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

        B-1              October 3-4, 2007          06-087        Original: $ 2,436,500
 FACILITY NAME:                                     CITY:
                                                                  Current:
           Carbondale Surgi-Care                  Carbondale
 TYPE OF PROJECT:          Substantive                            HSA:       V

PROJECT DESCRIPTION: The applicant proposes to establish a multi-specialty, free-
standing ambulatory surgical treatment center.

The State Agency notes the application received an Intent-to-Deny (“ITD”) at the June
2007 State Board meeting. In response to the ITD, the applicants notified the State
Agency that they wanted reconsideration of the application at a subsequent meeting
(per 77 IAC 1130.670(b)). The applicants also indicated that no additional information
would be submitted in response to the ITD. Thus, the application was scheduled for
reconsideration by the State Board at the July 2007 meeting (per 77 IAC 1130.670(c)(2)).
On July 24, 2007, the applicants requested a deferral of the project. This deferral was
allowed per 77 IAC 1130.670(d)). Since no additional information was submitted, the
State Agency’s findings are unchanged. The State Agency finds the project appears to
be in non-conformance with the following criteria:

   1.     Target Population – 1110.1540(b)
   2.     Projected Patient Volume – 1110.1540(c)
   3.     Impact on Other Facilities – 1110.1540(e)
   4.     Establishment of New Facilities – 1110.1540(f)
   5.     Location – 1110.230(a)
   6.     Alternatives – 1110.230(c)
   7.     Need for the Project – 1110.230(d)
   8.     Size of the Project – 1110.230(e)
   9.     Financial Feasibility – 1120.210(a)
State Agency Report
Project #06-087
Page 2 of 27

                                 SUPPLEMENTAL
                              STATE AGENCY REPORT

                              Carbondale Surgi-Care, LLC
                                  Carbondale, Illinois
                                    Project #06-087

I.     The Proposed Project

       The applicant proposes to establish a multi-specialty, free-standing ambulatory
       surgical treatment center (“ASTC”) in Carbondale. The facility will have two
       operating rooms (“ORs”), eight recovery stations and a Stage II area. The facility
       will contain 8,200 gross square feet (“GSF”). The total estimated project cost is
       $2,436,500.

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 appears to be in conformance
              with the provisions of Part 1120.

III.   General Information

       The applicant is Carbondale Surgi-Care, LLC. The applicant is comprised of
       American Patriot Medical, LLC, an Indiana Limited Liability Company, (who is
       the managing partner of Carbondale Surgi-Care, LLC) and “Individual Group
       Physician Investor Members.” The proposed facility will be located at 2201
       Ramada Lane in Carbondale (HSA V).

       This is a substantive project that is subject to both Parts 1110 and 1120 review.
       An opportunity for a public hearing was offered, but one was not requested. The
       State Agency received three letters of opposition from HealthSouth ASTC, the
       Carbondale Clinic ASTC and Southern Illinois Healthcare (consisting of Herrin
       Hospital, Memorial Hospital of Carbondale and St. Joseph Memorial Hospital).
       These letters state the facilities would be adversely impacted with the
       establishment of this proposed ASTC. There were nine support letters received
       by the State Agency and a petition signed by 47 local residents in support of the
       project. There are also letters of support contained within the application.
State Agency Report
Project #06-087
Page 3 of 27

       Project obligation will occur after permit issuance and the appropriate
       documentation was submitted. The anticipated project completion date is
       August 15, 2008.

IV.    The Proposed Project – Details

       The applicant proposes to establish a multi-specialty, free-standing ASTC at 2201
       Ramada Lane in Carbondale. The establishment of the new facility will be
       accomplished by constructing a new building. The new facility will have two
       ORs, eight recovery stations and a Stage II area and contain 8,200 GSF. The total
       estimated project cost is $2,436,500.

V.     Project Costs and Sources of Funds

       The total project cost is $2,436,500. The applicant will fund the project through
       cash and securities and a bank loan. Table One displays cost and sources of
       funds information.

                                            TABLE ONE
                                       Project Cost Information
                                      Use of Funds                 Total
                      Preplanning Costs                                7,500
                      Site Survey and Soil Investigation               2,000
                      Site Preparation                                25,000
                      New Construction Contracts                   1,300,000
                      Contingencies                                   70,000
                      Architectural/Engineering Fees                  50,000
                      Consulting and Other Fees                      160,000
                      Movable Equipment                              702,000
                      Net Interest Expense During Construction       120,000
                      Total                                       $ 2,436,500
                                   Source of Funds                 Total
                      Cash and Securities                            750,000
                      Mortgages                                    1,686,500
                      Total                                       $ 2,436,500
State Agency Report
Project #06-087
Page 4 of 27

VI.    Review Criteria – Non-Hospital Based Ambulatory Surgery

       A.     Criterion 1110.1540(a) – Scope of Services Provided

              The criterion states:

              “Any applicant proposing to establish a non-hospital based ambulatory
              surgical category of service must detail the surgical specialties that will be
              provided by the proposed project and whether the project will result in a
              limited specialty or multi-specialty ambulatory surgical treatment center
              (ASTC).
               1)    The applicant must indicate which of the following surgical
                     specialties will be provided at the proposed facility:
                     Cardiovascular, Dermatology, Gastroenterology, General/Other
                     (includes any procedure that is not included in the other
                     specialties), Neurological, Obstetrics/Gynecology, Ophthalmology,
                     Oral/Maxillofacial, Orthopaedic, Otolaryngology, Plastic, Podiatry,
                     Thoracic, and Urology.
               2)    The applicant must indicate which of the following type of ASTC
                     will result from the proposed project:
                     A)     Limited specialty ASTC, which provides one or two of the
                            surgical specialties listed in this Section; or
                     B)     Multi-specialty ASTC, which provides at least three of the
                            surgical specialties listed in this Section. In order to be
                            approved as a multi-specialty ASTC, the applicant must
                            document that at least 250 procedures will be performed in
                            each of at least three of the surgical specialties listed in this
                            Section.”

              The applicant indicates the project will be a multi-specialty ASTC,
              providing    the   following     surgical   services:  gastroenterology,
              obstetrics/gynecology, general, ophthalmology, otolaryngology, podiatry,
              urology and pain management.          Table Two displays the referral
              information.
State Agency Report
Project #06-087
Page 5 of 27

                                             TABLE TWO
                                    Physician Referral Information
                            Surgical Specialty                 Referrals
                      Pain Management                            1,296
                      Ophthalmology                               900
                      Obstetrics                                  658
                      Urology                                     400
                      Gastroenterology                            100
                      Otolaryngology (ENT)                         60
                      Podiatry                                     50
                      TOTAL                                      3,664

              The applicant documented that 250 procedures will be performed in at
              least three surgical specialties (ophthalmology, obstetrics, and urology).
              As a result, a positive finding can be made.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE REQUIREMENTS OF THE SCOPE OF SERVICES PROVIDED
              CRITERION (77 IAC 1110.1540(a)).

       B.     Criterion 1110.1540(b) – Target Population

              The criterion states:

              “Because of the nature of ambulatory surgical treatment, the State Board
              has not established geographic services areas for assessing need.
              Therefore, an applicant must define its intended geographic service area
              and target population. However, the intended geographic service area
              shall be no less than 30 minutes and no greater than 60 minutes travel
              time (under normal driving conditions) from the facility's site.“

              The applicant provided a map outlining the geographic service area
              (“GSA”). The applicant proposes to serve a population greater than 60
              minutes travel time (under normal driving conditions) from the facility’s
              site. For example, the following Illinois towns were identified as being
              within the GSA: Garrison, Golconda, Bay City and Thebes. According to
              Map Quest, however, these towns are more than 60 minutes drive time
              from the applicant’s proposed facility. Since the criterion states that the
              GSA should not exceed 60 minutes travel time, a positive finding cannot
              be made.
State Agency Report
Project #06-087
Page 6 of 27

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE TARGET
              POPULATION CRITERION (77 IAC 1110.1540(b))

       C.     Criterion 1110.1540(c) – Projected Patient Volume

              The criterion states:

              “1)     The applicant must provide documentation of the projected patient
                      volume for each specialty to be offered at the proposed facility.
                      Documentation must include physician referral letters which
                      contain the following information:
                      A)     the number of referrals anticipated annually for each
                             specialty;
                      B)    for the past 12 months, the name and location of health care
                             facilities to which patients were referred, including the
                             number of patients referred for each surgical specialty by
                             facility;
                      C)    a statement by the physician that the information contained
                             in the referral letter is true and correct to the best of his/her
                             information and belief; and
                      D)    the typed or printed name and address of the physician,
                             his/her specialty and his/her notarized signature.
               2)     Referrals to health care providers other than ambulatory surgical
                      treatment centers (ASTC) or hospitals will not be included in
                      determining projected patient volume. The applicant shall provide
                      documentation demonstrating that the projected patient volume as
                      evidenced by the physician referral letters is from within the
                      geographic service area defined under subsection (b).”

