DOCKET NO: A - 18 BOARD MEETING: July 24-25, 2007 PROJECT NO ...

DOCKET NO: BOARD MEETING: PROJECT NO: PROJECT COST: A - 18 July 24-25, 2007 07-043 Original: $2,709,820 FACILITY NAME: CITY: Lake Forest Endoscopy Center Grayslake TYPE OF PROJECT: Substantive HSA: VIIIPROJECT DESCRIPTION: The applicants propose to establish a limited specialtyambulatory surgical treatment center (“ASTC”) with operating rooms (“ORs”) in 5,554gross square feet (“GSF”) of lease space.

State Agency ReportProject #07-043Page 2 of 24 STATE AGENCY REPORT Lake Forest Endoscopy Center, LLC, and Lake Forest Hospital Grayslake, Illinois Project #07-043I. The Proposed Project The applicants propose to develop a limited-specialty ASTC with two ORs dedicated solely to gastroenterology procedures. The facility will contain 5,554 GSF of lease space and be located at 1475 East Belvidere Road in Grayslake. The establishment of the new facility will be accomplished by modernizing space in a building owned by Lake Forest Hospital. The total estimated project cost is $2,709,820.II. Summary of Findings A. The State Agency finds the proposed project does not appear to be in conformance with the provisions of Part 1110. B. The State Agency finds the proposed project does not appear to be in conformance with the provisions of Part 1120.III. General Information The applicants are Lake Forest Endoscopy Center, LLC and Lake Forest Hospital. The applicants’ LLC is a joint venture between Lake Forest Hospital and five physicians who are partners in Associates in Gastroenterology and Liver Disease. The hospital has 30% ownership and the physicians have 70% ownership in the LLC. The proposed ASTC will be in HSA VIII. There are 27 facilities providing outpatient surgery services in HSA VIII (13 ASTCs and 14 hospitals). This is a substantive project that is subject to both a Part 1110 and Part 1120 review. An opportunity for public hearing was offered, but one was not requested. The application contained two letters of support for the project. No additional comments were received by the State Agency.

State Agency Report Project #07-043 Page 3 of 24 Project obligation will occur after permit issuance and the appropriate documentation was submitted. The anticipated project completion date is May 15, 2008. Table One outlines the average length of stay (“ALOS”), average daily census (“ADC”) and utilization for Lake Forest Hospital January 1, 2005 - December 31, 2005. The State Agency notes the 2005 data was furnished by the Illinois Department of Public Health’s (“IDPH”) 2005 Annual Hospital Questionnaire. The State Agency notes that in January 2007, Lake Forest Hospital used the State Board’s “10 bed, 10% rule” and added ten Med/Surg beds. These additional beds are not reflected in Table One. TABLE ONE Lake Forest Hospital’s Utilization Data - Calendar Year 2005 Service Authorized Beds Admissions Patient Days ALOS ADC OccupancyICU 10 639 2,333 3.7 6.5 64.8%Long Term Care 98 558 24,908 44.6 68.2 77.5%Med/Surg 74 4,801 19,765 4.4 57.8 79.2%Obstetrics 23 2,518 6,468 2.6 18.0 78.2%Pediatric 10 392 936 3.3 3.6 35.5%TOTALS 215 8,908 54,410 6.3 154.1 71.6%Source: IDPH 2005 Profiles. Table Two displays the hospital’s patients by payment source. The State Agency notes the data in Table Two is for calendar year 2005 and is supplied by IDPH profiles. TABLE TWO Lake Forest Hospital 2005 Payor Source Distribution Payment Source 2005 Admissions Percentage Charity Care 72 0.8% Insurance 5,244 58.9% Medicaid 332 3.7% Medicare 2,946 33.1% Other Public 0 0.0% Private Pay 314 3.5% TOTALS 8,908 100%

State Agency ReportProject #07-043Page 4 of 24IV. The Proposed Project – Details The applicants propose to develop a limited-specialty ASTC with two ORs dedicated solely to gastroenterology procedures. The facility will contain 5,554 GSF of lease space and be located at 1475 East Belvidere Road in Grayslake. The establishment of the new ASTC will be accomplished by modernizing space in a building owned by Lake Forest Hospital. The total estimated project cost is $2,709,820. In addition to the ORs, the facility will have eight prep/recovery spaces and a decontamination/sterilization area. The clinical space will account for 3,955 GSF; while space for administration, reception and waiting areas will comprise 1,599 GSF.V. Project Costs and Sources of Funds The total project cost is $2,709,820. The applicants will fund the costs through leases, cash and securities and a bank loan. Table Three displays cost and sources of funds information. TABLE THREE Project Uses and Sources of Funds Uses of Funds Clinical Non-Clinical Total Preplanning Costs 18,125 4,530 22,655 Modernization Contracts 488,223 122,061 610,284 Contingencies 73,234 18,308 91,542 Architectural/Engineering Fees 53,703 13,426 67,129 Consulting and Other Fees 62,370 29,092 91,462 Movable or Other Equipment 166,977 193,377 360,354 Fair Market Value of Leased Space ($824,774) and Equipment ($540,526) 1,132,650 232,650 1,365,300 Other Costs To Be Capitalized 80,868 20,226 101,094 Estimated Total Project Cost 2,076,150 633,670 2,709,820 Sources of Funds Cash and Securities 403,356 Mortgages 941,164 Leases 1,365,300 Total Funds 2,709,820VI. Review Criteria – Non-Hospital Based Ambulatory Surgery A. Criterion 1110.1540(a) – Scope of Services Provided The criterion states:

