The provisions of this subpart apply to facilities with respect to which grant funds were paid for construction or modernization—

(a) Under title VI or XVI of the Public Health Service Act; or

(b) Pursuant to the authority of the Secretary under any of the following statutes:

(1) The Public Works Acceleration Act of 1962, Pub. L. 87-658 (42 U.S.C. 2641 et seq.);

(2) The District of Columbia Medical Facilities Construction Act of 1968, 82 Stat. 631 (Pub. L. 90-457);

(3) The Appalachian Regional Development Act of 1965, as amended (40 U.S.C. App.).

As used in this subpart—

Act means the Public Health Service Act.

Department means the Department of Health and Human Services.

Expected useful life means the period of time during which the structure may reasonably be expected to perform the function for which it was designed or intended.

Facility means a facility with respect to which grant funds were paid under any of the authorizations listed in § 124.701.

Fiscal year means the facility's fiscal year.

Nonprofit, as applied to any facility, means a facility that is owned and operated by one or more nonprofit corporations or associations no part of the net earnings of which inures, or may lawfully inure, to the benefit of any private shareholder or individual.

Secretary means the Secretary of Health and Human Services and any other officer or employee of the Department of Health and Human Services to whom the authority involved has been delegated.

State agency means (1) in the case of a facility with respect to which a grant was made under title VI of the Public Health Service Act or any of the statutes listed in § 124.701(b), the State agency designated pursuant to section 604 of the Public Health Service Act or its successor agency, and (2) in the case of a facility with respect to which a grant was made under title XVI of the Public Health Service Act, the State health planning and development agency designated pursuant to title XV of the Public Health Service Act.

Then value means the value of the facility on the date the facility is sold, transferred or ceases to be used for a permissible use as described in § 124.704.

(a) If any facility is at any time within 20 years after the completion of the grant-assisted construction or modernization sold or transferred to any entity which is either not qualified for a grant under the statute pursuant to which the grant was awarded or not approved as a transferee by the State agency, the United States shall be entitled to recover on the basis of joint and several liability from any transferor, transferee, or successive transferee of the facility an amount determined in accordance with this subpart.

(b) If any facility at any time within 20 years after the completion of the grant-assisted construction or modernization ceases to be a public or other non-profit facility that would have been eligible for a grant under the statute pursuant to which the grant was awarded, the United States shall be entitled to recover from the owners of the facility an amount determined in accordance with this subpart.

(a) The transferor of a facility that is sold or transferred as described in § 124.703(a), or the owner of a facility which ceases to be a public or other nonprofit facility as described in § 124.703(b), shall provide the Secretary written notice of such sale, transfer, or other change not later than 10 days after the date on which the sale, transfer, or change occurs.

(1) Transfer. For purposes of this subpart, a transfer occurs when a facility is conveyed to another entity through lease, merger, bankruptcy, foreclosure, or other arrangement.

(2) Cease to be. For purposes of this subpart,

(i) A facility “ceases to be” a facility for which a grant could have been made under the statute pursuant to which the grant was awarded when it is no longer operated as such a facility; and

(ii) A facility “ceases to be a public or nonprofit facility” when an entity that is not a public or other non-profit corporation or association assumes management responsibilities with respect to the facility which, in the Secretary's judgment, are so pervasive as to constitute operation of the facility. The manager will not be deemed to be the operator of the facility if the management agreement contains both of the following provisions:

The Board of Directors of the facility retains authority to terminate the agreement at any time upon reasonable notice to the contractor.

No employee of the contractor may be a member of the facility's Board of Directors.

In the absence of either of these provisions the Secretary will consider the degree of control granted to the managing organization over patient admission, determination of what services will be provided, and charges for services provided in the facility.

(b) Content of Notice. The notice required by paragraph (a) of this section shall be sent to the Secretary by certified mail, and shall contain or be accompanied by

(1) The date of the sale, transfer, or other event that gives rise to the notice;

(2) Copies of any sales contracts, lease agreements, management contracts or other documents pertinent to the event giving rise to the notice;

(3) Estimates of current assets, current liabilities, book value of equipment, the expected value of land on the new owner's books, and the remaining depreciation for all fixed assets involved in the transaction calculated on a straight line basis using commonly adopted expected useful lifetimes.