              The applicant provided 13 physicians referral letters indicating 3,664
              anticipated referrals to the facility. Table Three shows the number of
              referrals provided per physician.
State Agency Report
Project #06-087
Page 7 of 27

                                         TABLE THREE
                                      Referrals per Physician
                             Physician       Specialty       Referrals
                             Pearlman ENT                           60
                             Zahdor     Gastroenterology           100
                             McCain     General Surgery            200
                             Jones      OB/Gyn                      50
                             Schneider OB/Gyn                       75
                             Tsung      OB/Gyn                      80
                             Hartman OB/Gyn                        132
                             Gates      OB/Gyn                     135
                             Walker     OB/Gyn                     186
                             Jackson    Ophthalmology              900
                             Juergens   Pain Management          1,296
                             Brown      Podiatry                    50
                             Stokes     Urology                    400
                                        TOTAL                    3,664

              The criterion stipulates that the applicant provide documentation
              demonstrating referrals are within the GSA as defined under 1110.1540(b).
              Based on the material submitted, the applicant will treat some patients
              who reside outside the designated GSA (more than 60 minutes drive time
              from the proposed facility). To address this criterion, the applicant also
              provided an estimated referral volume from within a 45-minute travel
              time of the proposed site. Table Four shows what volume is estimated to
              reside within 45 minutes travel time of the proposed facility.

                                          TABLE FOUR
                          Physician Referrals within 45 minute drive time
                                                        Estimated to be
           Physician       Specialty       Referrals within 45 minutes      By Specialty
           Pearlman    ENT                        60                    3             60
           Zahdor      Gastroenterology          100                   10            100
           McCain      General Surgery           200                  180            200
           Jones       OB/Gyn                     50                   48            658
           Schneider   OB/Gyn                     75                   71
           Tsung       OB/Gyn                     80                   76
           Hartman     OB/Gyn                    132                  106
           Gates       OB/Gyn                    135                  108
           Walker      OB/Gyn                    186                  167
           Jackson     Ophthalmology             900                  810            900
           Juergens    Pain Management          1296                  648          1,296
           Brown       Podiatry                   50                   50             50
           Stokes      Urology                   400                  300            400
            TOTALS                             3,664                2,577          3,664
State Agency Report
Project #06-087
Page 8 of 27

              The applicant estimates that the majority (2,577 or 70%) of the referrals
              will reside within a 45-minute drive time. Thus, approximately 30% of
              referrals will be from patients who reside more than 45 minutes travel
              time from the proposed site. As noted under the discussion of
              1110.1540(b), the applicant’s designated GSF exceeds 60 minutes travel
              time. As a result, the State Agency cannot accurately determine the
              number of patient referrals from within a 60-minute travel time. As a
              result, a positive finding cannot be made.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE PROJECTED
              PATIENT VOLUME CRITERION (77 IAC 1110.1540(c))

       D.     Criterion 1110.1540(d) – Treatment Room Need Assessment

              The criterion states:

              “1)     Each applicant proposing to establish or modernize a non-hospital
                      based ambulatory surgery category of service must document that
                      the proposed number of operating rooms are needed to serve the
                      projected patient volume. Documentation must include the average
                      time per procedure for the target population including an
                      explanation as to how this average time per procedure was
                      developed. The following formula can be applied in determining
                      treatment room need:
                   Required
                   Treatment =                                    Hrs. of Surgery/Yr.*
                   Rooms                                   250 Days/Yr. x 7.5 Hrs./Day x .80**
              (
                      (*Hours of surgery includes cleanup and setup time and will be based on the
                      projected volume) (**80% is the desired occupancy rate)

              2)      There must be a need documented for at least one fully utilized
                      (1,500 hours) treatment room for a new facility to be established.
                      Also, utilizing the formula the application must document the need
                      for each treatment room proposed.”

              According to the applicant, they will have 3,664 patients, which results in
              2,862 hours of surgery. When divided by the State standard of 1,500 hours
              per OR, the estimated referrals would justify two ORs.
State Agency Report
Project #06-087
Page 9 of 27

              THE STATE AGENCY FINDS IT APPEARS THE APPLICANT MEETS
              THE REQUIREMENTS OF THE TREATMENT ROOM NEED
              ASSESSMENT CRITERION (77 IAC 1110.1540(d)).

       E.     Criterion 1110.1540(e) – Impact on Other Facilities

              The criterion states:

              “An applicant proposing to change the specialties offered at an existing
              ASTC or proposing to establish an ASTC must document the impact the
              proposal will have on the outpatient surgical capacity of all other existing
              ASTCs and hospitals within the intended geographic service area and that
              the proposed project will not result in an unnecessary duplication of
              services or facilities. Documentation shall include any correspondence
              from such existing facilities regarding the impact of the proposed project,
              and correspondence from physicians intending to refer patients to the
              proposed facility. Outpatient surgical capacity will be determined by the
              Agency, utilizing the latest available data from the Agency's annual
              questionnaires, and will be the number of surgery rooms for ASTCs and
              the number of equivalent outpatient surgery rooms for hospitals.
              Equivalent outpatient surgery rooms for hospitals are determined by
              dividing the total hours of a hospital's outpatient surgery by 1,500 hours.

              In addition to documentation submitted by the applicant, the State
              Agency shall review utilization data from annual questionnaires
              submitted by such health care facilities and data received directly from
              health facilities located within the intended geographic service area,
              including public hearing testimony.”

              The applicant provided documentation that it contacted nine facilities
              located within the GSA, informing them of the project. There were three
              responses indicating that the project would have an adverse impact:
              HealthSouth ASTC (Marion), the Carbondale Clinic ASTC (Carbondale)
              and Southern Illinois Healthcare (consisting of Herrin Hospital, Memorial
              Hospital of Carbondale and St. Joseph Memorial Hospital in
              Murphysboro). Table Five list the healthcare facilities that the referrals
              would be taken from.
  State Agency Report
  Project #06-087
  Page 10 of 27

                                                           TABLE FIVE
                                                   Referrals from Area Facilities
                                                                        Facilities
Surgical Specialty                     Harrisburg    Heartland
                      Carbondale       Memorial       Regional                               Memorial        St Joseph
                        Clinic          Hospital      Med Ctr       Herrin                  Hospital of      Hospital
                     (Carbondale)     (Harrisburg)    (Marion)     Hospital Marion          Carbondale     (Murphysboro)       TOTAL
Pain Management                                         1,296                                                                    1,296
Ophthalmology             508             136                         250                                        6                 894
OB/Gyn                    106                                                                   552                                658
Urology                                                                                         300             100                400
General Surgery                                                                                 200                                200
Gastroenterology                                                                                100                                100
ENT                                                                                 15           45                                 60
Podiatry                   5                               10            30          5                                              50
TOTALS                    619             136             1,306         280         20          1,197           106              3,664


                      Table Five illustrates that seven area facilities will be impacted by the loss
                      of referrals to this facility. The State Agency notes Heartland Regional
                      Medical Center (Marion) will be impacted the most with the reduction in
                      pain management services. Memorial Hospital of Carbondale will also be
                      impacted particularly in the area of OB/GYN procedures.

                      Table Six provides surgical utilization data for facilities within the GSA.
                      As noted, the GSA exceeds the 60-minute travel time of the applicant’s
                      proposed site. The data in the table for hospitals is for 2006; while the
                      data for ASTCs is for 2005 and was obtained from IDPH profiles.

                                                                TABLE SIX
                                   Surgical Utilization Of Existing Providers Within the Proposed GSA
                                                  Hospitals – Data for Calendar Year 2006
                                                                     Hours of
                                                       Hours of         OP       Number of      Equiv.       ORs           Excess OR
               Facility                  City          Surgery       Surgery        ORs        OP ORs      Justified        Capacity
  Herrin Hospital                   Herrin                  4,343        2,571             3           2               3          No
  Union County Hosp                 Anna                      406          374             1           1               1          No
  Pinckneyville Comm Hosp           Pinckneyville             516          393             2           1               1          Yes
  Franklin Hospital                 Benton                    375          365             4           1               1          Yes
  Harrisburg Med Ctr                Harrisburg              2,040        1,556             2           2               2          No
  Marshall Browning Hosp            DuQuoin                   193          107             1           1               1          No
  Mem Hosp of Carbondale            Carbondale              9,936        3,833             7           3               7          No
  St. Joseph Mem Hosp               Murphysboro             1,485        1,221             4           1               1          Yes
  Heartland Reg Med Ctr             Marion                  6,437        2,698             7           2               5          Yes
                                  Ambulatory Surgery Treatment Centers – Data for Calendar Year 2005
                                         Multi or                                Number of     Hours of      ORs           Excess OR
                Facility                 Limited                City                 ORs       Surgery     Justified        Capacity
  Health South                         Multi          Marion                                2      2,284               2          No
  Pain Care Surgery                    Limited        Marion                                1        465               1          No
  Marion Healthcare                    Multi          Marion                                3      3,626               3          No
  S. IL Orthopedic Center              Limited        Herrin                                3      3,146               3          No
  Carbondale Clinic                    Multi          Carbondale                            2      1,860               2          No
  All facilities are located in HSA V.
State Agency Report
Project #06-087
Page 11 of 27

              As seen from the utilization data there is excess surgical capacity, within
              the proposed GSA, to accommodate outpatient surgery hours at four
              hospitals. Since there is excess surgical capacity within the proposed
              GSA, it appears the proposed project may negatively impact area
              providers.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE IMPACT ON
              OTHER FACILITIES CRITERION (77 IAC 1110.1540(e)).