State Agency ReportProject #07-043Page 5 of 24 “Any applicants proposing to establish a non-hospital based ambulatory surgical category of service must detail the surgical specialties that will be provided by the proposed project and whether the project will result in a limited specialty or multi-specialty ambulatory surgical treatment center (ASTC). 1) The applicants must indicate which of the following surgical specialties will be provided at the proposed facility: Cardiovascular, Dermatology, Gastroenterology, General/Other (includes any procedure that is not included in the other specialties), Neurological, Obstetrics/Gynecology, Ophthalmology, Oral/Maxillofacial, Orthopedic, Otolaryngology, Plastic, Podiatry, Thoracic, and Urology. 2) The applicants must indicate which of the following type of ASTC will result from the proposed project: A) Limited specialty ASTC, which provides one or two of the surgical specialties listed in this Section; or B) Multi-specialty ASTC, which provides at least three of the surgical specialties listed in this Section. In order to be approved as a multi-specialty ASTC, the applicants must document that at least 250 procedures will be performed in each of at least three of the surgical specialties listed in this Section.” The applicants indicate that the project will be a limited-specialty ASTC, providing gastroenterology services. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEET THE REQUIREMENTS OF THE SCOPE OF SERVICES PROVIDED CRITERION (77 IAC 1110.1540(a)) B. Criterion 1110.1540(b) – Target Population The criterion states as follows: “Because of the nature of ambulatory surgical treatment, the State Board has not established geographic services areas for assessing need. Therefore, an applicant must define its intended geographic service area and target population. However, the intended geographic service area shall be no less than 30 minutes and no greater than 60 minutes travel time (under normal driving conditions) from the facilitys site.“

State Agency ReportProject #07-043Page 6 of 24 The applicants propose a limited specialty ASTC and provided a map outlining the geographic service area (“GSA”). Based on the map, the applicants propose to serve a population within 30 minutes travel time from the facility’s site. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEET THE REQUIREMENTS OF THE TARGET POPULATION CRITERION (77 IAC 1110.1540(b)) C. Criterion 1110.1540(c) – Projected Patient Volume The criterion states: “1) The applicants must provide documentation of the projected patient volume for each specialty to be offered at the proposed facility. Documentation must include physician referral letters which contain the following information: A) the number of referrals anticipated annually for each specialty; B) for the past 12 months, the name and location of health care facilities to which patients were referred, including the number of patients referred for each surgical specialty by facility; C) a statement by the physician that the information contained in the referral letter is true and correct to the best of his/her information and belief; and D) the typed or printed name and address of the physician, his/her specialty and his/her notarized signature. 2) Referrals to health care providers other than ambulatory surgical treatment centers (ASTC) or hospitals will not be included in determining projected patient volume. The applicants shall provide documentation demonstrating that the projected patient volume as evidenced by the physician referral letters is from within the geographic service area defined under subsection (b).” All referrals are currently generated from Associates in Gastroenterology and Liver Disease (“AGLD”), which is a group of five board-certified gastroenterologists. AGLD currently perform all of their procedures at the applicants’ facility; Lake Forest Hospital. While other

State Agency ReportProject #07-043Page 7 of 24 gastroenterologists perform procedures at Lake Forest Hospital, none of the other physicians’ volumes were used to support the proposed facility. The applicants provided five physicians referral letters from AGLD indicating 2,819 referrals. The applicants estimate that 35% of AGLD’s outpatient volume will remain at the hospital and that 65% would go to the proposed facility. Table Four lists the physicians and their referring volumes. TABLE FOUR Referrals per Physician Physician Specialty Referrals Lissoos Gastroenterology 594 Blitstein Gastroenterology 751 Troy Gastroenterology 147 Martini Gastroenterology 646 Tosiou Gastroenterology 681 TOTAL 2,819 THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEET THE REQUIREMENTS OF THE PROJECTED PATIENT VOLUME CRITERION (77 IAC 1110.1540(c)) D. Criterion 1110.1540(d) – Treatment Room Need Assessment The criterion states: 1) Each applicants proposing to establish or modernize a non-hospital based ambulatory surgery category of service must document that the proposed number of operating rooms are needed to serve the projected patient volume. Documentation must include the average time per procedure for the target population including an explanation as to how this average time per procedure was developed. The following formula can be applied in determining treatment room need: Required Treatment = Hrs. of Surgery/Yr.* Rooms 250 Days/Yr. x 7.5 Hrs./Day x .80** ( (*Hours of surgery includes cleanup and setup time and will be based on the projected volume) (**80% is the desired occupancy rate)