(c) Failure to provide notice. Failure to provide the information required by paragraph (b) of this section, will be considered failure to provide the notice required by this section. In any case in which such information has not been provided, the Secretary will, promptly upon receiving an incomplete notice or otherwise discovering that a sale, transfer or other event giving rise to a recovery may have occurred, send a letter to the owner of the facility requesting the information needed to calculate a recovery amount.

(Approved by the Office of Management and Budget under control number 0915-0099)

(a) Except as provided in § 124.706, the amount that the United States shall be entitled to recover under this subpart is that amount bearing the same ratio to the then value of so much of the facility as constituted an approved project (or projects) as the amount of Federal participation bore to the cost of the construction or modernization under such project (or projects).

(b) The then value of the facility will be based on:

(1) The transaction value in the case of an arms-length sale or transfer, or

(2) A depreciated reproduction value in the absence of an arms-length sale or transfer or if the buyer fails to provide, within 60 days after the date of the Secretary's letter described in § 124.704(c), the information which, in the judgment of the Secretary, is necessary to establish, adjust, and apportion a transaction value. As used in this section, “transaction value” means in the case of a sale, the sale price, and in the case of a lease, the value of the lease plus the residual value of the facility at the termination of the lease (i.e., the reproduction value or, if appropriate, an alternative use value).

(c) The transaction value will be adjusted to account for the purchase or lease of other assets and the assumption of liabilities associated with the transaction. To determine the amount of Federal recovery, the adjusted value will be apportioned to the grant-aided assets by the ration of the remaining useful lifetime values of those assets to the sum of the remaining useful lifetime values of all assets not previously accounted for in adjusting the transaction value.

(d) A depreciated reproduction value will be established by calculating a reproduction value using construction cost indexes or current costs per square foot for construction, depending on which is more relevant to the type of construction associated with the grant. This reproduction value will then be adjusted by the ratio of the remaining useful life to the total useful life for the assets involved.

(e) In calculating the recovery amount, the Secretary will include as Federal participation any grant assistance received by the facility under an authority listed in § 124.701 and any assistance supplementary to that assistance received for the construction or modernization of the facility under the Public Works and Economic Development Act of 1965 (42 U.S.C. 3121, et seq.) or the Local Public Works Capital Development Act of 1976 (Pub. L. 94-369).

(a) In addition to the amount of recovery calculated under § 124.705, the United States shall be entitled to recover interest on such amount in accordance with this section at the rate determined by the Secretary based on the average of the bond equivalent of the weekly ninety-day U.S. Treasury bill auction rate for the quarter previous to the quarter in which interest begins to accrue under this section.

(1) Change of status before July 18, 1984. For facilities that were sold or transferred or which ceased to be public or other nonprofit facilities before July 18, 1984, interest will be charged beginning August 17, 1984, or 180 days after the date of such sale, transfer or other, whichever is later, and ending on the date the amount the United States is entitled to recover is collected.

(2) Change of status after July 17, 1984. For facilities that are sold or transferred or which cease to be public or other nonprofit facilities after July 17, 1984, interest will be charged beginning 180 days after receipt by the Department of the notice required under § 124.704; Provided, That if such notice is not provided as prescribed, interest will be charged beginning on the date of the sale, transfer, or change of use, and ending on the date the amount which the United States is entitled to recover is collected.

(b) The Secretary may waive interest charges that result from delays caused solely by the Department.

(a) Conditions of the waiver. The Secretary may waive the recovery rights of the United States arising under § 124.703(a) if the entity to which the facility was sold or transferred:

(1) Has filed a written request for the waiver within the time limits prescribed by this section;

(2) Has established an irrevocable trust in accordance with this section, in an amount equal to the greater of the amount that would otherwise have been recovered pursuant to § 124.705 (including accrued interest as calculated under § 124.706) or twice the cost of the remaining uncompensated services obligation of the facility as of the date of the change of status, that will be used by the entity only to provide services to those unable to pay in accordance with the requirements of subpart F of this part; and

(3) Has agreed to comply with the community service regulations set out in subpart G of this part.

