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[House Report 108-27]
[From the U.S. Government Publishing Office]

108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     108-27

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                HOSPITAL MORTGAGE INSURANCE ACT OF 2003

                                _______
                                

 March 6, 2003.--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. 659]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 659) to amend section 242 of the National Housing 
Act regarding the requirements for mortgage insurance under 
such Act 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     3
Committee Cost Estimate..........................................     4
Congressional Budget Office Cost Estimate........................     4
Federal Mandates Statement.......................................     5
Constitutional Authority Statement...............................     5
Applicability to Legislative Branch..............................     5
Section-by-Section Analysis......................................     6
Changes in Existing Law Made by the Bill, as Reported............     6

                          Purpose and Summary

    H.R. 659, the Hospital Mortgage Insurance Act of 2003, will 
amend section 242 of the National Housing Act (12 U.S.C. 1715z-
7) to respond to changes in State laws in order to ensure that 
hospitals will not be automatically prevented from applying for 
FHA mortgage insurance. This provision permits the Department 
of Housing and Urban Development (HUD) to establish an 
alternate method for hospitals to demonstrate the need and 
feasibility of their proposed projects in those States where 
State evaluation processes no longer exist.

                  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.
    In an effort to assist States to provide modern health care 
facilities, Congress enacted section 242 of the National 
Housing Act in 1968. Section 242 permits FHA to insure 
mortgages of hospital sponsors used to finance the replacement, 
modernization and rehabilitation of inefficient existing 
facilities. Low interest rate costs attributable to FHA insured 
financing, as well as the development of more cost-efficient 
facilities substantially reduces both provider and Federal and 
State reimbursement.
    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. In addition, the hospital needs 
to demonstrate that there are reasonable State or local minimum 
licensing and operating standards in effect.
    The Certificate of Need program was established in 1968 by 
Congress to control the number of hospital beds and 
expenditures. When the Federal Certificate of Need program 
began, forty-nine States enacted legislation for a Certificate 
of Need program; Louisiana was the only State that did not.
    However, as a result of continuing Federal policy 
encouraging deregulation, CON authority has ``sunset'' in some 
States. In fact, over the last 20 years, at least 18 States 
have repealed their Certificate of Need programs. The problem 
has been further compounded by at least two other factors. In 
some States retaining CON authority, some projects will not 
qualify for the Certificate of Need process. In others, the 
relevant State agency often lacks the authority to commission 
alternative feasibility studies.
    H.R. 659 would address problems in States where section 242 
mortgage insurance for hospitals is not available. The 
legislation would also:
           Allow uniform eligibility criteria to be 
        established to safeguard FHA insurance funds while 
        generating additional insurance premium revenues;
           Complement the cost reduction goals of 
        Federal regulations;
           Significantly reduce the cost to providers 
        of complying with expensive, pre-deregulation CON 
        eligibility requirements; and,
           Provide major economic stimulus to State and 
        local communities, as well as construction and 
        permanent employment opportunities.
    In the 107th Congress, provisions similar to H.R. 659 were 
included in H.R. 3995, the Housing Affordability Act for 
America. H.R. 3995 was considered and approved by the Committee 
on Financial Services. However, H.R. 3995 was not considered by 
the full House.

                                Hearings

    No hearings were held on this legislation in the 108th 
Congress.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
Feburary 13, 2003, and ordered H.R. 659, the Hospital Morgage 
Insurance Act of 2003, reported to the House with a favorable 
recommendation by a voice vote, 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. 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 made findings that are 
reflected in 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 legislation will ensure that hospitals in every State 
are able to submit adequate information to demonstrate 
eligibility for FHA mortgage insurance. HUD will ensure that 
minimum standards for licensure and operations exist and will 
be applied satisfactorily and develop guidelines for 
documenting need and feasibility for the hospital. In cases 
where the State continues to issue a Certificate of Need, in 
addition to other requirements that may be established by the 
Secretary, the applicant is required to show evidence of prior 
approval under that program.

   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 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 of 
1974.

                        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, February 27, 2003.
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. 659, the Hospital 
Mortgage Insurance Act of 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susanne S. 
Mehlman.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 659--Hospital Mortgage Insurance Act of 2003

