“Expanding Your Capital Project Through Off Balance Sheet Financing” Financing NACHRI 2010 C Creating ti C Connections ti C Conference f March 10, 2010 Mike McDevitt, CHE CPHIMS, EVP/CIO - Children’s Health System T. Howard Sisco, CPA, FHFMA, AVP – Finance – Children’s Health System Ray Walker, Principal Consultant - KLMK Group
Table of Contents •
Children’s Health System Background
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Project Description
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Strategic Environmental Factors
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Central Utility Plant - Off Balance Sheet/Off Credit
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The Deal Structure/Partners
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Lessons Learned
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Open Discussion
History/Facts • Founded in 1911 • All Volunteer Board • Only freestanding children’s hospital in Alabama • Patient Services • • • •
290 Inpatient Beds 13 On-site Clinics Remote Surgery Center 15 P Primary i P Pediatric di t i Sit Sites
• Largest Medicaid Provider • 2009 Capital Campaign • $120 Milli Million
Patient Care Statistics Total inpatient discharges >14,000 Total Inpatient Days >81,000 Totall emergency visits >55,000 Total surgeries >20,000 Total outpatient visits >600,000
•Gold standard for nursing excellence •One of only two in Alabama •Earned by less than 5% in the country
UAB Department of Pediatrics 3rd in NIH funding Top 10 in pediatrics training 30 rated in Best Physicians in America Over 50% of pediatricians in Alabama trained here
Our Strategy • Provide comprehensive pediatric care in a single location Relocating Cardiovascular Surgery and Pediatric Cardiac Services to Children’s Relocating Solid Organ Transplants to Children’s Co Co-location location with UAB Women & Infants Facility provides opportunity in advanced intrauterine and perinatal services
• Continue to be dominant in our local market • Regionally competitive • Nationally N ti ll recognized i d as a T Top-40 40 Child Children’s ’ H Hospital it l • Collaborate in recruiting and retaining a full-complement of sub-specialty sub specialty physicians
Campus Vision The interior design of the new f ili iis underway. facility d Goals: • Create a unified campus feel with a common “theme” throughout
Current Facility Design
• Create a “way-finding” system to aid patients and families in navigating through the campus • Construct a LEED Certified Facility Proposed Facility Design
Map of the Area 17th Street Greenway y
City of Birmingham Railroad Reservation Park
Central Utility y Plant Ronald McDonald House
The Benjamin j Russell Hospital for Children Campus
UAB Medical Campus UAB School of Medicine
Expansion Facility Need • Capacity Constraints No further capacity for vertical/horizontal expansion to accommodate all pediatric services During peak census, the Emergency Department becomes an overflow inpatient unit resulting in increased wait time for emergency patients
• Age A off the h E Existing i i F Facility Minimum $97M capital investment required over 7 years to continue operation as acute care hospital for current book of business Continued use for acute care becoming g more difficult Disincentive to recruiting and retaining top physicians and scientists
• Opportunity for direct link to UAB’s Women and Infant’s Center • Opportunity for Family-Centered Care Private accommodations and amenities are essential to efficiently provide the care our patients deserve
Existing Facility – Post Construction • 40 Pediatric Psychiatric Beds (increase of 16 beds) • 60 – 80 Pediatric Acute Care Beds • Existing Outpatient Clinics Future expansion into vacated areas as needed
• Outpatient p Diagnostic g Services Imaging GI, GU, Sleep Center
• Some Outpatient Therapies Hemodialysis, Hemodialysis GI GI, Dental
• Support EVS, Dietary, Engineering
• Administrative and Faculty Offices Additional lease space in vacated areas for office or research use
• Investigating feasibility of Pediatric Services such as Transitional Care, Home Vent Program, Autism, Developmental Pediatrics and Pediatric Metabolic Diseases
Expansion Facility • Pre Pre-Expansion Expansion Facility 275 Licensed Beds 42 NICU Bassinets 145-281 sf Acute Care R Rooms 87 ICU Beds/Bassinets ICU – Open Patients Bays 35 Emergency Exam Rooms 12 O Operating i R Rooms
• Post Post-Expansion Expansion Facility 332 Licensed Beds +2 shelled floors or 96 shelled beds 48 NICU Bassinets 315 sf Acute Care Rooms 116 ICU Beds/Bassinets ICU – Private Patient Rooms 52 Emergency Exam Rooms +12 shelled 14 Operating Rooms +4 shelled 2 Cardiovascular Operating Rooms +1 shelled 3 Cath/IR/EP Labs +1 shelled Solid Organ Transplant Program
