“Expanding Your Capital ProjectThrough

Off Balance Sheet Financing”Off Balance Sheet FinancingNACHRI 2010

C ti C ti C fCreating Connections Conference

March 10, 2010

Mike McDevitt, CHE CPHIMS, EVP/CIO - Children’s Health SystemT. Howard Sisco, CPA, FHFMA, AVP – Finance – Children’s Health System

Ray Walker, Principal Consultant - KLMK Group

Table of ContentsTable of Contents

• Children’s Health System Background

• Project Description

• Strategic Environmental Factors• Strategic Environmental Factors

• Central Utility Plant - Off Balance Sheet/Off CreditCredit

• The Deal Structure/Partners

• Lessons Learned

• Open Discussion• Open Discussion

History/FactsHistory/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 i P di t i Sit• 15 Primary Pediatric Sites• Largest Medicaid Provider• 2009 Capital Campaign

$120 Milli• $120 Million

Patient Care StatisticsTotal inpatient discharges

>14,000

Patient Care Statistics

>14,000

Total Inpatient Days >81,000

lTotal emergency visits >55,000

Total surgeries >20,000

Total outpatient visits >600,000

•Gold standard for nursing excellenceexcellence

•One of only two in Alabama

•Earned by less than 5% in the•Earned by less than 5% in the country

UAB Department of Pediatrics

3rd in NIH funding3 in NIH funding

Top 10 in pediatrics training

30 rated in Best Physicians in America

Over 50% of pediatricians in Alabama trained here

Our StrategyOur Strategy

• Provide comprehensive pediatric care in a single location Relocating Cardiovascular Surgery and Pediatric Cardiac Services Relocating Cardiovascular Surgery and Pediatric Cardiac Services

to Children’s Relocating Solid Organ Transplants to Children’s Co location with UAB Women & Infants Facility provides Co-location with UAB Women & Infants Facility provides

opportunity in advanced intrauterine and perinatal services

• Continue to be dominant in our local market

• Regionally competitive

N ti ll i d T 40 Child ’ H it l• Nationally recognized as a Top-40 Children’s Hospital

• Collaborate in recruiting and retaining a full-complement of sub-specialty physicianssub specialty physicians

Campus VisionCampus Vision

The interior design of the new f ili i dfacility is underway.

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 campusnavigating through the campus

• Construct a LEED Certified FacilityFacility

Proposed Facility Design

Map of the AreaMap of the Area

City of BirminghamRailroad Reservation

17th StreetGreenway Railroad Reservation

Park

y

Central Utility Plant

Ronald McDonaldHouse

y

The Benjamin Russellj

Hospital for ChildrenCampus

UABMedical Campus

UABUABSchool of Medicine

Expansion Facility NeedExpansion Facility Need

• Capacity Constraints No further capacity for vertical/horizontal expansion to accommodate all 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

A f h E i i F• Age of the Existing 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 more difficultg 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 ConstructionPost 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 Diagnostic Servicesp g Imaging GI, GU, Sleep Center

• Some Outpatient Therapies Hemodialysis GI Dental Hemodialysis, GI, Dental

• Support EVS, Dietary, Engineering

• Administrative and Faculty Offices• 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 DiseasesMetabolic Diseases

Expansion Facility

• Pre-Expansion Facility • Post-Expansion Facility

Expansion Facility

Pre Expansion Facility

275 Licensed Beds 42 NICU Bassinets 145-281 sf Acute Care

R

Post Expansion Facility

332 Licensed Beds+2 shelled floors or 96 shelled beds

48 NICU BassinetsRooms

87 ICU Beds/Bassinets ICU – Open Patients Bays 35 Emergency Exam Rooms 12 O i R

315 sf Acute Care Rooms 116 ICU Beds/Bassinets ICU – Private Patient Rooms 52 Emergency Exam Rooms

12 Operating 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 LocationBeneficial Location

• Utilize existing Children’s facilities through bridge connections to create a more unified pediatric medicalconnections to create a more unified pediatric medical campus with convenient parking

• Enhance ongoing collaborations with UAB through the f ll ifollowing: Clinical program alignment (i.e., Women & Infants Services,

Cardiovascular Program and Solid Organ Transplant Program) Clinical research and medical training advancement and 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 FacilityStrategic FactorsStrategic Factors

• Geographic Efficiently accessible to the Community 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’s new Railroad Reservation Park Proximity to the City s new Railroad Reservation Park