(b) Procedures for obtaining waiver. (1) Within 30 days after the date of receipt of the information described in § 124.704(b), the Secretary will send a letter to the new owner of the facility advising of the United States' right of recovery and the opportunity to obtain a waiver. For the purpose of advising the new owner of the amount to be placed in the irrevocable trust should the owner wish to obtain a waiver, the letter will also state the dollar amount of the remaining uncompensated care obligation and the amount that would be due under § 124.705, computed as follows:

(i) Computation of uncompensated care obligation. (A) For a facility which changes status before the date that subpart F of this part is effective for the facility, the remaining uncompensated services obligation is zero.

(B) For a facility which changes status after the date that subpart F of this part is effective for the facility, the Secretary will multiply the annual compliance level, computed under the 10% method specified in 42 CFR 124.503(a)(1)(ii), for the fiscal year in which the change of status occurs times the number of years remaining in the facility's uncompensated services obligation. From this amount, the Secretary will subtract amounts of excess or add amounts of deficit for each fiscal year prior to the change of status for which the Secretary has previously conducted an audit of uncompensated services accounts. Excess and deficits will be adjusted by the percent change in the National Consumer Price Index for Medical Care between the year in which the excess or deficit occurred and the year in which the status change occurred. For each fiscal year prior to the change of status which the Secretary has not audited, the Secretary will add to the remaining obligation an amount equal to the annual compliance level in each such year adjusted by the percent change in the National Consumer Price Index for Medical Care between that year and the year of the status change. The amount computed as the total remaining obligation will then be multiplied by two. If the transferee chooses to accept the Secretary's calculation, no further assessments will be made of uncompensated care provided prior to the change of status date. If the transferee does not accept the calculation, the transferor or transferee may hire, and may charge against the irrevocable trust established under this section, an independent auditor to certify the compliance level and any excess or deficit for the period from May 18, 1979, up to and including the date of the change of status, using standard Departmental procedures supplemented with instructions provided by the Secretary, and submit the results in accordance with paragraph (b)(2)(ii) of this section. The audit may be conducted for any years not included in a previous site assessment conducted by the Department. If the Secretary agrees that a change is appropriate, the Secretary will use this information to adjust the calculation as set out in paragraph (b)(3) of this section. If the independent auditor certifies that qualified care was rendered either at the facility or at a replacement facility operated by the transferee between the date of the change of status and the date of establishment of the trust, and the Secretary agrees, the post transfer level of care shall not affect the calculation of the total remaining uncompensated care obligation to be doubled, but instead shall be recognized as a credit to be drawn from the trust as provided in paragraph (c)(1)(ii) of this section. In the case of a facility with respect to which a grant was made under title XVI of the Act, the remaining period of obligation will be the remainder of the expected useful life of the facility, as follows: 40 years for buildings, 30 years for additions, 20 years for building renovations, 20 years for fixed equipment and 12 years for major movable equipment.

(ii) Computation of recovery amount. The Secretary will determine the recovery amount as provided in § 124.705.

(2) Within 60 days following the date of the Secretary's letter provided pursuant to paragraph (b)(1) of this section, the owner of the facility shall notify the Secretary in writing that it either:

(i) Accepts the trust fund amount for the waiver as offered by the Secretary;

(ii) Provides a detailed statement of an alternative determination of the recovery amount or an independent audit of the remaining uncompensated services obligation as described in paragraph (b)(1)(i) of this section; or

(iii) Does not seek a waiver under § 124.707. Failure to provide a timely response to the Secretary under this subparagraph will be considered an election not to seek the waiver.

