19–006

108TH CONGRESS REPORT " HOUSE OF REPRESENTATIVES ! 1st Session 108–27

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 

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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. 

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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. 

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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 off- setting 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, 

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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. 

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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 ‘‘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) * * *

* * * * * * *

ø(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 indeVerDate Jan 31 2003 00:24 Mar 08, 2003 Jkt 019006 PO 00000 Frm 00006 Fmt 6659 Sfmt 6602 E:\HR\OC\HR027.XXX HR027
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pendent 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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