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Waiver and Recovery
Right of Recovery and Waiver of Recovery
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.
Change of Status and Notification Requirement
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.
Recovery Claims
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:
- a facility is transferred to an entity not qualified
to receive a grant; or
- 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.
Recovery
Calculation Methods and Interest Accrual
Recovery Calculation Methods
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.
Interest Accrual
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.
Types of Waivers
- Good Cause Waiver of Recovery
When a facility ceases to operate as a facility that
would have been eligible for a grant, a good cause
waiver of the right to recover may be granted. For
a good cause waiver to be granted, a facility must
be:
- used by the grant applicant, or other owner,
for another public or nonprofit purpose;
- used for the remainder of its 20-year eligible
period for an equivalent purpose for which it
was constructed; or
- able to document that it functions as a rehabilitation
center and continues to provide rehabilitation
services even though it has discontinued providing
medical evaluations and services.
- Waiver Trust Agreements
The trust must be established in an amount equal to
the greater of:
- twice the amount of the remaining Hill-Burton
uncompensated services obligation: or
- the amount that would have been due under recovery.
In addition to establishing a trust, the new owner
must also agree to comply with the community service
regulations.
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