    CBO estimates that implementing H.R. 659 would increase 
offsetting collections (a credit against discretionary 
spending) by $2 million to $3 million a year. Enacting the bill 
would not affect direct spending or revenues.
    H.R. 659 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    Under the National Housing Act, the Federal Housing 
Administration (FHA) of the U.S. Department of Housing and 
Urban Development (HUD) offers to insure private loans used to 
finance the modernization and rehabilitation of certain 
hospital facilities. To qualify for such insurance, hospitals 
must obtain a certificate of need (CON) issued from a 
designated state agency. The CON determines whether or not the 
hospital applying for the loan meets certain eligibility 
requirements necessary for receipt of the FHA loan guarantee. 
If a state has no CON process in place, the state must 
commission or conduct an independent feasibility study in lieu 
of the CON. According to FHA, 24 states currently do not have a 
CON process in place and, many of these states do not have the 
fiscal and managerial means to support a feasibility study on 
their own.
    H.R. 659 would give HUD the authority to establish a 
process for determining the need and feasibility for a 
hospital's proposed project, thus eliminating the requirement 
for states to provide a feasibility study where no CON 
procedure exists. To the extent that additional hospitals would 
obtain loan insurance under this bill, CBO estimates that FHA 
could earn additional offsetting collections (which are 
recorded as a reduction in discretionary spending). Under 
current law, FHA guarantees of hospital mortgages result in net 
offsetting collections to the federal government because the 
credit subsidy is estimated to be negative. That is, guarantee 
fees for new mortgages more than offset the costs of expected 
defaults, resulting in net collections from the loan guarantee 
program.
    CBO expects that H.R. 659's change to the application 
process would create some increase in demand for the hospital 
insurance program, especially in the 24 states without a CON 
process. According to FHA, this program currently insures 64 
mortgages with a combined outstanding principal balance of 
about $4 billion. Only four mortgages out of those 64 are 
located in non-CON states. Based on information from industry 
sources, CBO expects that the need for capital improvements in 
hospitals will continue to grow as hospitals are increasingly 
under pressure to acquire state-of-the-art equipment and expand 
services. In addition, since 2000 this program has generated 
about $2 million in offsetting collections per year. CBO 
estimates that enacting this legislation would result in $2 
million to $3 million of additional collections each year. 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. 659 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 
defense and general welfare of the United States), and clause 3 
(relating to the power to regulate foreign and 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.

             Section-by-Section Analysis of the Legislation

Section 1. Short title

    This section establishes the short title of the bill, the 
``Hospital Mortgage Insurance act of 2003''.

Section 2. Standards for determining need and feasibility for hospitals

    This section amends section 242(d) of the National Housing 
Act (12 U.S.C. 1715z-7) to require hospitals applying for FHA 
mortgage insurance to meet State or local licensure and 
operation requirements; and, in cases where there is no State 
Certificate of Need program, it authorizes the HUD Secretary to 
establish a process for determining the need and feasibility 
for the hospital's proposed projects.

         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) * * *

           *       *       *       *       *       *       *

    (d) In order to carry out the purpose of this section, the 
Secretary is authorized to insure any mortgage which covers a 
new or rehabilitated hospital, including equipment to be used 
in its operation, subject to the following conditions:
    (1) * * *

           *       *       *       *       *       *       *

    [(4) The Secretary shall not insure any mortgage under this 
section unless he has received, from the State agency 
designated in accordance with section 604(a)(1) or section 1521 
of the Public Health Service Act for the State in which is 
located the hospital covered by the mortgage, a certification 
that (A) there is a need for such hospital, and (B) there are 
in force in such State or the political subdivision of the 
State in which the proposed hospital would be located 
reasonable minimum standards of licensure and methods of 
operation for hospitals. No such mortgage shall be insured 
under this section unless the Secretary has received such 
assurance as he may deem satisfactory from the State agency 
that such standards will be applied and enforced with respect 
to any hospital located in the State for which mortgage 
insurance is provided under this section. If no such State 
agency exists, or if the State agency exists but is not 
empowered to provide a certification that there is a need for 
the hospital as set forth in clause (A) of the first sentence, 
the Secretary shall not insure any mortgage under this section 
unless (A) the State in which the hospital is located has 
conducted or commissioned and paid for the preparation of an 
independent study of market need and feasibility that (i) is 
prepared in accordance with the principles established by the 
American Institute of Certified Public Accountants; (ii) 
assesses, on a marketwide basis, the impact of the proposed 
hospital on, and its relationship to, other health care 
facilities and services, the percentage of excess beds, 
demographic projections, alternative health care delivery 
systems, and the reimbursement structure of the hospital; (iii) 
is addressed to and is acceptable to the Secretary in form and 
substance; and (iv) in the event the State does not prepare the 
study, is prepared by a financial consultant selected by the 
State and approved by the Secretary; and (B) the State complies 
with the other provisions of this paragraph that would 
otherwise be required to be met by a State agency designated in 
accordance with section 604(a)(1) or section 1521 of the Public 
Health Service Act. The proposed mortgagor may reimburse the 
State for the cost of the independent feasibility study 
required in the preceding sentence.]
  (4)(A) The Secretary shall require satisfactory evidence that 
the hospital will be located in a State or political 
subdivision of a State with reasonable minimum standards of 
licensure and methods of operation for hospitals and 
satisfactory assurance that such standards will be applied and 
enforced with respect to the hospital.
  (B) The Secretary shall establish the means for determining 
need and feasibility for the hospital. If the State has an 
official procedure for determining need for hospitals, the 
Secretary shall also require that such procedure be followed 
before the application for insurance is submitted, and the 
application shall document that need has also been established 
under that procedure.

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