       F.     Criterion 1110.1540(f) – Establishment of New Facilities

              The criterion states:

              “An application proposing to establish a new ASTC must meet one of the
              following conditions:
              1.     There are no other ASTC’s within the GSA of the proposed project
                     under normal driving conditions; or
              2.     All of the other ASTC’s and hospital equivalent outpatient surgery
                     rooms within the intended geographic service area are utilized at or
                     above the 80% occupancy target; or
              3.     The applicant can document that the facility is necessary to
                     improve access to care. Documentation shall consist of evidence
                     that the facility will be providing services which are not currently
                     available in the geographic area, or that the existing underutilized
                     services in the geographic service area have restrictive admission
                     polices; or
              4.     The proposed project is a co-operative venture sponsored by two or
                     more persons at least one of which operates an existing hospital.
                     A)      that the existing hospital is currently providing outpatient
                             surgery services to the target population of the geographic
                             service area;
                     B)      that the existing hospital has sufficient historical workload
                             to justify the number of operating rooms at the existing
                             hospital and at the proposed ASTC based upon the
                             Treatment Room Need Assessment methodology of
                             subsection d of this Section;
                     C)      that the existing hospital agrees not to increase its operating
                             room capacity until such time as the proposed project’s
                             operating rooms are operating at or above the target
State Agency Report
Project #06-087
Page 12 of 27

                            utilization rate for a period of twelve full months; and
                      D)    that the proposed charges for comparable procedures at the
                            ASTC will be lower than those of the existing hospital”

              As previously discussed, there are underutilized facilities within the
              proposed GSA. Since there is excess surgical capacity within the proposed
              GSA, it appears the proposed project may negatively impact area
              providers.

              The applicant states that all services of the proposed facility “are available
              to some degree but substantial barriers to access exist, particularly with
              respect to GYN and Urology services due to unavailability of block time
              and difficulty in scheduling patients.” No other data or information was
              provided to support this potential access issue.

              The applicant provided information detailing the low-income segment of
              the GSA and how the proposed facility plans on providing charity care.
              The applicant states, “the proposed ASTC is needed to improve access to
              low cost outpatient surgery services in the Carbondale and Southern
              Illinois areas in the specialties that will be offered at the new center. The
              area hospitals’ surgical suites do not provide low cost services and are
              experiencing a high utilization level in these specialties, making it difficult
              to schedule patients for surgeries. Existing area ASTCs are experiencing
              high utilization and do not adequately address the needs in the specialties
              of GYN and Urology. The proposed project will go far to correct these
              barriers to access to cost-effective care, particularly for GYN and Urology
              care.”

              Several physician letters are included in the application supporting the
              project and stating, “current surgery centers are very busy and appear to
              favor patients with “good” insurance”. The applicant and letters of
              support also state that the charges at the new facility will be considerably
              lower than hospital charges. However, no substantiation was provided
              regarding scheduling and lack of services.

              Area providers (both ASTCs and hospitals) submitted letters of opposition
              with information verifying that they have charity care policies and will be
              adversely affected by this proposed facility. As previously stated, there
              are underutilized providers within the GSA capable of providing GYN
              and Urology services.
State Agency Report
Project #06-087
Page 13 of 27

              The applicant is an LLC comprised of American Patriot Medical, LLC, an
              Indiana Limited Liability Company, (who is the managing partner of
              Carbondale Surgi-Care, LLC) and “Individual Group Physician Investor
              Members”. It appears the applicant, and its related parties, do not operate
              an existing hospital.

              Since there are other providers in the GSA, and some operate below the
              80% occupancy target, and the applicant did not provide proof that access
              barriers exist, and one of the applicants is not a hospital, the applicant did
              not meet any one of the application conditions required in this criterion.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE ESTABLISHMENT
              OF NEW FACILITIES CRITERION (77 IAC 1110.1540(f)).

       G.     Criterion 1110.1540(g) – Charge Commitment

              The criterion states:

              “In order to meet the purposes of the Act which are to improve the financial
              ability of the public to obtain necessary health services and to establish a
              procedure designed to reverse the trends of increasing costs of health care, the
              applicant shall include all charges except for any professional fee
              (physician charge). [20 ILCS 3960/2] The applicant must provide a
              commitment that these charges will not be increased, at a minimum, for
              the first two years of operation unless a permit is first obtained pursuant
              to 77 Ill. Adm. Code 1130.310(a).”

              The applicant state the proposed facility will maintain charges for the first
              two years of operation of the proposed surgery center; therefore, a
              positive finding can be made.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE REQUIREMENTS OF THE CHARGE COMMITMENT CRITERION
              (77 IAC 1110.1540(g)).

       H.     Criterion 1110.1540(h) – Change in Scope of Service

              This criterion is not applicable as the project represents the establishment
              of a new facility.
State Agency Report
Project #06-087
Page 14 of 27

              THE STATE AGENCY FINDS THE CHANGE IN SCOPE OF SERVICES
              CRITERION (77 IAC 1110.1540(h)) IS NOT APPLICABLE TO THIS
              PROJECT.

VII.   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.”
State Agency Report
Project #06-087
Page 15 of 27

                  As noted, the applicant provided 13 physicians referral letters indicating
                  3,664 referrals to the facility. Table Three shows the number of referrals
                  provided per physician.

                  There are facilities within a 30-minute travel time that are underutilized
                  (see Table Seven), including: St. Joseph Memorial Hospital and Heartland
                  Regional Medical Center. The applicant provided a map of the designated
                  GSA. As referenced, the GSA does not conform to the criterion and
                  exceeds a 60-minute travel time. The travel times and distance for the
                  hospitals and ASTCs within the proposed GSA are displayed in Table
                  Seven. Distance and travel time was obtained from Map Quest. The table
                  is sorted based on distance from the proposed facility.

                                                          TABLE SEVEN
                             Distance and Travel Time Of Existing Providers Within the Proposed GSA
                                                             Hospitals
                 Facility                     City       Distance (miles)  Travel Time (minutes)    Excess OR Capacity
   Memorial Hosp of Carbondale           Carbondale                   2.3                        6                   No
   St. Joseph Memorial                   Murphysboro                  6.1                        9                  Yes
   Herrin Hospital                       Herrin                      17.0                      31                    No
   Heartland Regional                    Marion                      18.0                      30                   Yes
   Union County Hospital                 Anna                        21.0                      35                    No
   Marshall Browning                     DuQuoin                     22.4                      40                    No
   Pinckneyville                         Pinckneyville               29.0                      42                    No
   Franklin Hospital                     Benton                      36.6                      49                   Yes
   Harrisburg Medical Center             Harrisburg                  41.5                      65                    No
                                                Ambulatory Surgery Treatment Centers
                 Facility                     City       Distance (miles)   Travel Time (minutes)   Excess OR Capacity
   Carbondale Clinic                     Carbondale                   1.1                        2                   No
   S IL Orthopedic Center                Herrin                      12.8                      23                    No
   Pain Care Surgery*                    Marion                      13.1                      22                    No
   Marion Healthcare                     Marion                      15.6                      26                    No
   Health South                          Marion                      18.0                      32                    No
   All facilities in the chart are within the HSA V.


                  It appears the proposed facility will contribute to an already existing
                  maldistribution of service. There are existing providers within the GSA
                  that have excess surgical capacity (see Table Seven). Thus, a positive
                  finding cannot be made.

                  THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
                  APPLICANT MEETS THE REQUIREMENTS OF THE LOCATION
                  CRITERION (77 IAC 1110.230(a)).

        B.        Criterion 1110.230(b) - Background of Applicant
State Agency Report
Project #06-087
Page 16 of 27

              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 applicant is an LLC comprised of American Patriot Medical, LLC, an
              Indiana Limited Liability Company, (who is the managing partner of
              Carbondale Surgi-Care, LLC) and “Individual Group Physician Investor
              Members”. The applicant provided licensure and accreditation
              information for Carbondale Surgi-Care, LLC as required. The applicant
              provided a letter permitting access to information in order to verify any
              documentation or information submitted in response to the requirements
              of this subsection.

              It appears the applicant is fit, willing and able and has the qualifications,
              background and character to adequately provide a proper standard of
              healthcare service for the community.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE REQUIREMENTS OF 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
State Agency Report
Project #06-087
Page 17 of 27

              contract or agreement) of other facilities, development of freestanding
              settings for service and alternate settings within the facility.”

              The applicant considered the following options:

              1.      Do Nothing

                      The applicant rejected this option and stated this alternative places
                      a cost and burden on patients and third party payors due to the
                      ASTC charges being lower than area facilities. It is noted that there
                      is no cost associated with this alternative.

