49–006 

109TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 109–424 

RURAL HEALTH CARE CAPITAL ACCESS ACT OF 2006 

APRIL 25, 2006.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. OXLEY, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 4912] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 4912) to amend section 242 of the National Housing Act 

to extend the exemption for critical access hospitals under the FHA 

program for mortgage insurance for hospitals, having considered 

the same, report favorably thereon without amendment and recommend that the bill do pass. 

CONTENTS 

Page 

Purpose and Summary ............................................................................................ 1 

Background and Need for Legislation .................................................................... 2 

Hearings ................................................................................................................... 3 

Committee Consideration ........................................................................................ 3 

Committee Votes ...................................................................................................... 3 

Committee Oversight Findings ............................................................................... 3 

Performance Goals and Objectives ......................................................................... 3 

New Budget Authority, Entitlement Authority, and Tax Expenditures ............. 4 

Committee Cost Estimate ....................................................................................... 4 

Congressional Budget Office Estimate ................................................................... 4 

Federal Mandates Statement ................................................................................. 5 

Advisory Committee Statement .............................................................................. 5 

Constitutional Authority Statement ...................................................................... 5 

Applicability to Legislative Branch ........................................................................ 5 

Section-by-Section Analysis of the Legislation ...................................................... 6 

Changes in Existing Law Made by the Bill, as Reported ..................................... 6 

PURPOSE AND SUMMARY

The purpose of this legislation is to extend an existing exemption 

that allows small, rural hospitals, known as Critical Access HosVerDate Aug 31 2005 06:32 Apr 28, 2006 Jkt 049006 PO 00000 Frm 00001 Fmt 6659 Sfmt 6602 E:\HR\OC\HR424.XXX HR424

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pitals, to be eligible for mortgage insurance under the Federal 

Housing Administration (FHA). 

BACKGROUND AND NEED FOR LEGISLATION

Hospitals face significant financial challenges when providing 

care to patients who are covered by Medicare and Medicaid. At the 

same time, improvements in technology and health care knowledge 

necessitate capital improvements, such as additions and renovations to existing buildings. It is generally accepted that modern 

health care facilities would improve the quality of life and the 

health of the population. 

Section 242 of the National Housing Act, enacted in 1968, permits FHA to insure mortgages of hospital sponsors used to finance 

the replacement, modernization and rehabilitation of existing facilities. Low interest rate costs attributable to FHA financing, as well 

as the development of more cost efficient facilities, allows costs to 

both providers and Federal and State reimbursement systems to be 

substantially reduced. 

While FHA’s process for reviewing mortgage insurance applications includes more steps, such as a pre-application meeting and 

review by an independent consultant, and generally takes longer 

than private insurers, FHA officials believe these extra steps are 

justified given the generally riskier nature of the hospitals applying. Once it insures a hospital mortgage, FHA monitors the loan 

using many of the same techniques that private insurers use. For 

example, both FHA and private insurers identify the riskiest loans 

in their portfolios for closer monitoring. They also periodically review hospital financial statements and management activities and 

can require hospitals experiencing financial difficulties to use consultants for needed expertise. 

HUD assumes that the lenders for some active hospitals will file 

claims for insurance and, therefore, increases its estimated claim 

rate. In 10 of the 14 years that HUD has been estimating the cost 

of the hospital program under credit reform, HUD has calculated 

a negative subsidy rate, meaning that estimated cash flows (including fees, premiums, and recoveries on defaulted loans) have been 

greater than estimated cash outflows (including claims and certain 

program expenses). 

To be eligible for Section 242 financing, a hospital must obtain 

a certificate of need (CON) from a designated state agency, or in 

the absence of CON authority, a state commissioned feasibility 

study. To address those states that lacked CON authority, the 

Mortgage Insurance Act of 2003 allowed the Secretary of HUD to 

establish means for determining the need and feasibility for the applicant hospital’s proposed project. 

In addition, this legislation, signed into law in 2003, created an 

exemption for Critical Access Hospitals (CAH) to help them qualify 

for Section 242 mortgage insurance. Critical Access Hospitals 

(CAH) are rural hospitals with a maximum of 25 beds and must 

be at least 35 miles from the nearest hospital, although there are 

exceptions in mountainous areas and for State-designated ‘‘necessary providers.’’ Because of the financial challenges associated 

with providing healthcare in isolated areas, CAHs receive costbased reimbursement from Medicare. 


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Despite the efforts of FHA staff, some challenges remained for 

rural hospitals to gain access to the program. One of these was the 

statutory requirement in Section 242 that not more than 50 percent of a hospital’s adjusted net patient days could be ‘‘assignable 

to the categories of chronic convalescent and rest, drug and alcoholic, epileptic, mentally deficient, mental, nervous and mental, 

and tuberculosis....’’ Small rural hospitals sometimes have a 

hard time meeting this requirement. These rural communities 

often combine hospitals and nursing homes in order to achieve savings by sharing facilities and services such as pharmacy, food service, etc. 

