HOSPITAL MORTGAGE LOANS

Section 87.30 - General requirements

HOSPITAL MORTGAGE LOANS

87.30 General requirements.

(a) The terms eligible borrower, mortgagor or hospital as used in this Part shall mean a not-for-profit hospital or medical corporation that has entered into a regulatory agreement with the commissioner.

(b) A hospital is required to comply with all applicable provisions of law, including, but not limited to, the Private Housing Finance Law and the New York State Medical Care Facilities Finance Agency Act, the Public Health Law, the State Hospital Code and the administrative rules and regulations of the State Commissioner of Health.

(c) A hospital shall apply for the prior approval of construction of the facility in accordance with the provisions of section 2802 of the Public Health Law and the State Hospital Code.

(d) A hospital shall apply for a mortgage loan by setting forth in the application for construction the amount of the proposed mortgage loan requested for development of the project.
 

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Section 87.31 - Project development

87.31 Project development.

(a) This section shall apply to the project development period from the inception of a project to the final financial occupancy date declared by the State Commissioner of Health.

(b) All proposed or pre-existing professional service contracts and consultant contracts shall require the written approval of the State Department of Health to be included in eligible project cost. All such contracts shall be in writing duly executed by the parties thereto.

(1) All architectural and engineering contracts shall be submitted to the State Department of Health for approval. The architect or engineer shall comply with the State Department of Health requirements including the provision of acceptable professional liability insurance, the assurance of continuity of professional services, satisfactory evidence of the ability to perform the architectural and engineering services required, and agreement to attend conferences and provide professional services as required by the State Department of Health.

(2) All attorney retainers shall be submitted to the State Department of Health for review and approval. The attorney shall comply with the State Department of Health requirements including the assurance of continuity of professional services and the agreement to attend conferences and provide professional services as required by the State Department of Health.

(3) All written consultant contracts relating to the development period shall be submitted to the State Department of Health for review and approval. The consultant shall comply with the State Department of Health requirements including the assurance of continuity of consultive services, satisfactory evidence of ability to perform the consultive services required, and agreement to attend conferences and provide consultive services as required by the State Department of Health.

(4) All professional service contracts and consultant contracts for the project shall set forth fee and payment provisions in an amount no greater than contained in the fee guidelines approved by the State Department of Health.

(c) An eligible borrower shall obtain current exempt organization certificates from the U.S. Internal Revenue Service as a hospital under section 501 (c)(3) of the Internal Revenue Code and statements of exemption from the State Department of Taxation and Finance.

(d) An eligible borrower shall provide acceptable topographical surveys of the project site certified by a licensed surveyor to the hospital, the hospital's title insurance company, the State Department of Health, and the State Housing Finance Agency or the State Medical Care Facilities Finance Agency in accordance with the requirements of the State Department of Health. An eligible borrower shall also provide title reports and continuations thereof covering the project site from an acceptable title insurance company, free and clear of exceptions objectionable to the State Department of Health and the State Housing Finance Agency or the State Medical Facilities Finance Agency, and certified copies of certificates of incorporation and such other corporate certificates of special acts of the legislature as required by the State Department of Health.

(e) An eligible borrower shall submit for approval a schedule of estimated development costs and capital requirements, a schedule of estimated annual expenses and income, supporting schedules of all estimated development costs and capital requirements and estimated annual expenses and income, a project cost analysis schedule and such other project statistics, space requirements and financial data as the State Department of Health may require.

(f) An eligible borrower shall conform with the bid requirements and procedures of the State Department of Health providing for competitive bidding by contractors and subcontractors and the provisions of "Supplementary Instructions to Bidders".

(g) Construction contracts shall include the standard form of agreement between owner and contractor as amended by the State Department of Health which includes the required "Modification to Standard Form of Agreement Between Owner and Contractor", the "Supplementary Conditions of the Contract for Construction" and such further terms, provisions and documents as may be required by the Department of Health.

(h) Payment and performance bonds acceptable to the State Department of Health shall be required to insure the faithful performance of the contract and payment for labor and the furnishing of materials for all contracts.

(i) The Department of Health may modify the requirements for hospital projects set forth in subdivisions (g) and (h) of this section for project construction completed prior to mortgage closing.
 

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Section 87.32 - Project construction

87.32 Project construction.

(a) All payments made by a hospital after mortgage closing for construction and development costs require the written approval of the State Department of Health. Payments may only be made for expenditures authorized in the development cost and capital requirement budget approved by the State Department of Health. Payments may be permitted monthly from either mortgage loans or capital contribution funds in accordance with procedures approved by the State Department of Health. Any capital or development costs determined by the State Department of Health to be ineligible under the 28-B program will not be approved for payment as a project cost. All payment approvals shall be subject to and conditioned upon audit by the State Department of Health.