(3) Within 30 days following the receipt of the owner's views concerning the calculation, and after considering those views, the Secretary will send a final letter providing the Secretary's determination of twice the remaining uncompensated care obligation and the recovery amount under § 124.705. The amount to be placed in the irrevocable trust will be the higher of those two figures. (See paragraph (a)(2) of this section.)

(4) Within 30 days of the date of the final letter, the owner of the facility shall notify the Secretary in writing whether or not it accepts the terms of the waiver. Failure to provide timely notice to the Secretary under this subparagraph will be considered an election not to accept the waiver.

(c) Establishment of the trust. (1) Within 60 days of the date of its acceptance of a waiver under paragraph (b)(2) or (b)(4) of this section, the owner shall begin delivering services to those unable to pay in accordance with subpart F of this part under an irrevocable trust established in the amount calculated pursuant to paragraph (b) of this section. Provided, That

(i) The owner shall provide a copy of the trust documents to the Secretary and no trust shall be considered established until the trust documents have been approved by the Secretary; and

(ii) The owner may credit against the trust any uncompensated services provided in accordance with subpart F of this part between the date of the change of status of the facility and the establishment of the trust. For an owner to receive the credit before the establishment of the trust and deposit of funds therein, the auditor's report covering the post-transfer period shall be submitted with the notification of acceptance of the waiver, and in any event, not later than 30 days from the date of the Secretary's final letter described in paragraph (b)(3) of this section. Within 30 days following the receipt of the auditor's report, the Secretary will notify the owner of the allowable credit, if any. If the auditor's report is not timely submitted, the trust must be established and fully funded, in accordance with the time limits imposed by paragraph (c)(1) of this section, and the Secretary will notify the owner of the allowable credit, if any, within 30 days of the date of the establishment of the trust or within 30 days of the receipt of the report, whichever is later.

(2) The trust shall be administered by a Trustee who is neither an employee of the transferee nor an employee of a subsidiary or of the parent institution of the transferee.

(3) The trust shall provide that the trust corpus and income may be invested only in U.S. Government or U.S. Government insured securities.

(d) Use of the trust. The corpus and income of the irrevocable trust shall be used to pay for the costs of uncompensated services, which may include reasonable costs of establishing and administering the trust and the cost of the independent audit described in paragraph (b)(1)(i) of this section, until the trust is exhausted.

(Approved by the Office of Management and Budget under control number 0915-0099)

The Secretary may for good cause waive the recovery rights of the United States arising under § 124.703(b). In determining whether there is good cause under this section for releasing the applicant or other owner of the facility from its obligation, the Secretary will take into consideration the extent to which:

(a) The facility will be devoted by the applicant or other owner to use for another public or nonprofit purpose whch will promote the purpose of the Act;

(b) There are reasonable assurances that for the remainder of the 20-year period other public or nonprofit facilities not previously utilized for the purpose for which the facility was constructed will be so utilized and are substantially equivalent in nature and purpose.

(c) The facility has been acquired from an agency of the United States (e.g., the Federal Housing Administration under its mortgage insurance commitment program) which has made a reasonable effort to dispose of it for operation as a public or nonprofit health care facility.

[51 FR 7939, Mar. 7, 1986, as amended at 57 FR 8272, Mar. 9, 1992]

(a) Any waiver granted under this subpart is conditioned upon the recipient of the waiver carrying out the obligations imposed by § 124.707 or § 124.708 as applicable.

(b) The Secretary will monitor compliance with the community service and uncompensated care obligations of any entity that receives a waiver.

(c) Should a recipient of a waiver fail to comply with the applicable conditions, the Secretary will withdraw the waiver and seek recovery based on the value of the facility on the date the right of recovery first arose under § 124.703.

(d) No waiver will be withdrawn until the recipient has been notified in writing by the Secretary of the noncompliance and has failed to take corrective action within 90 days after the date of such notice.

(e) Should the waiver be withdrawn, the amount of the Government's recovery will be the amount set out in the Secretary's determination letter as described in § 124.707 (b)(1) or (b)(3) as applicable plus interest from the date of the notification sent in accordance with paragraph (d) of this section.