• Future Flexibility I iti t M t F ilit Pl th t d t b th l Initiate a Master Facility Plan that does not encumber the long

term strategic development of the hospital and overall campus. Creating a facility platform adaptable to present/future

technologies and innovations in pediatric healthcaretechnologies and innovations in pediatric healthcare

Children’s Expansion FacilityStrategic Factors

• Financial/Operational Factors Keep the overall financing plan under $400 million

Strategic Factors

Keep the overall financing plan under $400 million Challenging financial markets Minimize the negative impact to the organization’s credit

ratingg Independent Auditor’s Opinion Optimize tax exempt status Align corporate focus on hospital’s core business Align corporate focus on hospital s core business Utility Redundancy: N+1, N+2, N+3

• LEED• LEED Design a new facility with an attention to sustainability and

“green” design Set a goal of being LEED Certified Set a goal of being LEED Certified

U.S Green Guide for Healthcare LEED 2.0

Central Utility PlantCentral Utility Plant

• Remotely Located• Flexibility/Expandability• Flexibility/Expandability

• Estimated Demand• 3600 Tons Chilled Water• 650 BHP Hot Water• 650 BHP Hot Water• 5000 KW Emergency Power

• Equipment (N+1, N+2)4 1200 T Chill• 4 – 1200 Ton Chillers

• 3 – 300 BHP Boilers• 3 – 2 Megawatt Generators

LEED I i i i• LEED Initiatives• Heat Recovery Chiller• HVAC Condensate Recovery

Central Utility Plant (CUP)Central Utility Plant (CUP)Off Balance Sheet/Off Credit

CUP - Off Balance Sheet /Off Credit FinancingOff Credit Financing

• CHS Goals: Produce energy efficiently and at a competitively lower cost 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 Take Advantage of Sales Tax Exemption for construction materials and equipment

Future expandability of the CUP to meet the long term energy Future expandability of the CUP to meet the long term energy needs for CHS

CUP - Off Balance Sheet /Off Credit FinancingOff Credit Financing

• How the Goals Were Achieved? Solicited third party bids for CUP

d b ld d

• CHS Goals: Produce energy efficiently and at a

l l design, build, operate and maintain proposals

Third party credit worthy Owner

competitively lower cost

Off CHS Balance Sheet Financing for the CUP - $25 million value d pa ty c ed t o t y O e

Multiple customers of the CUP Staggered agreement terms

t e CU $ 5 o a ue

Off CHS Credit Financing

Supported by Independent Auditor Opinion

Third party owner and customers

Take Advantage of Sales Tax Exemption for construction materials and equipment Third party owner and customers

with similar tax exemption treatment

U ili S i A i h

q p

Future expandability of the CUP to meet the long term energy needs for CHS Utility Services Agreement with

Third Party OwnerCHS

Parties & PartnersParties & 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 &Attorneys: Presley Burton & Collier, Bradley Arant Bolt & Cummings

• Accountants/Auditors: Warren Averett Kimbrough & Marino• Accountants/Auditors: Warren Averett Kimbrough & Marino

• Bank: BBVA Compass

Parties & PartnersParties & Partners

• Customers: The Children’s Hospital of Alabama, The University of Alabama at Birmingham (UAB)University of Alabama at Birmingham (UAB)

• Regulators: Alabama Department of Public Health

• Utilities: Alabama Power, Alagasco, Birmingham Water Works Board

The Deal StructureThe Deal StructureTerms(1) – 40 years(2) - 13 years (23 year amortization)(3) - 18 years

CITYFranchise

AgreementADPHRegulator (3) 18 years

(4) - 18 years(5) - 20 years

Agreement(5)

Development, Operation, d P f

Organizational Documents

g

CON

GUSCO

JCIDeveloper

CHSPrimary

Customer

Utility Service Agreement

(4)

and Performance Guarantee Agreement

(3)

Owner

BBVA CompassUAB

Ground Lease(1)

U ili S i

Financing Agreement

Lawyer Tally:

pFinancer

UABSecondaryCustomer

Utility Service Agreement

(4)

g(2)WAKM

Auditor

Lawyer Tally:

So Much Hassle for What?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)

M lti l C t All C t Sh i• Multiple Customers Allows Cost Sharing

• Passes Regulatory Requirements

Lesson LearnedLesson Learned

• Project Management Discipline is Key

• Politics, Parties and Partners

• Engineering and Accounting Complexity• Engineering and Accounting Complexity

• Regulatory Compliance

• Contract Administration Redundant energy sources Remediation for failure to serve Guaranteed performance

Questions ?Questions ?