State Agency ReportProject #07-043Page 8 of 24 2) There must be a need documented for at least one fully utilized (1,500 hours) treatment room for a new facility to be established. Also, utilizing the formula the application must document the need for each treatment room proposed. The applicants estimate their referrals will generate 2,497 hours of surgery during the first year of operation and 2,694 hours of surgery during the second year. Based on the number of referrals and the anticipated surgical hours, the applicants justify the two proposed ORs. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEETS THE REQUIREMENTS OF THE TREATMENT ROOM NEED ASSESSMENT CRITERION (77 IAC 1110.1540(d)) E. Criterion 1110.1540(e) – Impact on Other Facilities The criterion states: “An applicant proposing to change the specialties offered at an existing ASTC or proposing to establish an ASTC must document the impact the proposal will have on the outpatient surgical capacity of all other existing ASTCs and hospitals within the intended geographic service area and that the proposed project will not result in an unnecessary duplication of services or facilities. Documentation shall include any correspondence from such existing facilities regarding the impact of the proposed project, and correspondence from physicians intending to refer patients to the proposed facility. Outpatient surgical capacity will be determined by the Agency, utilizing the latest available data from the Agencys annual questionnaires, and will be the number of surgery rooms for ASTCs and the number of equivalent outpatient surgery rooms for hospitals. Equivalent outpatient surgery rooms for hospitals are determined by dividing the total hours of a hospitals outpatient surgery by 1,500 hours. In addition to documentation submitted by the applicants, the State Agency shall review utilization data from annual questionnaires submitted by such health care facilities and data received directly from health facilities located within the intended geographic service area, including public hearing testimony.”

State Agency ReportProject #07-043Page 9 of 24 The applicants contacted ten facilities located within the GSA informing them of their project. There were no responses from area facilities contained in the application or on file with the State Agency. Table Five provides surgical utilization data for facilities within a 30- minute travel time of the proposed project. The State Agency notes data for these facilities is for 2005 and was furnished by IDPH profiles. TABLE FIVE Surgical Utilization Of Existing Providers Within A 30-Minute Travel Time Of The Applicants’ Site Hospitals Hours of Excess Hours of OP Total Equiv. ORs OR Facility City (1) Surgery Surgery ORs OP ORs Justified CapacityCondell Med Ctr Libertyville 23,026 7,567 12 5 16 NoGlenbrook Hospital Glenview 11,062 5,597 9 4 8 YesGood Shepherd Hosp Barrington 13,636 6,114 10 5 10 NoHighland Park Hosp Highland Pk 11,732 6,225 11 5 8 YesLake Forest Hosp Lake Forest 14,185 6,985 7 5 10 NoMidwest Reg Med Ctr Zion 3,639 1,369 4 1 3 YesNorthern IL Med Ctr McHenry 13,927 8,318 8 6 10 NoVictory Mem Hosp Waukegan 11,463 5,112 9 4 8 Yes Ambulatory Surgery Treatment Centers Excess Multi or Number Hours of ORs OR Facility Limited City (1) of ORs Surgery Justified CapacityThe Glen Endoscopy Limited Glenview 2 2,136 2 NoRitacca Laser Center (2) Limited Vernon Hills 2 NA NA NAGrand Oaks Surgery (3) Limited Libertyville 1 NA NA NAHealthsouth Multi Libertyville 3 2,449 2 YesVictory Ambulatory Multi Lindenhurst 2 2,070 2 NoNorth Shore Endoscopy Limited Lake Bluff 2 3,653 3 No1. All facilities are in HSA VIII except for Glenbrook Hospital and Glen Endoscopy Center which reside in HSA VII.2. Project #06-036 approved on December 20, 2006; required completion date is August 30, 2007.3. Project #03-054 approved on March 30, 2005; required completion date was December 31, 2006. As seen from the utilization data, there is excess surgical capacity within a 30-minute travel time to accommodate outpatient surgery at four hospitals and one ATSC. The one identified ASTC with excess capacity is designated as multi-specialty. This facility could add additional surgical specialties without a CON. Thus, the surgical services proposed by the applicants could be performed by this facility. Ritacca Laser Center is approved to provide plastic and ophthalmology services; while Grand Oaks Surgery Center is authorized to provide pain management. Both facilities would need a CON to offer the surgical services proposed by the applicants.

