A public or other nonprofit facility assisted under the Hospital Survey and Construction Act (the Hill-Burton Act), either Titles VI or XVI must retain its eligible status for a period of 20 years from completion of the assisted project. If an assisted facility changes its status, in either its ownership or its use, a recovery action must be considered. If an obligated facility is transferred to an ineligible entity (a for profit entity or a non-profit entity unwilling to assume service obligations through sale, lease or management contract), the Federal Government is entitled to a recovery.
However, the Secretary may issue a good cause waiver which conditionally waives the right of recovery of Federal funds if a facility continues to be used in a manner consistent with the purposes of the Public Health Service (PHS) Act. Subsequent changes of use or control which occur within the 20-year obligation period must be reviewed. A good cause waiver of recovery may be granted if a facility that received assistance ceases to be used for an eligible purpose, and there are assurances that its service obligations will be assumed by an eligible entity. Additionally, if there is a change from one type of eligible facility to another no recovery action is necessary. However, this change of status must be approved by the Secretary. If there is a change of control within the 20 year eligible use period of a facility to another eligible entity which agrees to assume the Hill-Burton obligations, no recovery action is necessary.
The Secretary may issue a waiver to a proprietary entity which obtained control or purchased an obligated facility, provided that the entity agrees to establish an irrevocable trust to provide eligible health services.
A change of status includes a facility ceasing to be a legal organization qualified to have filed a grant application. A change of status occurs when a facility is closed or conveyed to another entity through lease, merger, bankruptcy, foreclosure or other arrangement. Also included could be a sale or management agreement. Any change of status of a facility within 20 years of completion of the assisted project requires a review within 10 days of the change.
A change of use is when a facility ceases to be used for one or more of the purposes for which it was constructed. All types of status changes must be reported to the HRSA Division of Facilities Compliance and Recovery for review.
A change of status review can result in a recovery claim, a good cause waiver, or establishment of a waiver trust agreement.
Whenever a medical facility undergoes a change of status, a recovery action must be considered if either of the following changes of status occur within 20 years after completion of the grant assisted construction:
1. a facility is transferred to an entity not qualified to receive a grant; or
2. a facility ceases to be qualified to receive a grant and there is change of ownership.
A recovery review is made whenever a change of status notice indicates that a proprietary entity has acquired a facility, or there has been a transfer, sale, or change of use in a nonprofit health care facility.
A recovery review is made whenever a change of status notice indicates that a proprietary entity has acquired a facility, or a transfer, sale, or change of use in a nonprofit health care facility has occurred.
The Government is entitled to recover an amount which is based on the value of the facility at the time of the status change ("then date" value) proportioned to the level of federal participation which existed at the time of the project construction.
The recovery claim will be based on two methods of calculation. The methods are: (1) the Transaction Value Method in the case of an arms-length sale or transfer, or (2) a Depreciation Reproduction Value Method in the absence of an arms-length sale or transfer or if the buyer fails to provide within 60 days the information which, in the judgment of the Secretary, is necessary to establish, adjust, or apportion a transaction value.
The Transaction Value means in the case of a sale, the sale price, and in the case of a lease, the value of the lease plus the residual value of the facility at the termination of the lease. The Transaction Value will be adjusted to account for the purchase or lease of other assets and the assumption of liabilities associated with the transaction. The adjusted value will be apportioned to the grant-aided assets by the ratio of the remaining useful lifetime values of the grant-aided assets to the sum of the remaining useful lifetime values of all other assets.
The Depreciation Reproduction Value Method is established by calculating a reproduction value using building cost indexes or current costs per square foot for construction. This value will then be adjusted by the ratio of the remaining useful life of buildings and equipment to the total useful life of buildings and equipment.
For facilities that take longer than 180 days from the date of the Department's receipt of the notice of change of status to agree to and pay a recovery amount, interest will accrue on the eventual recovery amount beginning 180 days after receipt of the required notice by the Secretary, and ending when the recovery amount is collected;
For facilities that fail to notify the Secretary of a change in status (sale, transfer, or change of use) within 10 days of the change, interest will begin to accrue on the date of the change of status; and
In the case of facilities that changed status before July 18, 1984, interest would begin to accrue in 30 days, but in no case earlier than 180 days from the date of the change of status regardless of when the facility notified the Secretary of the change.