              2.      Moving patients to existing ASTCs.

                      The applicant rejected this option and states it is impractical and an
                      impediment to access to care due to area ASTCs operating at or
                      near capacity, a lack of charity care, and their expectation that an
                      area ASTC may be closing. It is noted that there is no cost
                      associated with this alternative.

              As previously noted, the establishment of the proposed ASTC may add to
              an already existing excess surgical capacity in the proposed GSA.
              Therefore, it appears a less costly alternative would be to utilize existing
              facilities within the GSA.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE ALTERNATIVES
              CRITERION (77 IAC 1110.230(c)).

       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 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
State Agency Report
Project #06-087
Page 18 of 27

                      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.”

              The State Board has not determined need for this category of service;
              therefore, the applicant must document the project will serve a population
              group in need of the services proposed, and that insufficient service exists
              to meet the need.

              The applicant states there are no ASTCs in the area that can adequately
              accommodate the physicians who plan to practice at the proposed facility,
              these physicians are having a difficult time scheduling patients at area
              hospitals, area providers do not provide enough charity care, and there is
              inadequate access to GYN and Urology services in existing ASTCs. In
              addition, ASTCs provide more efficient care, a friendlier environment,
              greater efficiency, improved surgeon control, and expanded Medicare
              coverage.

              Letters from area providers negate the assumptions of the applicant,
              however. Information and data supplied by Southern Illinois Healthcare
              (Herrin, Memorial Hospital of Carbondale and St. Joseph Memorial
              hospitals) states that, “The proposed ASTC will not provide any services
              different than those available in the geographic service area…existing
              hospitals within the geographic service area provide a higher percentage
              of care to Medicare and Medicaid patients than Carbondale Surgi-Care
              proposes to provide…and no evidence is provided to support (the lack of
              block time and difficulty with scheduling patients)…”

              Healthsouth provided information and data stating that the project will
              create a duplication of services and that their facility has excess capacity.
State Agency Report
Project #06-087
Page 19 of 27

              The Carbondale Clinic provided information and data stating it would be
              adversely impacted due to four surgeons who have proposed to move 609
              patients from their facility to the proposed facility, that the referring
              physicians over stated their existing case load, the proposed facility would
              represent a duplication of services, Carbondale Clinic does not have
              restrictive admission policies, provides a higher percentage of care to
              Medicare, Medicaid and other Public patients than Carbondale Surgi-Care
              proposes to provide and that the Carbondale Clinic has excess capacity.

              As previously discussed, it appears there is excess surgical capacity within
              the GSA to accommodate the procedures proposed for the applicant’s
              facility. Therefore, it does not appear the need for the facility has been
              documented.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS FOR THE NEED FOR THE
              PROJECT CRITERION (77 IAC 1110.230(d)).

       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.
State Agency Report
Project #06-087
Page 20 of 27

              2)      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 proposed GSF for the ASTC is 8,200. The project will contain two
              ORs, eight recovery stations and a Stage II area. Based on the State
              standard of 2,750 GSF per OR and 180 GSF per recovery station, the
              applicant can justify 6,940 GSF for the ASTC. Considering the GSF
              proposed exceeds the State norm, it appears the size of the ASTC is too
              large.

              The applicant anticipates 3,664 referrals annually to the facility, which
              represents 2,862 hours of surgical time. This anticipated volume justifies
              the requested two ORs. Thus, the applicant has documented that the
              facility will be appropriately utilized. However, it appears the proposed
              ASTC is too large.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE SIZE OF THE
              PROJECT CRITERION (77 IAC 1110.230(e)).

IX.    Review Criteria - Financial Feasibility

       A.     Criterion 1120.210(a) – Financial Feasibility Review Criterion

              The criterion states:

              “1)     Viability Ratios
                      Applicant (including co-applicant) must document compliance
                      with viability ratio standards detailed in Appendix A of this Part or
                      address a variance. Co-applicant 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
State Agency Report
Project #06-087
Page 21 of 27

                        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-applicant 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.”

              The review criterion specifies that certain ratios be met as an indication of
              financial viability for applicant that do not have a bond rating of “A” or
              better.

              Table Eight provides financial ratio information for Carbondale Surgi-
              Care, LLC. The State Agency notes it appears Carbondale Surgi-Care,
              LLC is a new company formed for the purposes of this project. Therefore,
              it does not have historic ratio information. It also did not provide audited
              financial statements.

                                            TABLE EIGHT
                      Financial Ratio Information for Carbondale Surgi-Care, LLC
                            Ratio                    State Standard    Projected (Year 1)
           Current Ratio                                 >=1.5                2.29
           Net Margin Percentage                        >=3.5%                32%
           Percent Debt to Total Capitalization         <=80%                 72%
           Projected Debt Service Coverage              >=1.75                4.04
           Days Cash on Hand                             >=45                412.45
           Cushion Ratio                                  >=5                 7.55

              It appears all projected ratios are in conformance with the State standards.
              However, the data contained in Table Eight was obtained from unaudited
              financial data. The State Agency notes that unaudited financial data
              contains 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. Since the data was
              from unaudited financial information, a positive finding cannot be made.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE FINANCIAL
              VIABILITY CRITERION (77 IAC 1120.210(a)).
State Agency Report
Project #06-087
Page 22 of 27

       B.     Criterion 1120.210(b) - Availability of Funds

              The criterion states:
              “The co-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 applicant proposes to fund the project with $750,000 from cash and
              securities and $1,686,500 in debt in the form of a bank loan. Sufficient
              resources appear available for the project.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE AVAILABILITY OF FUNDS CRITERION (77 IAC 1120.210(b)).

       C.     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 applicant identified $180,117 as estimated start-up costs and operating
              deficit. The applicant proposes to fund the project with $750,000 from
              cash and securities and $1,686,500 from a bank loan. Sufficient resources
              appear available for the start-up costs and operating deficit. In addition,
              the applicant states, “American Patriot Medical, LLC, an Indiana Limited
              Liability Company, is the managing partner of Carbondale Surgi-Care,
              LLC and will assume responsibility for all debt to be incurred”.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE START-UP COSTS CRITERION (77 IAC 1120.210(c)).

X.     Review Criteria - Economic Feasibility

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

              The criterion states:
State Agency Report
Project #06-087
Page 23 of 27

              “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 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.
                      C)     The project is classified as a Class B project. The co-applicant
                             does 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-applicant.

              The applicant indicates the selected form of debt financing will result in
              the lowest net cost available, and it also stated that “American Patriot
              Medical, LLC, an Indiana Limited Liability Company, is the managing
              partner of Carbondale Surgi-Care, LLC and will assume responsibility for
              all debt to be incurred”.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE REASONABLENESS OF FINANCING ARRANGEMENTS
              CRITERION (77 IAC 1120.310(a)).

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

              This 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
State Agency Report
Project #06-087
Page 24 of 27

              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.”

              A notarized statement was provided that attests the selected form of debt
              financing will result in the lowest net cost available, and “American
              Patriot Medical, LLC, an Indiana Limited Liability Company, is the
              managing partner of Carbondale Surgi-Care, LLC and will assume
              responsibility for all debt to be incurred”.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE TERMS OF THE DEBT FINANCING CRITERION (77 IAC
              1120.310(b)).

       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 applicant 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 applicant documents
                      construction constraints or other design complexities and provides
                      evidence that the costs are similar or consistent with other projects
State Agency Report
Project #06-087
Page 25 of 27

                      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 applicant 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 applicant 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 applicant
                            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 applicant 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 applicant must document that any preplanning, acquisition,
                      site survey and preparation costs, net interest expense and other
State Agency Report
Project #06-087
Page 26 of 27

                      estimated costs do not exceed industry norms based upon a
                      comparison with similar projects that have been reviewed.”

              Preplanning Costs – This cost is $7,500, or .36% of construction,
              contingencies and equipment costs. This appears reasonable compared to
              the State standard of 1.8%.

              Site Survey, Soil Investigation and Site Preparation - These cost total
              $27,000, or 2.0% of the construction and contingency costs. These costs
              appear reasonable compared to the State standard of 5%.

              New Construction and Contingencies - The costs of construction and
              contingencies are estimated to be $1,370,000, or $167.07 per GSF. This
              appears reasonable compared to the adjusted State standard of $261.71 per
              GSF.

              Contingencies - The contingency allocation is $70,000, or 5.3% of
              construction costs. This appears reasonable compared to the State
              standard of 10%.

              Architects and Engineering Fees –These costs total $50,000, or 3.6% of
              construction and contingency costs. This appears reasonable compared to
              the Capital Development Board’s fee structure of 4.8% - 11.3% that is
              utilized as the State standard.

              Consulting and Other Fees - These costs total $160,000. The State Board
              does not have a standard for this expense.

              Movable or Other Equipment - Equipment costs total $702,000, which is
              $351,000 per OR. This appears reasonable compared to the adjusted State
              standard of $471,993 per OR.

              Net Interest Expense During Construction – This cost is $120,000. The
              State Board does not have a standard for this expense.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE REASONABLENESS OF PROJECT COST CRITERION (77 IAC
              1120.310(c)).
State Agency Report
Project #06-087
Page 27 of 27

       D.       Criterion 1120.310(d) - Projected Operating Costs

                The applicant projects $323 of direct annual operating costs per procedure.
                The State Board does not have a standard for these costs.

                THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
                THE PROJECTED OPERATING COSTS CRITERION (77 IAC 1120.310(d)).

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

                The applicant projects capital costs per procedure of $106.27. The State
                Board does not have a standard for these costs.

                THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
                THE TOTAL EFFECT OF THE 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 FINDS THE NON-PATIENT RELATED SERVICES
                CRITERION (77 IAC 1120.310(f)) IS NOT APPLICABLE TO THE
                PROJECT.



       G:\FAC\SAR\2006-sar\06-087.doc
       KK – Review completed on 5/7/07 and 6/25/07
   DOCKET NO:        BOARD MEETING:          PROJECT NO:      PROJECT COST:

        A-              June 12-13, 2007         06-087       Original: $ 2,436,500
 FACILITY NAME:                                  CITY:
                                                              Current:
           Carbondale Surgi-Care              Carbondale
 TYPE OF PROJECT:        Substantive                          HSA:       V

PROJECT DESCRIPTION: The applicant proposes to establish a multi-specialty, free-
standing ambulatory surgical treatment center.
                              STATE AGENCY REPORT

                              Carbondale Surgi-Care, LLC
                                  Carbondale, Illinois
                                    Project #06-087

I.     The Proposed Project

       The applicant proposes to establish a multi-specialty, free-standing ambulatory
       surgical treatment center (“ASTC”) in Carbondale. The facility will have two
       operating rooms (“ORs”), eight recovery stations and a Stage II area. The facility
       will contain 8,200 gross square feet (“GSF”). The total estimated project cost is
       $2,436,500.

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 appears to be in conformance
             with the provisions of Part 1120.

III.   General Information

       The applicant is Carbondale Surgi-Care, LLC. The applicant is comprised of
       American Patriot Medical, LLC, an Indiana Limited Liability Company, (who is
       the managing partner of Carbondale Surgi-Care, LLC) and “Individual Group
       Physician Investor Members.” The proposed facility will be located at 2201
       Ramada Lane in Carbondale (HSA V).

       This is a substantive project that is subject to both Parts 1110 and 1120 review.
       An opportunity for a public hearing was offered, but one was not requested. The
       State Agency received three letters of opposition from HealthSouth ASTC, the
       Carbondale Clinic ASTC and Southern Illinois Healthcare (consisting of Herrin
       Hospital, Memorial Hospital of Carbondale and St. Joseph Memorial Hospital).
       These letters state the facilities would be adversely impacted with the
       establishment of this proposed ASTC. There were nine support letters received
       by the State Agency and a petition signed by 47 local residents in support of the
       project. There are also letters of support contained within the application.
State Agency Report
Project #06-087
Page 2 of 27

       Project obligation will occur after permit issuance and the appropriate
       documentation was submitted. The anticipated project completion date is
       August 15, 2008.

IV.    The Proposed Project – Details

       The applicant proposes to establish a multi-specialty, free-standing ASTC at 2201
       Ramada Lane in Carbondale. The establishment of the new facility will be
       accomplished by constructing a new building. The new facility will have two
       ORs, eight recovery stations and a Stage II area and contain 8,200 GSF. The total
       estimated project cost is $2,436,500.

V.     Project Costs and Sources of Funds

       The total project cost is $2,436,500. The applicant will fund the project through
       cash and securities and a bank loan. Table One displays cost and sources of
       funds information.

                                            TABLE ONE
                                       Project Cost Information
                                      Use of Funds                 Total
                      Preplanning Costs                                7,500
                      Site Survey and Soil Investigation               2,000
                      Site Preparation                                25,000
                      New Construction Contracts                   1,300,000
                      Contingencies                                   70,000
                      Architectural/Engineering Fees                  50,000
                      Consulting and Other Fees                      160,000
                      Movable Equipment                              702,000
                      Net Interest Expense During Construction       120,000
                      Total                                       $ 2,436,500
                                   Source of Funds                 Total
                      Cash and Securities                            750,000
                      Mortgages                                    1,686,500
                      Total                                       $ 2,436,500
State Agency Report
Project #06-087
Page 3 of 27

VI.    Review Criteria – Non-Hospital Based Ambulatory Surgery

       A.     Criterion 1110.1540(a) – Scope of Services Provided

              The criterion states:

              “Any applicant proposing to establish a non-hospital based ambulatory
              surgical category of service must detail the surgical specialties that will be
              provided by the proposed project and whether the project will result in a
              limited specialty or multi-specialty ambulatory surgical treatment center
              (ASTC).
               1)    The applicant must indicate which of the following surgical
                     specialties will be provided at the proposed facility:
                     Cardiovascular, Dermatology, Gastroenterology, General/Other
                     (includes any procedure that is not included in the other
                     specialties), Neurological, Obstetrics/Gynecology, Ophthalmology,
                     Oral/Maxillofacial, Orthopaedic, Otolaryngology, Plastic, Podiatry,
                     Thoracic, and Urology.
               2)    The applicant must indicate which of the following type of ASTC
                     will result from the proposed project:
                     A)     Limited specialty ASTC, which provides one or two of the
                            surgical specialties listed in this Section; or
                     B)     Multi-specialty ASTC, which provides at least three of the
                            surgical specialties listed in this Section. In order to be
                            approved as a multi-specialty ASTC, the applicant must
                            document that at least 250 procedures will be performed in
                            each of at least three of the surgical specialties listed in this
                            Section.”

              The applicant indicates the project will be a multi-specialty ASTC,
              providing    the   following     surgical   services:  gastroenterology,
              obstetrics/gynecology, general, ophthalmology, otolaryngology, podiatry,
              urology and pain management.          Table Two displays the referral
              information.
State Agency Report
Project #06-087
Page 4 of 27

                                             TABLE TWO
                                    Physician Referral Information
                            Surgical Specialty                 Referrals
                      Pain Management                            1,296
                      Ophthalmology                               900
                      Obstetrics                                  658
                      Urology                                     400
                      Gastroenterology                            100
                      Otolaryngology (ENT)                         60
                      Podiatry                                     50
                      TOTAL                                      3,664

              The applicant documented that 250 procedures will be performed in at
              least three surgical specialties (ophthalmology, obstetrics, and urology).
              As a result, a positive finding can be made.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE REQUIREMENTS OF THE SCOPE OF SERVICES PROVIDED
              CRITERION (77 IAC 1110.1540(a)).

       B.     Criterion 1110.1540(b) – Target Population

              The criterion states:

              “Because of the nature of ambulatory surgical treatment, the State Board
              has not established geographic services areas for assessing need.
              Therefore, an applicant must define its intended geographic service area
              and target population. However, the intended geographic service area
              shall be no less than 30 minutes and no greater than 60 minutes travel
              time (under normal driving conditions) from the facility's site.“

              The applicant provided a map outlining the geographic service area
              (“GSA”). The applicant proposes to serve a population greater than 60
              minutes travel time (under normal driving conditions) from the facility’s
              site. For example, the following Illinois towns were identified as being
              within the GSA: Garrison, Golconda, Bay City and Thebes. According to
              Map Quest, however, these towns are more than 60 minutes drive time
              from the applicant’s proposed facility. Since the criterion states that the
              GSA should not exceed 60 minutes travel time, a positive finding cannot
              be made.
State Agency Report
Project #06-087
Page 5 of 27

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE TARGET
              POPULATION CRITERION (77 IAC 1110.1540(b))

       C.     Criterion 1110.1540(c) – Projected Patient Volume

              The criterion states:

              “1)     The applicant must provide documentation of the projected patient
                      volume for each specialty to be offered at the proposed facility.
                      Documentation must include physician referral letters which
                      contain the following information:
                      A)     the number of referrals anticipated annually for each
                             specialty;
                      B)    for the past 12 months, the name and location of health care
                             facilities to which patients were referred, including the
                             number of patients referred for each surgical specialty by
                             facility;
                      C)    a statement by the physician that the information contained
                             in the referral letter is true and correct to the best of his/her
                             information and belief; and
                      D)    the typed or printed name and address of the physician,
                             his/her specialty and his/her notarized signature.
               2)     Referrals to health care providers other than ambulatory surgical
                      treatment centers (ASTC) or hospitals will not be included in
                      determining projected patient volume. The applicant shall provide
                      documentation demonstrating that the projected patient volume as
                      evidenced by the physician referral letters is from within the
                      geographic service area defined under subsection (b).”

