Voters will decide Nov. 2 whether to increase a countywide sales tax by 1⁄4 of a cent to go toward a new Allen County Hospital.
Members of the Allen County Healthcare Committee address questions about the issue.
Q: Annual payments on a $30 million financing package will take lots of money — what are the sources of repayment for the $25 million to construct the hospital and the $5 million needed to provide operating money once HCA no longer operates the hospital?
A: Part 2 to paying for a new hospital — Medicare reimbursement as a Critical Access hospital.
As a Critical Access hospital, Allen County Hospital receives 101 percent of its costs to provide services to Medicare patients. This is the second important source of revenue to pay for a new hospital. Wednesday we discussed profits and Friday in Part 3, we will discuss the sales tax piece.
Expenses that can be reimbursed under Medicare include the cost of providing capital improvements, including the cost of building a new hospital.
This means that the annual payments of principal and interest to amortize a new hospital bond issue are reimbursable under Medicare to the extent that patient billings to Medicare are a percentage of total hospital billings.
We understand that Medicare inpatient billings are over 60 percent and
that Medicare out-patient billings are over 40 percent, so an assumption of 50 percent of total billings would mean that 50 percent of the annual payments for principal and interest on the building bonds would be paid each year by Medicare.
To amortize $25 million in bonds and pay off a $5 million local bank loan, the annual payments required for the first 10 years would be $2,155,972, assuming 30-year bonds and a 4.5 percent interest rate.
Based on Medicare patients providing 50 percent of hospital billings, Medicare would provide $767,394 of the $1,534,788 that would be paid on the bonds each year.
After 10 years the bank loan of $5 million is paid off and the $631,894 used to make that payment can be used elsewhere.
Required debt service funding drops to $1,534,788 in year 11 on the 30-year bonds and Medicare reimbursement is, again, 50 percent of the total.
Part 3 of our four-part “Paying for a new hospital” will explain how sales tax income will be used.
Yes! Allen County Healthcare