(b) From mortgage closing until completion of the development period, the hospital may only enter into construction contracts contemplated by the approved contract and/or only with the prior approval of the department.

(c) Acceptable surveys and title reports, or satisfactory updates of such acceptable to the State Department of Health and the State Housing Finance Agency or the State Medical Care Facilities Finance Agency, free and clear of all exceptions not approved by the State Department of Health, shall be submitted prior to approval of payments after mortgage closing.

(d) Satisfactory evidence of identification of materials and insurance coverage in a form and amount acceptable to the State Department of Health shall be furnished for any project materials stored off the site of the project.

(e) All construction contract changes shall have prior written State Department of Health approval, except changes that must be started immediately to correct emergency field conditions. Requests for change orders from contingency funds may only be approved if required to meet emergency and life safety requirements, unforeseen field conditions or errors and omissions in contract documents. Requested changes of scope or of quality or type of functions, materials or equipment may be approved if the cost and the proposal are reasonable, if funds are available and if the change will not result in an increase in operating cost unless such change is approved by the article 28 process and the State Housing Finance Agency, or the State Medical Care Facilities Finance Agency. All change orders proposed shall contain a statement specifying if the contract completion time is to be changed. The State Department of Health shall limit all change order approvals from contingency funds to those necessary for completion of the project in order to protect the adequacy of the contingency budget.

(f) Acceptance of a restricted donation or a donation in kind which may result in an increase in operational costs shall have the prior approval of the State Department of Health.

(g) The equity funds of a hospital not currently required shall be invested. Such investments shall have the prior approval of the State Department of Health.

(h) Equipment may only be purchased by projects after approval of an equipment list by the State Department of Health. Such list shall be in accordance with the requirements set forth in the State Department of Health "Manual for the Preparation of Equipment Lists". Unit and total cost approval for all items shall be approved by the State Department of Health.

(i) Final payment for the completion of any contract shall require satisfactory evidence of payment of all sub-contractors and materialmen, the submission of all releases required by the State Department of Health, and such affidavits, certifications and consents of the hospital, the architect, the contractor and the surety as the State Department of Health may require.
 

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Section 87.33 - Development period records and reports

87.33 Development period records and reports.

(a) A hospital shall establish and maintain a separate uniform system of accounts during the development period for all items of project cost designed to conform with the State Department of Health requirements and regulations.

(b) The following reports as required by the regulatory agreement during the development period after mortgage closing shall be submitted promptly.

(1) Quarterly reports commencing with the date of inception to and including the last day of March, June, September and December.

(2) An annual report for the period ending December 31, or the fiscal year ending date if different, which shall contain the opinion and certificate of an independent licensed or certified public accountant.

(c) Quarterly reports to the State Department of Health required by this Part shall be submitted within 60 days following the end of the reporting period and annual reports required by this Part shall be submitted within 90 days following the end of the reporting period or as otherwise specified by the regulatory agreement.

(d) A hospital shall submit promptly such special reports as may from time to time be required by the State Department of Health.
 

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Section 87.34 - Insurance

87.34 Insurance.

(a) A hospital shall make provision for and obtain insurance and bonds in accordance with the requirements of the State Department of Health and the State Housing Finance Agency or the State Medical Care Facilities Finance Agency.

(b) The amount, extent and endorsements of the insurance maintained, and the custody of the insurance policies, shall be in accordance with the requirements of the State Department of Health.

(c) A hospital shall provide and maintain such additional insurance as may from time to time be required by the State Department of Health.
 

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Section 87.35 - Initial occupancy

87.35 Initial occupancy.

(a) A hospital shall obtain timely final inspections of construction and medicaid and medicare approvals. Requests for such, and the submission of an application for an operating certificate to the State Department of Health, shall be instituted six months prior to scheduled initial occupancy of the project.

(b) A hospital shall forward to the State Department of Health a final proposed schedule of estimated annual expenses and income and a supporting schedule of all entries therein no later than three months prior to initial occupancy of the project.

(c) A hospital shall submit to the State Department of Health for approval for each budget year a balanced budget of estimated annual expenses and income no later than 15 days preceding the effective date of the budget.

(d) A hospital shall obtain the prior approval of the State Department of Health for all written contracts except those approved by inclusion in the approved budget of the hospital.

(e) A hospital shall establish and maintain an inventory register of all equipment purchased as a part of the project in accordance with the requirements of the State Department of Health.

