URBANA — With a potentially costly change in Medicare reimbursement rates resolved, the University of Illinois is moving ahead with a debt-financing plan for a major renovation of its hospital in Chicago.
Trustees will be asked next week to approve a bond sale of $70.7 million to fund the $85 million renovation, which will include interior and exterior upgrades and a two-story addition to the main building at 1740 W. Taylor St.
UI officials say the goal is to update the physical structure of the 33-year-old hospital as well as improve patient care delivery.
Planned projects include replacing air-handling units, plumbing fixtures and pipes; upgrading elevators; distributing emergency power to imaging equipment; and moving the phone system to a voice-over-Internet-protocol technology.
The two-story addition will include a conference center and gastrointestinal lab expansion. Other parts of the hospital will get new entry and elevators, the eye and ear infirmary will be remodeled, and several other units will be upgraded.
Some of the work actually began a few years ago after trustees approved the first $40 million worth of projects. The board expanded the project last November, doubling the budget and approving a list of underwriters and bond counsel to prepare documents for the sale of Health Service Facilities System Revenue bonds. The bonds will reimburse the hospital for the more than $7 million it has already spent and fund the remaining projects.
The plan was to approve the bond sale last January, but officials put it on hold because of uncertainties about state bond ratings and an unexpected drop in Medicaid reimbursements.
The UI had negotiated a new Medicaid reimbursement formula several years ago that initially boosted the amount of money it received from the government for treating Medicaid patients. But it led to a significant decline in Medicaid income in fiscal 2012 and an estimated $29 million loss in fiscal 2013.
Hospital administrators worked with state and federal officials throughout the spring to renegotiate the rate, and UI Chief Financial Officer Walter Knorr said Monday that the university received a letter on July 9 restoring about $42 million of reimbursements for fiscal 2013. That improved the hospital's bottom line significantly.
At a board committee meeting Monday, Knorr said the UI wants to sell the health bonds without reducing the hospital's bond rating — "A1" with Moody's and "A" with Standard and Poor's. Hospital officials met with representatives from Standard & Poor's on Monday and will meet with Moody's on Wednesday, he said. The target sale date is in mid-August.
Knorr and other UI officials said the improvements are critical for the hospital.
To enhance the interest rate, the bonds will be backed by the hospital's net assets, income from its Medical Service plan, or physician practice, and medical student tuition.
Trustee Timothy Koritz, chairman of the board's health affairs committee and a doctor at Rockford Memorial Hospital, said he was initially concerned about using tuition as collateral, but was reassured by Knorr that the chances are "very remote" that the university would have to dip into tuition income to repay the bonds.
The estimated interest rate for the 30-year bonds is 5.674 percent.