferring residents to other
               facilities. The applicants state that transferring residents to other providers
               undermines the intent of the CCRC. In addition, the residents made deposits
               and expect to receive a full range of services when needed. According to the
               applicants, the construction of a nursing care facility to serve the needs of the
               campus is the only appropriate alternative. The anticipated cost of the stated
               alternative was not provided.

               The applicants state they will open 88 nursing care beds during Phase I of
               this project. The remaining 44 nursing care beds will not be placed into
               operation until several years later (application page 113). The State Agency
               questioned the applicants about this plan. The applicants state it is not
               practical to place all 132 beds into operation simultaneously since the campus
               would not have enough residents to support the facility until several years
               into the future.

               Based on the applicants’ statements, the State Agency is concerned that
               phasing beds into service represents the construction of shell space and is not
               allowed under the State Board’s rules. Further, the applicants documented
               adherence to the variance based on the establishment of 132 nursing care
               beds for the entire CCRC. It appears the appropriate alternative would be to
               construct a smaller facility to meet the needs of the CCRC.
State Agency Report
Project 05-036
Page 8



               THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT
               APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW
               CRITERION.

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

               The March 15, 2006 Inventory update shows a computed need for 24
               additional nursing care beds in the Lake County Long-term Care Planning
               Area. The applicants successfully addressed the Continuum of Care
               Variance. Thus, it appears the need for these additional beds have been
               documented. This positive finding, however, is based on the establishment
               of the 132-bed facility and not the staggered implementation of these beds as
               referenced on page 113 of the application.

               THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE
               IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.

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

               The applicants propose a facility with 132 skilled care beds in 79,773 GSF, or
               604.3 GSF per bed. This exceeds the State standard of 414 GSF per bed. The
               applicants exceed the State’s standard by 190.3 GSF per bed. Based on the
               proposed size of the facility, the applicants’ exceed the standard by 25,080
               GSF. Table Two displays the State Agency’s finding.

                                          TABLE TWO
 Applicants’ Proposed GSF per Bed      State Standard per Bed          Difference per Bed
                604.3                            414                          190.3
  Applicants’ Total Proposed GSF           State Standard                  Difference
               79,773                           54,648                       25,125

               The applicants anticipate that, based upon one nursing care bed per five
               independent living units, 132 beds are needed to meet the needs of the
               CCRC. The applicants anticipate 30,193 patient days during the facility’s first
               and second years of operation (2011 and 2012). This results in a 63%
               utilization rate. Based on the applicants’ projected utilization, it appears the
               facility will not meet the State Board’s utilization standard of 90%. As a
               result, a positive finding cannot be made.
State Agency Report
Project 05-036
Page 9

               THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT
               APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW
               CRITERION.

IX.    Review Criteria - Financial Feasibility

       A.      Criterion 1120.210(a) - Financial Viability

               Tables Three displays the financial viability for the applicants.

                                                  TABLE THREE
                                   Ratio                        State Standard      2011
                Current                                               1.5 or more          .6
                Net Margin                                          2.5% or more      16.7%
                Percent Debt to Total Capitalization                  80% or less     100%
                Projected Debt Service Coverage                       1.5 or more          .1
                Days Cash on Hand                                     75 or more           0
                Cushion                                                3 or more           0


               As seen in Table Three, the only ratio which meets the State Board’s
               requirements is the Net Margin ratio. The applicants do not meet the
               requirements of the variance. As a result, a positive finding cannot be made.

               THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT
               APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW
               CRITERION.

       B.      Criterion 1120.210(b) - Availability of Funds

               The project will be funded with cash and securities totaling $212,047,059 and
               $29,293,998 from other funds and sources. The applicants state that the
               residents’ entrance fees will comprise the “other funds and sources” line
               item. According to the applicants, the project will have adequate funding for
               the construction of the nursing care facility from the entrance fees after they
               are released from escrow. The applicants documented that sufficient
               resources are available to fund the project and related costs.
               THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE
               IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.
State Agency Report
Project 05-036
Page 10

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

               The applicants indicated start-up costs for the project would total $3,640,000.
               It appears sufficient funds are available to cover these costs.

               THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE
               IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.

