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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 Hospitals, 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 cost-based reimbursement from 
Medicare.
    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 
so-called 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.

   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, 
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 cut-off 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.

             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 
Hospitals.--
          (1) In general.--The exemption for critical access 
        hospitals under subsection (b)(1)(B) shall have no 
        effect after July 31, [2006] 2011.

           *       *       *       *       *       *       *