The Hospital Mortgage Insurance Act of 2003 eliminated this socalled patient day test for CAHs thereby making them eligible for 

FHA mortgage insurance, but limited the exemption to three years. 

The exemption expires on July 31, 2006. 

H.R. 4912 would extend the exemption for Critical Access Hospitals for another five years. 

HEARINGS

No hearings were held on this legislation in the 109th Congress. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

March 15, 2006, and ordered H.R. 4912 reported to the House with 

a favorable recommendation, a quorum being present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. No record votes were 

taken in conjunction with the consideration of this legislation. A 

motion by Mr. Oxley to report the bill to the House with a favorable recommendation was agreed to by a voice vote. 

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee has made findings that are reflected in the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee establishes the following performance related goals and objectives for this legislation: 

The performance goal is to ensure that rural hospitals in every 

state are able to gain access to FHA mortgage insurance. 

Recent healthcare statistics show a huge backlog of capital improvement needs for the majority of hospitals in the United States. 

Rural hospitals face even fewer opportunities to make much needed 

repairs, achieve reasonable terms for refinancing, or build replacement facilities. 

The goal of this legislation would allow Americans residing in 

rural areas access to adequate, updated healthcare and medical facilities. 


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NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, March 27, 2006. 

Hon. MICHAEL G. OXLEY, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 4912, the Rural Health 

Care Capital Access Act of 2006. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Susanne S. Mehlman. 

Sincerely, 

DONALD B. MARRON, Acting Director. 

Enclosure. 

H.R. 4912—Rural Health Care Capital Access Act of 2006 

CBO estimates that implementing H.R. 4912 would increase offsetting collections (a credit against discretionary spending) by $1 

million to $3 million over the next five years. Enacting the bill 

would not affect direct spending or revenues. 

H.R. 4912 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act. The bill 

would provide benefits to any hospitals owned by state, local, or 

tribal governments that apply for and receive Federal Housing Administration (FHA) loan guarantees. 

Under the National Housing Act, FHA offers to guarantee private loans used to finance the modernization and rehabilitation of 

certain hospital facilities. To qualify for such loan guarantees, hospitals must meet certain criteria, including assigning no more than 

50 percent of total patient days (that is, essentially the number of 

days a person is in a hospital) to patients requiring care involving 

chronic convalescence and rest, drug and alcoholic rehabilitation, 

and mental issues. Under current law, critical access hospitals, 


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which are usually small, isolated rural hospitals with a limited 

number of beds available for acute care, are exempted from this requirement through July 31, 2006. 

H.R. 4912 would extend the exemption for critical access hospitals to July 31, 2011. To the extent that additional hospitals 

would obtain loan guarantees under this bill (after the current cutoff of July 31, 2006), CBO estimates that FHA could earn additional offsetting collections (which are recorded as a reduction in 

discretionary spending). Under current law, FHA guarantees of 

loans to hospitals result in net offsetting collections to the federal 

government because the credit subsidy is estimated to be negative. 

That is, guarantee fees for new loans more than offset the costs of 

expected defaults, resulting in net collections from the loan guarantee program. 

Based on information from FHA, CBO estimates that, over the 

next five years, only a few critical access hospitals are likely to 

need the exemption that would be provided under this bill to be eligible for the FHA loan guarantee. The average hospital loan guarantee is about $18 million and the subsidy rate for this program 

is estimated to be negative 3.5 percent for fiscal year 2007 and for 

subsequent years. CBO estimates that enacting this legislation 

would result in collections of $1 million to $3 million over the fiscal 

year 2007–2011 period. Such offsetting collections are contingent 

on enactment of appropriation bills, which establish the authority 

to make such loan guarantees by specifying commitment levels. 

Thus, enactment of H.R. 4912 would not affect direct spending or 

revenues. 

The CBO staff contact for this estimate is Susanne S. Mehlman. 

This estimate was approved by Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee finds that the Constitutional 

Authority of Congress to enact this legislation is provided by Article 1, section 8, clause 1 (relating to the general welfare of the 

United States) and clause 3 (relating to the power to regulate interstate commerce). 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act. 


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SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section establishes the short title of the bill, the ‘‘Rural 

Health Care Capital Access Act of 2006.’’

Section 2. Extension 

This section amends paragraph (1) of section 242(i) of the National Housing Act (12 U.S.C. 1715z–7(i)(1)) to extend the exemption for Critical Access Hospitals to remain eligible for FHA mortgage insurance until July 31, 2011. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

SECTION 242 OF THE NATIONAL HOUSING ACT 

MORTGAGE INSURANCE FOR HOSPITALS

SEC. 242. (a) * * * 

* * * * * * * 

(i) TERMINATION OF EXEMPTION FOR CRITICAL ACCESS HOS- PITALS.—

(1) IN GENERAL.—The exemption for critical access hospitals 

under subsection (b)(1)(B) shall have no effect after July 31, 

ø2006¿ 2011. 

* * * * * * * 

Æ 


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