              The applicant provided 13 physicians referral letters indicating 3,664
              anticipated referrals to the facility. Table Three shows the number of
              referrals provided per physician.
State Agency Report
Project #06-087
Page 6 of 27

                                         TABLE THREE
                                      Referrals per Physician
                             Physician       Specialty       Referrals
                             Pearlman ENT                           60
                             Zahdor     Gastroenterology           100
                             McCain     General Surgery            200
                             Jones      OB/Gyn                      50
                             Schneider OB/Gyn                       75
                             Tsung      OB/Gyn                      80
                             Hartman OB/Gyn                        132
                             Gates      OB/Gyn                     135
                             Walker     OB/Gyn                     186
                             Jackson    Ophthalmology              900
                             Juergens   Pain Management          1,296
                             Brown      Podiatry                    50
                             Stokes     Urology                    400
                                        TOTAL                    3,664

              The criterion stipulates that the applicant provide documentation
              demonstrating referrals are within the GSA as defined under 1110.1540(b).
              Based on the material submitted, the applicant will treat some patients
              who reside outside the designated GSA (more than 60 minutes drive time
              from the proposed facility). To address this criterion, the applicant also
              provided an estimated referral volume from within a 45-minute travel
              time of the proposed site. Table Four shows what volume is estimated to
              reside within 45 minutes travel time of the proposed facility.

                                          TABLE FOUR
                          Physician Referrals within 45 minute drive time
                                                        Estimated to be
           Physician       Specialty       Referrals within 45 minutes      By Specialty
           Pearlman    ENT                        60                    3             60
           Zahdor      Gastroenterology          100                   10            100
           McCain      General Surgery           200                  180            200
           Jones       OB/Gyn                     50                   48            658
           Schneider   OB/Gyn                     75                   71
           Tsung       OB/Gyn                     80                   76
           Hartman     OB/Gyn                    132                  106
           Gates       OB/Gyn                    135                  108
           Walker      OB/Gyn                    186                  167
           Jackson     Ophthalmology             900                  810            900
           Juergens    Pain Management          1296                  648          1,296
           Brown       Podiatry                   50                   50             50
           Stokes      Urology                   400                  300            400
            TOTALS                             3,664                2,577          3,664
State Agency Report
Project #06-087
Page 7 of 27

              The applicant estimates that the majority (2,577 or 70%) of the referrals
              will reside within a 45-minute drive time. Thus, approximately 30% of
              referrals will be from patients who reside more than 45 minutes travel
              time from the proposed site. As noted under the discussion of
              1110.1540(b), the applicant’s designated GSF exceeds 60 minutes travel
              time. As a result, the State Agency cannot accurately determine the
              number of patient referrals from within a 60-minute travel time. As a
              result, a positive finding cannot be made.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE PROJECTED
              PATIENT VOLUME CRITERION (77 IAC 1110.1540(c))

       D.     Criterion 1110.1540(d) – Treatment Room Need Assessment

              The criterion states:

              “1)     Each applicant proposing to establish or modernize a non-hospital
                      based ambulatory surgery category of service must document that
                      the proposed number of operating rooms are needed to serve the
                      projected patient volume. Documentation must include the average
                      time per procedure for the target population including an
                      explanation as to how this average time per procedure was
                      developed. The following formula can be applied in determining
                      treatment room need:
                   Required
                   Treatment =                                    Hrs. of Surgery/Yr.*
                   Rooms                                   250 Days/Yr. x 7.5 Hrs./Day x .80**
              (
                      (*Hours of surgery includes cleanup and setup time and will be based on the
                      projected volume) (**80% is the desired occupancy rate)

              2)      There must be a need documented for at least one fully utilized
                      (1,500 hours) treatment room for a new facility to be established.
                      Also, utilizing the formula the application must document the need
                      for each treatment room proposed.”

              According to the applicant, they will have 3,664 patients, which results in
              2,862 hours of surgery. When divided by the State standard of 1,500 hours
              per OR, the estimated referrals would justify two ORs.
State Agency Report
Project #06-087
Page 8 of 27

              THE STATE AGENCY FINDS IT APPEARS THE APPLICANT MEETS
              THE REQUIREMENTS OF THE TREATMENT ROOM NEED
              ASSESSMENT CRITERION (77 IAC 1110.1540(d)).

       E.     Criterion 1110.1540(e) – Impact on Other Facilities

              The criterion states:

              “An applicant proposing to change the specialties offered at an existing
              ASTC or proposing to establish an ASTC must document the impact the
              proposal will have on the outpatient surgical capacity of all other existing
              ASTCs and hospitals within the intended geographic service area and that
              the proposed project will not result in an unnecessary duplication of
              services or facilities. Documentation shall include any correspondence
              from such existing facilities regarding the impact of the proposed project,
              and correspondence from physicians intending to refer patients to the
              proposed facility. Outpatient surgical capacity will be determined by the
              Agency, utilizing the latest available data from the Agency's annual
              questionnaires, and will be the number of surgery rooms for ASTCs and
              the number of equivalent outpatient surgery rooms for hospitals.
              Equivalent outpatient surgery rooms for hospitals are determined by
              dividing the total hours of a hospital's outpatient surgery by 1,500 hours.

              In addition to documentation submitted by the applicant, the State
              Agency shall review utilization data from annual questionnaires
              submitted by such health care facilities and data received directly from
              health facilities located within the intended geographic service area,
              including public hearing testimony.”

              The applicant provided documentation that it contacted nine facilities
              located within the GSA, informing them of the project. There were three
              responses indicating that the project would have an adverse impact:
              HealthSouth ASTC (Marion), the Carbondale Clinic ASTC (Carbondale)
              and Southern Illinois Healthcare (consisting of Herrin Hospital, Memorial
              Hospital of Carbondale and St. Joseph Memorial Hospital in
              Murphysboro). Table Five list the healthcare facilities that the referrals
              would be taken from.
  State Agency Report
  Project #06-087
  Page 9 of 27

                                                           TABLE FIVE
                                                   Referrals from Area Facilities
                                                                        Facilities
Surgical Specialty                     Harrisburg    Heartland
                      Carbondale       Memorial       Regional                               Memorial        St Joseph
                        Clinic          Hospital      Med Ctr       Herrin                  Hospital of      Hospital
                     (Carbondale)     (Harrisburg)    (Marion)     Hospital Marion          Carbondale     (Murphysboro)       TOTAL
Pain Management                                         1,296                                                                    1,296
Ophthalmology             508             136                         250                                        6                 894
OB/Gyn                    106                                                                   552                                658
Urology                                                                                         300             100                400
General Surgery                                                                                 200                                200
Gastroenterology                                                                                100                                100
ENT                                                                                 15           45                                 60
Podiatry                   5                               10            30          5                                              50
TOTALS                    619             136             1,306         280         20          1,197           106              3,664


                      Table Five illustrates that seven area facilities will be impacted by the loss
                      of referrals to this facility. The State Agency notes Heartland Regional
                      Medical Center (Marion) will be impacted the most with the reduction in
                      pain management services. Memorial Hospital of Carbondale will also be
                      impacted particularly in the area of OB/GYN procedures.

                      Table Six provides surgical utilization data for facilities within the GSA.
                      As noted, the GSA exceeds the 60-minute travel time of the applicant’s
                      proposed site. The data in the table is for 2005 and was obtained from the
                      Illinois Department of Public Health’s Hospital and ASTC profiles.

                                                                TABLE SIX
                                   Surgical Utilization Of Existing Providers Within the Proposed GSA
                                                                HOSPITALS
                                                                     Hours of
                                                       Hours of        OP        Number of      Equiv.       ORs           Excess OR
               Facility                  City          Surgery       Surgery        ORs        OP ORs      Justified        Capacity
  Herrin Hospital                   Herrin                  4,076        1,969             3           2               3          No
  Union County Hosp                 Anna                      565          517             1           1               1          No
  Pinckneyville Comm Hosp           Pinckneyville             467          368             1           1               1          No
  Franklin Hospital                 Benton                    355          307             4           1               1          Yes
  Harrisburg Med Ctr                Harrisburg              2,216        1,578             2           2               2          No
  Marshall Browning Hosp            DuQuoin                   294          162             0           1               1          No
  Mem Hosp of Carbondale            Carbondale            10,852         4,135             7           3               8          No
  St. Joseph Mem Hosp               Murphysboro             1,074          871             4           1               1          Yes
  Heartland Reg Med Ctr             Marion                  5,147        2,323             6           2               4          Yes
                                                  Ambulatory Surgery Treatment Centers
                                         Multi or                                Number of     Hours of      ORs           Excess OR
                Facility                 Limited                City                ORs        Surgery     Justified        Capacity
  Health South                         Multi          Marion                                2      2,284               2          No
  Pain Care Surgery                    Limited        Marion                                1        465               1          No
  Marion Healthcare                    Multi          Marion                                3      3,626               3          No
  S. IL Orthopedic Center              Limited        Herrin                                3      3,146               3          No
  Carbondale Clinic                    Multi          Carbondale                            2      1,860               2          No
  All facilities are located in HSA V.
State Agency Report
Project #06-087
Page 10 of 27

              As seen from the utilization data there is excess surgical capacity, within
              the proposed GSA, to accommodate outpatient surgery hours at three
              hospitals. Since there is excess surgical capacity within the proposed
              GSA, it appears the proposed project may negatively impact area
              providers.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE IMPACT ON
              OTHER FACILITIES CRITERION (77 IAC 1110.1540(e)).

