Urging lawmakers to lift the $150 million cap on tax-exempt bonds for non-acute healthcare organizations, not-for-profit providers testified last week on Capitol Hill that the restriction is blocking innovation, preventing needed construction and forcing providers to tap higher-cost taxable money.
Appearing before a joint hearing of the House Ways and Means select revenue measures and oversight subcommittees, tax-exempt providers and municipal securities executives said repealing the cap would give providers the flexibility to develop low-cost alternatives to inpatient care.
The Senate Finance Committee's reform bill eliminates the $150 million per-organization cap on outstanding debt, while the House Ways and Means' bill is silent on the issue.
The reform bill offered by Senate Democratic leader George Mitchell of Maine debated last week retains the bond cap. A bill submitted by the House Democratic leadership does not.
Under the federal tax code, "non-hospital" facilities such as nursing homes, HMOs and clinics are not allowed to have more than $150 million in tax-exempt bonds outstanding.
In addition, the cap applies to non-hospital facilities developed by acute-care hospitals. So hospitals seeking to add HMOs, clinics and long-term-care facilities may be thwarted from doing so or may be forced to borrow taxable funds. Finance experts testified that such limits could stifle development of innovative alternatives to acute-care facilities.
The cap also "presents a potential barrier to hospital mergers," said John G. Martinez, president and chief executive officer of the New York State Medical Care Facilities Finance Agency, the nation's largest issuer of tax-exempt healthcare bonds.
Before a merger, every hospital and its affiliates has a $150 million limit for non-hospital bonds. But after a merger or affiliation in which a common parent organization is created, the institutions would have a single limit of $150 million. Bonds that exceed the cap could become taxable retroactively to the date of issue, constituting a technical default of hospitals' bond covenants, Mr. Martinez warned.
Non-hospital facilities face the same barrier, said Laverne Joseph, president and CEO of the Retirement Housing Foundation, a Long Beach, Calif., owner and operator of 124 long-term-care facilities. Speaking on behalf of the American Association of Homes and Services for the Aging, Mr. Joseph said the cap prevented American Baptist Homes of the West, an Oakland, Calif.-based sponsor of 17 retirement facilities, from merging with another not-for-profit healthcare organization.
His own corporation, Retirement Housing Foundation, recently was forced to relinquish an opportunity to bid on some Resolution Trust Corp. properties because the financing would have pushed it over the $150 million cap.