(f) Any change in or addition to the services provided by a hospital shall require prior approval as set forth in the State Hospital Code.

(g) Such other reports as may be required by the State Department of Health shall be submitted promptly.
 

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Section 87.36 - Operational period

87.36 Operational period.

(a) The operational period shall commence on the financial occupancy date declared by the State Commissioner of Health and end on final repayment and satisfaction of the mortgage loan.

(b) A hospital shall be operated in accordance with the requirements of the State Hospital Code and the administrative rules and regulations of the State Commissioner of Health.

(c) The following reports for the operational period from the financial occupancy date to discharge of the mortgage lien shall be submitted promptly as required by the regulatory agreement:

(1) Quarterly reports during each calendar or fiscal year commencing with the final financial occupancy date to and including the last day of March, June, September and December.

(2) An annual report for the period ending December 31, or the fiscal year ending date if different, which shall contain the opinion and certificate of an independent licensed or certified public accountant.

(d) Quarterly reports to the State Department of Health required by this Part shall be submitted within 60 days following the end of the reporting period and annual reports required by this Part shall be submitted within 90 days following the end of the reporting period, or as otherwise specified by the regulatory agreement.

(e) All hospital records, reports and schedules required during the development period shall be maintained or submitted as the case may be, during the operational period.
 

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Section 87.37 - Personal tangible property

87.37 Personal tangible property.

(a) A property register shall be maintained by a hospital for each type of major movable property owned.

(b) The property register may be in the form of a subsidiary equipment ledger.

(c) Entries in the property register shall be made as soon as possible after a transaction is completed. A systematic plan of recordkeeping that permits the efficient recording of purchases, transfers, trade-ins and retirements shall be used.

(d) A sample physical inventory of all items in the proper register shall be made at least once a year. The property register may be adjusted to reflect any necessary material changes resulting from the physical inventory provided that an officer of a hospital certifies to the facts of the adjustment. Adequate details of the physical inventory, adjustments and certifications shall be maintained for inspection by the State Department of Health.

(e) All property having a unit cost of $50 or more at time of purchase may be used as part payment for replacement equipment, or it may be offered for sale on a competitive basis. If no offers are received, it may be discarded provided an officer of a hospital certifies to the facts of such disposal.

(f) An annual physical inventory of consumable supplies on hand shall be taken and recorded on the books of a hospital.
 

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Section 87.38 - Escrow funds

87.38 Escrow funds.

(a) A hospital shall submit annually to the State Department of Health a schedule detailing those amounts that it is required to fund in the reserve escrow account.

(b) The reserve escrow account shall be opened in a Federally insured commercial bank that agrees to the uniform custodial agreement of the State Department of Health.

(c) From the financial occupancy date, a hospital shall deposit monthly in a reserve escrow account one-twelfth of its annual required funding.

(d) A hospital shall establish a separate mortgage repayment escrow count and make deposits and withdrawals into and from the account as required by the mortgage and the mortgagee.

(e) A hospital shall invest excess funds in the reserve escrow account in a manner specifically approved by the State Department of Health. Copies of the records of all transactions shall be promptly submitted to the State Department of Health.

(f) The deposited reserves for replacements shall be available to provide purchase money for necessary material replacements of furnishings and/or equipment and major repairs of construction and equipment.

(g) To obtain the disbursement of reserve escrow account funds, other than in the case of imminent peril, a hospital shall submit in advance to the State Department of Health such documentation as may be necessary for its approval.
 

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Section 87.39 - Salaries or fees to officers or directors

87.39 Salaries or fees to officers or directors.

No hospital shall pay any salaries or fees to any director or trustee, except that salaries or fees may be paid to officers of the board, directors or trustees for services actually performed.
 

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Section 87.40 - Purchases and contracts

87.40 Purchases and contracts.

(a) Purchases and contracts for hospital materials and services shall be limited to those items needed for hospital operation. Such purchases and contracts shall be subject to budgetary limitations except where the expenditure is necessary to protect life or property from imminent danger.

(b) Purchases and contracts shall be awarded by a hospital only after every reasonable effort has been made to obtain the lowest possible cost commitment consistent with prudent operation. Substantial construction contracts, as defined in the State Hospital Code (10 NYCRR Part 710) shall require verification of cost by competitive bidding acceptable to the State Department of Health.

(c) Prior to permitting any supplier or contractor to perform, a hospital shall require the contractor to submit satisfactory evidence of any insurance coverages and performance and payment bonds that may be required by the contract or purchase documents.
 

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