X.     Review Criteria - Economic Feasibility

       A.      Criterion 1120.310(a) - Reasonableness of Financing Arrangements

               The applicants stated all available cash and securities are being used for
               project funding prior to borrowing.

               THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE
               IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.

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

               The applicants submitted the required signed and notarized letter stating the
               chosen method of financing is at the lowest net cost available.

               THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE
               IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.

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

               Preplanning Costs - These costs total $692,262 or 4.7% of construction,
               contingencies and equipment costs of $14,709,744. This appears high
               compared to the State guideline of 1.8%. Under the standard, the applicants
               would be allowed $264,775 for this expense. The applicants exceed the State
               standard by $427,487, or 161.5%. Table Four displays the State Agency’s
               finding.

                                          TABLE FOUR
Applicants’ Proposed Preplanning Costs           State Standard                  Difference
               $692,262                             $264,775                      $427,487
               Site Survey, Soil Investigation and Site Preparation - These costs total
               $751,372, or 5.5% of construction and contingency costs of $13,741,474. This
State Agency Report
Project 05-036
Page 11

               appears high compared to the State standard of 5%. Under the standard, the
               applicants would be allowed $687,074 for this expense. The applicants
               exceed the State standard by $64,298, or 9.4%. Table Five displays the State
               Agency’s finding.

                                             TABLE FIVE
  Applicants’ Proposed Costs                State Standard                    Difference
          $751,372                             $687,074                        $64,298

               New Construction and Contingency Costs - These costs total $13,741,474 for
               the nursing care portion of the project, or $172.26 per GSF. This appears high
               compared to the adjusted State standard of $165.00 per GSF. The applicants
               exceed the standard by $7.26 per GSF, or 4.4%. Considering the total GSF
               proposed, the applicants exceed the standard by $578,929. Table Six displays
               the State Agency’s finding.

                                             TABLE SIX
    Applicants’ Construction Cost per GSF       Adjusted State Standard per GSF   Difference per GSF
                   $172.26                                  $165.00                      $7.26
     Applicants’ Total Construction Cost           Adjusted State Standard            Difference
                 $13,741,474                              $13,162,545                  $578,929

               Contingencies - These costs are $400,237, or 3% of construction costs. This
               appears reasonable compared to the State standard of 10%.

               Architectural and Engineering Fees - These costs total $1,429,412, or 10.4% of
               construction and contingencies. This appears high compared to the State
               standard of 3.9% - 8.45%. Under the standard, the applicants would be
               allowed $1,161,155 for this expense. The applicants’ proposed costs exceed
               the standard by $268,257, or 23.1%. Table Seven displays the State Agency’s
               findings.

                                            TABLE SEVEN
Applicants’ Proposed A & E Fees             State Standard                    Difference
           $1,429,412                         $1,161,155                       $268,257

               Consulting and Other Fees - These costs total $1,338,422. The State Board
               does not have a standard for these costs.

               Equipment - These costs total $968,270, or $7,335.38 per bed. This appears
               high compared to the adjusted State standard of $6,937.72 per bed. Under
State Agency Report
Project 05-036
Page 12

                 the standard, the applicants would be allowed $915,779 for this expense. The
                 applicants’ proposed costs exceed the standard by $52,491, or 5.7%. Table
                 Eight displays the State Agency’s finding.

                                           TABLE EIGHT
     Applicants’ Equipment Cost per Bed       Adjusted State Standard per Bed   Difference per Bed
                  $7,335.38                              $6,937.72                    $397.66
     Applicants’ Total Equipment Costs           Adjusted State Standard            Difference
                  $968,270                               $915,779                     $52,491

                 Net Interest During Construction - This cost totals $244,609. The State Board
                 does not have a standard for this cost.

                 THE STATE AGENCY FINDS THE PROPOSED PROJECT DOES NOT
                 APPEAR TO BE IN CONFORMANCE WITH THE ABOVE REVIEW
                 CRITERION.

        D.       Criterion 1120.310(d) - Projected Operating Costs

                 The applicants project $221.53 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 ABOVE REVIEW CRITERION.

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

                 The applicants project $3.26 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 this cost.

                 THE STATE AGENCY FINDS THE PROPOSED PROJECT APPEARS TO BE
                 IN CONFORMANCE WITH THE ABOVE REVIEW CRITERION.

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

                 This criterion is not applicable to this project.
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