Beneficial Location • Utilize existing Children’s facilities through bridge connections to create a more unified pediatric medical campus with convenient parking • Enhance ongoing collaborations with UAB through the f ll i following: Clinical program alignment (i.e., Women & Infants Services, Cardiovascular Program and Solid Organ Transplant Program) Clinical research and medical training advancement and innovation Recruitment of the best sub-specialty physicians and researchers
• Further opportunities in other high-end pediatric services Genetics Fetal Surgery Neonatal Surgery
View from Red Mountain
Children’s Expansion Facility Strategic Factors • Geographic
Efficiently accessible to the Community Take advantage of existing campus structures Adjacency to UAB’s new Women’s and Infant’s Center Proximity to the City City’s s new Railroad Reservation Park
• Future Flexibility IInitiate iti t a Master M t Facility F ilit Pl Plan th thatt d does nott encumber b th the long l term strategic development of the hospital and overall campus. Creating a facility platform adaptable to present/future technologies and innovations in pediatric healthcare
Children’s Expansion Facility Strategic Factors • Financial/Operational Factors Keep the overall financing plan under $400 million Challenging financial markets Minimize the negative impact to the organization’s credit rating g Independent Auditor’s Opinion Optimize tax exempt status Align corporate focus on hospital’s hospital s core business Utility Redundancy: N+1, N+2, N+3
• LEED Design a new facility with an attention to sustainability and “green” design Set a goal of being LEED Certified U.S Green Guide for Healthcare LEED 2.0
Central Utility Plant • Remotely Located • Flexibility/Expandability
• Estimated Demand • 3600 Tons Chilled Water • 650 BHP Hot Water • 5000 KW Emergency Power
• Equipment (N+1, N+2) • 4 – 1200 T Ton Chill Chillers • 3 – 300 BHP Boilers • 3 – 2 Megawatt Generators
• LEED IInitiatives ii i • Heat Recovery Chiller • HVAC Condensate Recovery
Central Utility Plant (CUP) Off Balance Sheet/Off Credit
CUP - Off Balance Sheet / Off Credit Financing • CHS Goals: Produce energy efficiently and at a competitively lower cost Off CHS Balance Sheet Financing for the CUP - $25 million value Off CHS Credit Financing Take Advantage of Sales Tax Exemption for construction materials and equipment Future expandability of the CUP to meet the long term energy needs for CHS
CUP - Off Balance Sheet / Off Credit Financing • CHS Goals: Produce energy efficiently and at a l llower cost competitively Off CHS Balance Sheet Financing for tthe e CUP CU - $ $25 5 million o value a ue Off CHS Credit Financing
Take Advantage of Sales Tax Exemption for construction materials and equipment q p Future expandability of the CUP to meet the long term energy needs for CHS
• How the Goals Were Achieved? Solicited third party bids for CUP d design, build, b ld operate and d maintain proposals Third d party pa ty credit c ed t worthy o t y Owner O e Multiple customers of the CUP Staggered agreement terms Supported by Independent Auditor Opinion Third party owner and customers with similar tax exemption treatment U Utility ili S Services i A Agreement with ih Third Party Owner
Parties & Partners • Local Government: City of Birmingham • 3rd Party Developer/Operator: Johnson Controls International (JCI) • Owner: Governmental Utility Services Corporation (GUSC) • Designers: HKS/GA, CCRD • Attorneys: Presley Burton & Collier, Bradley Arant Bolt & Cummings • Accountants/Auditors: Warren Averett Kimbrough & Marino • Bank: BBVA Compass
Parties & Partners • Customers: The Children’s Hospital of Alabama, The University of Alabama at Birmingham (UAB) • Regulators: Alabama Department of Public Health • Utilities: Alabama Power, Alagasco, Birmingham Water Works Board
The Deal Structure ADPH Regulator g
Franchise Agreement (5)
Organizational Documents
CON
CHS Primary Customer
Auditor
Lawyer Tally:
Development, Operation, and d Performance P f Guarantee Agreement (3)
Utility Service Agreement (4)
UAB Secondary Customer
JCI Developer
GUSC Ground Lease (1)
WAKM
CITY
Terms (1) – 40 years (2) - 13 years (23 year amortization) (3) - 18 years (4) - 18 years (5) - 20 years
O Owner
Utility U ili S Service i Agreement (4)
Financing Agreement g (2)
BBVA Compass p Financer
So Much Hassle for What? • State of the Art Central Utility Plant
Projected Lower Operating Costs Guaranteed Energy Efficiency Flexibility/Expandability N+1, N+2, and N+3 Redundancy
• Off Balance Sheet / Off Credit Treatment Lowered Capital Costs by $25 Million
• Preserved Sales Tax Exemption ($1.5M) • Multiple M lti l C Customers t All Allows C Costt Sh Sharing i • Passes Regulatory Requirements
Lesson Learned • Project Management Discipline is Key • Politics, Parties and Partners • Engineering and Accounting Complexity • Regulatory Compliance • Contract Administration Redundant energy sources Remediation for failure to serve Guaranteed performance
Questions ?