       F.     Criterion 1110.1540(f) – Establishment of New Facilities

              The criterion states:

              “An application proposing to establish a new ASTC must meet one of the
              following conditions:
              1.     There are no other ASTC’s within the GSA of the proposed project
                     under normal driving conditions; or
              2.     All of the other ASTC’s and hospital equivalent outpatient surgery
                     rooms within the intended geographic service area are utilized at or
                     above the 80% occupancy target; or
              3.     The applicant can document that the facility is necessary to
                     improve access to care. Documentation shall consist of evidence
                     that the facility will be providing services which are not currently
                     available in the geographic area, or that the existing underutilized
                     services in the geographic service area have restrictive admission
                     polices; or
              4.     The proposed project is a co-operative venture sponsored by two or
                     more persons at least one of which operates an existing hospital.
                     A)      that the existing hospital is currently providing outpatient
                             surgery services to the target population of the geographic
                             service area;
                     B)      that the existing hospital has sufficient historical workload
                             to justify the number of operating rooms at the existing
                             hospital and at the proposed ASTC based upon the
                             Treatment Room Need Assessment methodology of
                             subsection d of this Section;
                     C)      that the existing hospital agrees not to increase its operating
                             room capacity until such time as the proposed project’s
                             operating rooms are operating at or above the target
State Agency Report
Project #06-087
Page 11 of 27

                            utilization rate for a period of twelve full months; and
                      D)    that the proposed charges for comparable procedures at the
                            ASTC will be lower than those of the existing hospital”

              As previously discussed, there are underutilized facilities within the
              proposed GSA. Since there is excess surgical capacity within the proposed
              GSA, it appears the proposed project may negatively impact area
              providers.

              The applicant states that all services of the proposed facility “are available
              to some degree but substantial barriers to access exist, particularly with
              respect to GYN and Urology services due to unavailability of block time
              and difficulty in scheduling patients.” No other data or information was
              provided to support this potential access issue.

              The applicant provided information detailing the low-income segment of
              the GSA and how the proposed facility plans on providing charity care.
              The applicant states, “the proposed ASTC is needed to improve access to
              low cost outpatient surgery services in the Carbondale and Southern
              Illinois areas in the specialties that will be offered at the new center. The
              area hospitals’ surgical suites do not provide low cost services and are
              experiencing a high utilization level in these specialties, making it difficult
              to schedule patients for surgeries. Existing area ASTCs are experiencing
              high utilization and do not adequately address the needs in the specialties
              of GYN and Urology. The proposed project will go far to correct these
              barriers to access to cost-effective care, particularly for GYN and Urology
              care.”

              Several physician letters are included in the application supporting the
              project and stating, “current surgery centers are very busy and appear to
              favor patients with “good” insurance”. The applicant and letters of
              support also state that the charges at the new facility will be considerably
              lower than hospital charges. However, no substantiation was provided
              regarding scheduling and lack of services.

              Area providers (both ASTCs and hospitals) submitted letters of opposition
              with information verifying that they have charity care policies and will be
              adversely affected by this proposed facility. As previously stated, there
              are underutilized providers within the GSA capable of providing GYN
              and Urology services.
State Agency Report
Project #06-087
Page 12 of 27

              The applicant is an LLC comprised of American Patriot Medical, LLC, an
              Indiana Limited Liability Company, (who is the managing partner of
              Carbondale Surgi-Care, LLC) and “Individual Group Physician Investor
              Members”. It appears the applicant, and its related parties, do not operate
              an existing hospital.

              Since there are other providers in the GSA, and some operate below the
              80% occupancy target, and the applicant did not provide proof that access
              barriers exist, and one of the applicants is not a hospital, the applicant did
              not meet any one of the application conditions required in this criterion.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE ESTABLISHMENT
              OF NEW FACILITIES CRITERION (77 IAC 1110.1540(f)).

       G.     Criterion 1110.1540(g) – Charge Commitment

              The criterion states:

              “In order to meet the purposes of the Act which are to improve the financial
              ability of the public to obtain necessary health services and to establish a
              procedure designed to reverse the trends of increasing costs of health care, the
              applicant shall include all charges except for any professional fee
              (physician charge). [20 ILCS 3960/2] The applicant must provide a
              commitment that these charges will not be increased, at a minimum, for
              the first two years of operation unless a permit is first obtained pursuant
              to 77 Ill. Adm. Code 1130.310(a).”

              The applicant state the proposed facility will maintain charges for the first
              two years of operation of the proposed surgery center; therefore, a
              positive finding can be made.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE REQUIREMENTS OF THE CHARGE COMMITMENT CRITERION
              (77 IAC 1110.1540(g)).

       H.     Criterion 1110.1540(h) – Change in Scope of Service

              This criterion is not applicable as the project represents the establishment
              of a new facility.
State Agency Report
Project #06-087
Page 13 of 27

              THE STATE AGENCY FINDS THE CHANGE IN SCOPE OF SERVICES
              CRITERION (77 IAC 1110.1540(h)) IS NOT APPLICABLE TO THIS
              PROJECT.

VII.   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.”
State Agency Report
Project #06-087
Page 14 of 27

                  As noted, the applicant provided 13 physicians referral letters indicating
                  3,664 referrals to the facility. Table Three shows the number of referrals
                  provided per physician.

                  There are facilities within a 30-minute travel time that are underutilized
                  (see Table Seven), including: St. Joseph Memorial Hospital, Heartland
                  Regional Medical Center and Marion Healthcare. The applicant provided
                  a map of the designated GSA. As referenced, the GSA does not conform
                  to the criterion and exceeds a 60-minute travel time. The travel times and
                  distance for the hospitals and ASTCs within the proposed GSA are
                  displayed in Table Seven. Distance and travel time was obtained from
                  Map Quest. The table is sorted based on distance from the proposed
                  facility.

                                                          TABLE SEVEN
                             Distance and Travel Time Of Existing Providers Within the Proposed GSA
                                                             Hospitals
                 Facility                     City       Distance (miles)  Travel Time (minutes)    Excess OR Capacity
   Memorial Hosp of Carbondale           Carbondale                   2.3                        6                   No
   St. Joseph Memorial                   Murphysboro                  6.1                        9                  Yes
   Herrin Hospital                       Herrin                      17.0                      31                    No
   Heartland Regional                    Marion                      18.0                      30                   Yes
   Union County Hospital                 Anna                        21.0                      35                    No
   Marshall Browning                     DuQuoin                     22.4                      40                    No
   Pinckneyville                         Pinckneyville               29.0                      42                    No
   Franklin Hospital                     Benton                      36.6                      49                   Yes
   Harrisburg Medical Center             Harrisburg                  41.5                      65                    No
                                                Ambulatory Surgery Treatment Centers
                 Facility                     City       Distance (miles)   Travel Time (minutes)   Excess OR Capacity
   Carbondale Clinic                     Carbondale                   1.1                        2                   No
   S IL Orthopedic Center                Herrin                      12.8                      23                    No
   Pain Care Surgery*                    Marion                      13.1                      22                    No
   Marion Healthcare                     Marion                      15.6                      26                   Yes
   Health South                          Marion                      18.0                      32                    No
   All facilities in the chart are within the HSA V.


                  It appears the proposed facility will contribute to an already existing
                  maldistribution of service. There are existing providers within the GSA
                  that have excess surgical capacity (see Table Seven). Thus, a positive
                  finding cannot be made.

                  THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
                  APPLICANT MEETS THE REQUIREMENTS OF THE LOCATION
                  CRITERION (77 IAC 1110.230(a)).

        B.        Criterion 1110.230(b) - Background of Applicant
State Agency Report
Project #06-087
Page 15 of 27

              “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 applicant is an LLC comprised of American Patriot Medical, LLC, an
              Indiana Limited Liability Company, (who is the managing partner of
              Carbondale Surgi-Care, LLC) and “Individual Group Physician Investor
              Members”. The applicant provided licensure and accreditation
              information for Carbondale Surgi-Care, LLC as required. The applicant
              provided a letter permitting access to information in order to verify any
              documentation or information submitted in response to the requirements
              of this subsection.

              It appears the applicant is fit, willing and able and has the qualifications,
              background and character to adequately provide a proper standard of
              healthcare service for the community.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE REQUIREMENTS OF 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.”
State Agency Report
Project #06-087
Page 16 of 27

              The applicant considered the following options:

              1.      Do Nothing

                      The applicant rejected this option and stated this alternative places
                      a cost and burden on patients and third party payors due to the
                      ASTC charges being lower than area facilities. It is noted that there
                      is no cost associated with this alternative.

              2.      Moving patients to existing ASTCs.

                      The applicant rejected this option and states it is impractical and an
                      impediment to access to care due to area ASTCs operating at or
                      near capacity, a lack of charity care, and their expectation that an
                      area ASTC may be closing. It is noted that there is no cost
                      associated with this alternative.

              As previously noted, the establishment of the proposed ASTC may add to
              an already existing excess surgical capacity in the proposed GSA.
              Therefore, it appears a less costly alternative would be to utilize existing
              facilities within the GSA.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE ALTERNATIVES
              CRITERION (77 IAC 1110.230(c)).

       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 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);
State Agency Report
Project #06-087
Page 17 of 27

                      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.”

