Relates to credit enhancement for health reform projects

The credit enhancement would be offered by the State and if necessary, in cases of a loan default, the State would draw on funds allocated for such purpose. Thus, the program would not implicate State borrowing or credit in any manner beyond the specific amounts appropriated to implement this program.

Summary of provisions

Section 1 adds a new Public Health Law § 2807-zz establishing a credit enhancement program for health reform projects. Subdivision 1 authorizes the Commissioner of Health to create the program and specifies that it applies only to hospitals in underserved regions (including rural regions and portions of a single county) and only to hospitals unable to obtain loans from conventional lenders. The hospital must have an affiliation with an academic medical center, except that requirement can be waived in a rural region.

Subdivision 2 provides that applicants must commit in writing to use the funds for health reform projects such as right-sizing, expansion of primary care, and creation of care coordination infrastructure. This subdivision requires that the application documents contain binding commitments by the applicant hospital to attain defined health reform metrics (and timelines), such as specific numbers of increased primary care visits, specific reductions in the number of inpatient admissions, etc. These covenants would be monitored and enforced by the Commissioner, and would not constitute covenants in the loan documents between the borrower and the lender, nor would the lender be responsible for the enforcement of the health reform covenants.

Subdivision 3 provides that the program shall be administered by the Commissioner of Health and the CEO of the Dormitory Authority. The credit enhancement loan approval committee shall also consist of the Commissioner, the CEO of the Dormitory Authority and three or more additional members designated by the Commissioner of Health.

Subdivision 4 provides that the purpose of the program is to provide the hospitals with credit enhancement, thereby allowing access to conventional lenders. Authority is provided for an optional debt service reserve fund to pre-fund potential obligations in the event of a default.

Subdivision 5 provides that the credit enhancement shall consist of a contingent liability to pay the lender for principal and interest on the loan in any year when the borrowing hospitals default on debt service payments. The funds would be drawn from health reform funding, made available to New York by the federal government under the proposed Section 1115 waiver funds, other ACA health reform funds provided to N.Y. or other allocated funds. The Commissioner would inform potential lenders of the amounts available so that lenders could determine the amounts they would lend in relation to the amounts known to be available in the case of defaults by borrowers in repaying the lenders. This paragraph clarifies that under no circumstances are the potential State payments to be considered a general obligation of the State.

Section 2 amends Public Authorities Law § 1680(1) to make to make hospitals and affiliates approved fro credit enhancements eligible borrowers through the Dormitory Authority.

Section 3 provides for an immediate effective date.

Justification

The overall blueprint for reforming the health care delivery system in New York has already been set forth in the Medicaid Redesign Team's final report. This proposal facilitates access to capital to support these reform initiatives. It includes capital financing to providers located in high need regions and who serve patient populations with large government payer populations and payer mixes, have chronic financial challenges, and have consequently been impeded from accessing capital to undertake reform initiatives. Those vital initiatives include restructuring, recapitalization and regional rightsizing. The program would only apply to hospitals that operate in underserved regions.

The bill would apply only to projects which meet defined criteria to advance the health reform agenda and system rightsizing in designated high need regions of the State. Funding would be for the full spectrum of capital needs including facility renovations and repurposing, medical high tech equipment and health information technology, "soft" costs, working capital, and care management infrastructure development. Uses of the loan funds could extend outside the Art. 28 hospital to its affiliates.

In the event of a default by a borrower on any portion of its annual debt service, the State would pay the amount of the default to the lenders. The State would finance those payments through 1115 waiver funds allocated for this purpose, other federal health reform funds made available to the State, or other allocated funds. An optional debt service reserve fund could be created as a pre-established fund to be drawn upon in the event of a default.

The program would be administered by DASNY. Applicants must receive approval from a committee chaired by the Commissioner of Health, and consisting of the CEO of the Dormitory Authority and a small number of representatives from the MRT.

The size of the program will depend upon the amount of federal funds potentially available to provide credit enhancement. After the amounts to be allocated to this program are known, and then appropriated, the Commissioner and DASNY officials would meet with the lender community to shape the specific details of the program, including issues such as the sum total lenders would be willing to lend based on the amounts appropriated.

Applicants for the credit enhancement would need to commit that the uses of the credit-enhanced loans would promote agreed-upon regional health reform objectives. Applicants would submit a comprehensive program and business plan and be required to execute documents containing health reform covenants and metrics. The application must contain a business plan which has been approved by the applicant's Board of Directors. The business plan must contain key milestone dates and a description of improvements to be achieved by those dates. The business plan must commit to a list of key reform issues such as acute care downsizing, expansion of primary care, expansion/integration of mental health or other needed service capacity, and implementation of care models consonant with Triple Aim objectives.

Fiscal implications

The State obligation to pay any funds is contingent upon a hospital's default in repayment to a lender, which may never occur. In the event a default did occur, payments by the State would be made to the lender solely from appropriated funds for that purpose, such as 1115 waiver funds provided by the federal government. other federal health reform funds provided to the State or other allocated funds. The bill contains explicit provisions assuring that the potential payments by the State are not a general obligation of the State and thus the State's full faith and credit is not pledged to this credit enhancement.

Effective date

This act shall take effect immediately.