              The State Board has not determined need for this category of service;
              therefore, the applicant must document the project will serve a population
              group in need of the services proposed, and that insufficient service exists
              to meet the need.

              The applicant states there are no ASTCs in the area that can adequately
              accommodate the physicians who plan to practice at the proposed facility,
              these physicians are having a difficult time scheduling patients at area
              hospitals, area providers do not provide enough charity care, and there is
              inadequate access to GYN and Urology services in existing ASTCs. In
              addition, ASTCs provide more efficient care, a friendlier environment,
              greater efficiency, improved surgeon control, and expanded Medicare
              coverage.

              Letters from area providers negate the assumptions of the applicant,
              however. Information and data supplied by Southern Illinois Healthcare
              (Herrin, Memorial Hospital of Carbondale and St. Joseph Memorial
              hospitals) states that, “The proposed ASTC will not provide any services
              different than those available in the geographic service area…existing
              hospitals within the geographic service area provide a higher percentage
              of care to Medicare and Medicaid patients than Carbondale Surgi-Care
              proposes to provide…and no evidence is provided to support (the lack of
              block time and difficulty with scheduling patients)…”

              Healthsouth provided information and data stating that the project will
              create a duplication of services and that their facility has excess capacity.
              The Carbondale Clinic provided information and data stating it would be
              adversely impacted due to four surgeons who have proposed to move 609
              patients from their facility to the proposed facility, that the referring
State Agency Report
Project #06-087
Page 18 of 27

              physicians over stated their existing case load, the proposed facility would
              represent a duplication of services, Carbondale Clinic does not have
              restrictive admission policies, provides a higher percentage of care to
              Medicare, Medicaid and other Public patients than Carbondale Surgi-Care
              proposes to provide and that the Carbondale Clinic has excess capacity.

              As previously discussed, it appears there is excess surgical capacity within
              the GSA to accommodate the procedures proposed for the applicant’s
              facility. Therefore, it does not appear the need for the facility has been
              documented.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS FOR THE NEED FOR THE
              PROJECT CRITERION (77 IAC 1110.230(d)).

       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.
              2)      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
State Agency Report
Project #06-087
Page 19 of 27

                      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 proposed GSF for the ASTC is 8,200. The project will contain two
              ORs, eight recovery stations and a Stage II area. Based on the State
              standard of 2,750 GSF per OR and 180 GSF per recovery station, the
              applicant can justify 6,940 GSF for the ASTC. Considering the GSF
              proposed exceeds the State norm, it appears the size of the ASTC is too
              large.

              The applicant anticipates 3,664 referrals annually to the facility, which
              represents 2,862 hours of surgical time. This anticipated volume justifies
              the requested two ORs. Thus, the applicant has documented that the
              facility will be appropriately utilized. However, it appears the proposed
              ASTC is too large.

              THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
              APPLICANT MEETS THE REQUIREMENTS OF THE SIZE OF THE
              PROJECT CRITERION (77 IAC 1110.230(e)).

IX.    Review Criteria - Financial Feasibility

       A.     Criterion 1120.210(a) – Financial Feasibility Review Criterion

              The criterion states:

              “1)     Viability Ratios
                      Applicant (including co-applicant) must document compliance
                      with viability ratio standards detailed in Appendix A of this Part or
                      address a variance. Co-applicant 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 #06-087
Page 20 of 27

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

               The review criterion specifies that certain ratios be met as an indication of
               financial viability for applicant that do not have a bond rating of “A” or
               better.

               Table Eight provides financial ratio information for Carbondale Surgi-
               Care, LLC. The State Agency notes it appears Carbondale Surgi-Care,
               LLC is a new company formed for the purposes of this project. Therefore,
               it does not have historic ratio information. It also did not provide audited
               financial statements.

                                            TABLE EIGHT
                      Financial Ratio Information for Carbondale Surgi-Care, LLC
                            Ratio                    State Standard    Projected (Year 1)
            Current Ratio                                >=1.5                2.29
            Net Margin Percentage                       >=3.5%                32%
            Percent Debt to Total Capitalization        <=80%                 72%
            Projected Debt Service Coverage             >=1.75                4.04
            Days Cash on Hand                            >=45                412.45
            Cushion Ratio                                 >=5                 7.55

               It appears all projected ratios are in conformance with the State standards.
               However, the data contained in Table Eight was obtained from unaudited
               financial data. The State Agency notes that unaudited financial data
               contains 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. Since the data was
               from unaudited financial information, a positive finding cannot be made.

               THE STATE AGENCY NOTES IT DOES NOT APPEAR THE
               APPLICANT MEETS THE REQUIREMENTS OF THE FINANCIAL
               VIABILITY CRITERION (77 IAC 1120.210(a)).

       B.      Criterion 1120.210(b) - Availability of Funds

               The criterion states:
State Agency Report
Project #06-087
Page 21 of 27

              “The co-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 applicant proposes to fund the project with $750,000 from cash and
              securities and $1,686,500 in debt in the form of a bank loan. Sufficient
              resources appear available for the project.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE AVAILABILITY OF FUNDS CRITERION (77 IAC 1120.210(b)).

       C.     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 applicant identified $180,117 as estimated start-up costs and operating
              deficit. The applicant proposes to fund the project with $750,000 from
              cash and securities and $1,686,500 from a bank loan. Sufficient resources
              appear available for the start-up costs and operating deficit. In addition,
              the applicant states, “American Patriot Medical, LLC, an Indiana Limited
              Liability Company, is the managing partner of Carbondale Surgi-Care,
              LLC and will assume responsibility for all debt to be incurred”.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE START-UP COSTS CRITERION (77 IAC 1120.210(c)).

X.     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:
State Agency Report
Project #06-087
Page 22 of 27

              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 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.
                       C)     The project is classified as a Class B project. The co-applicant
                              does 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-applicant.

              The applicant indicates the selected form of debt financing will result in
              the lowest net cost available, and it also stated that “American Patriot
              Medical, LLC, an Indiana Limited Liability Company, is the managing
              partner of Carbondale Surgi-Care, LLC and will assume responsibility for
              all debt to be incurred”.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE REASONABLENESS OF FINANCING ARRANGEMENTS
              CRITERION (77 IAC 1120.310(a)).

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

              This 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,
State Agency Report
Project #06-087
Page 23 of 27

              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.”

              A notarized statement was provided that attests the selected form of debt
              financing will result in the lowest net cost available, and “American
              Patriot Medical, LLC, an Indiana Limited Liability Company, is the
              managing partner of Carbondale Surgi-Care, LLC and will assume
              responsibility for all debt to be incurred”.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE TERMS OF THE DEBT FINANCING CRITERION (77 IAC
              1120.310(b)).

       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 applicant 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 applicant 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
State Agency Report
Project #06-087
Page 24 of 27

                      stage of architectural development) shall not exceed the standards
                      detailed in Appendix A of this Part unless the applicant 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 applicant 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 applicant
                            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 applicant 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 applicant 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.”
State Agency Report
Project #06-087
Page 25 of 27

              Preplanning Costs – This cost is $7,500, or .36% of construction,
              contingencies and equipment costs. This appears reasonable compared to
              the State standard of 1.8%.

              Site Survey, Soil Investigation and Site Preparation - These cost total
              $27,000, or 2.0% of the construction and contingency costs. These costs
              appear reasonable compared to the State standard of 5%.

              New Construction and Contingencies - The costs of construction and
              contingencies are estimated to be $1,370,000, or $167.07 per GSF. This
              appears reasonable compared to the adjusted State standard of $261.71 per
              GSF.

              Contingencies - The contingency allocation is $70,000, or 5.3% of
              construction costs. This appears reasonable compared to the State
              standard of 10%.

              Architects and Engineering Fees –These costs total $50,000, or 3.6% of
              construction and contingency costs. This appears reasonable compared to
              the Capital Development Board’s fee structure of 4.8% - 11.3% that is
              utilized as the State standard.

              Consulting and Other Fees - These costs total $160,000. The State Board
              does not have a standard for this expense.
              Movable or Other Equipment - Equipment costs total $702,000, which is
              $351,000 per OR. This appears reasonable compared to the adjusted State
              standard of $471,993 per OR.

              Net Interest Expense During Construction – This cost is $120,000. The
              State Board does not have a standard for this expense.

              THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
              THE REASONABLENESS OF PROJECT COST CRITERION (77 IAC
              1120.310(c)).

       D.     Criterion 1120.310(d) - Projected Operating Costs

              The applicant projects $323 of direct annual operating costs per procedure.
              The State Board does not have a standard for these costs.
State Agency Report
Project #06-087
Page 26 of 27

               THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
               THE PROJECTED OPERATING COSTS CRITERION (77 IAC 1120.310(d)).

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

               The applicant projects capital costs per procedure of $106.27. The State
               Board does not have a standard for these costs.

               THE STATE AGENCY NOTES IT APPEARS THE APPLICANT MEETS
               THE TOTAL EFFECT OF THE 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 FINDS THE NON-PATIENT RELATED SERVICES
               CRITERION (77 IAC 1120.310(f)) IS NOT APPLICABLE TO THE
               PROJECT.



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