State Agency ReportProject #07-043Page 10 of 24 Although there is excess surgical capacity within 30-minute travel time, the applicants identified that all referred procedures are currently being performed at their facility (Lake Forest Hospital). As seen in Table Five, Lake Forest Hospital does not have excess surgical capacity. The applicants state that no existing provider will be adversely affected by the project since all surgical volume is currently performed at Lake Forest Hospital. As noted, there is excess surgical capacity within the applicants proposed GSA. Thus it appears the development of an additional ASTC will result in an unnecessary duplication of service. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS DO NOT MEET THE REQUIREMENTS OF THE IMPACT ON OTHER FACILITIES CRITERION (77 IAC 1110.1540(e)). F. Criterion 1110.1540(f) – Establishment of New Facilities The criterion states: “An application proposing to establish a new ASTC must meet one of the following conditions: 1. There are no other ASTC’s within the GSA of the proposed project under normal driving conditions; or 2. All of the other ASTC’s and hospital equivalent outpatient surgery rooms within the intended geographic service area are utilized at or above the 80% occupancy target; or 3. The applicants can document that the facility is necessary to improve access to care. Documentation shall consist of evidence that the facility will be providing services which are not currently available in the geographic area, or that the existing underutilized services in the geographic service area have restrictive admission polices; or 4. The proposed project is a co-operative venture sponsored by two or more persons at least one of which operates an existing hospital. A) that the existing hospital is currently providing outpatient surgery services to the target population of the geographic service area; B) that the existing hospital has sufficient historical workload to justify the number of operating rooms at the existing

State Agency ReportProject #07-043Page 11 of 24 hospital and at the proposed ASTC based upon the Treatment Room Need Assessment methodology of subsection d of this Section; C) that the existing hospital agrees not to increase its operating room capacity until such time as the proposed project’s operating rooms are operating at or above the target utilization rate for a period of twelve full months; and D) that the proposed charges for comparable procedures at the ASTC will be lower than those of the existing hospital” The proposed project is a co-operative venture sponsored by two or more persons at least one of which operates an existing hospital. The existing hospital is currently providing outpatient surgery services to the target population of the GSA and the referring physicians are already performing all the referred procedures at the applicants hospital. Thus, the applicants meet the requirements of subsection 4)A) of the criterion. As seen in Table Five, Lake Forest Hospital can justify three additional ORs and this project is only requesting two ORs. Thus, the applicants meet the requirements of subsection 4)B) of the criterion. Lake Forest Hospital has certified that it will not increase its operating room capacity until the proposed project’s operating rooms are operating at or above the target utilization rate. Thus, the applicants meet the requirements of subsection 4)C) of the criterion. Finally, the applicants documented that the charges for the ASTC will be lower than the hospital. Thus, the applicants meet the requirements of subsection 4)D) of the criterion. Since the applicants meet all of the stated requirements of subsection 4) of the criterion, a positive finding can be made. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEET THE REQUIREMENTS OF THE ESTABLISHMENT OF NEW FACILITIES CRITERION - 1110.1540(f). G. Criterion 1110.1540(g) – Charge Commitment The criterion states: “In order to meet the purposes of the Act which are to improve the financial ability of the public to obtain necessary health services and to establish a

State Agency ReportProject #07-043Page 12 of 24 procedure designed to reverse the trends of increasing costs of health care, the applicants shall include all charges except for any professional fee (physician charge). [20 ILCS 3960/2] The applicants must provide a commitment that these charges will not be increased, at a minimum, for the first two years of operation unless a permit is first obtained pursuant to 77 Ill. Adm. Code 1130.310(a).” The applicants state the proposed facility will maintain charges for the first two years of operation of the proposed surgery center; therefore, a positive finding can be made. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEET THE REQUIREMENTS OF THE CHARGE COMMITMENT CRITERION - 1110.1540(g). H. Criterion 1110.1540(h) – Change in Scope of Service This criterion is not applicable as the project represents the establishment of a new facility. THE STATE AGENCY FINDS THE CHANGE IN SCOPE OF SERVICES CRITERION - 1110.1540(h) IS NOT APPLICABLE TO THIS PROJECT.VII. General Review Criteria A. Criterion 1110.230(a) – Location The criterion states: “An applicants who proposes to establish a new health care facility or a new category of service or who proposes to acquire major medical equipment that is not located in a health care facility and that is not being acquired by or on behalf of a health care facility must document the following: 1) that the primary purpose of the proposed project will be to provide care to the residents of the planning area in which the proposed project will be physically located. Documentation for existing facilities shall include patient origin information for all admissions for the last 12 months. Patient origin information must be presented by zip code and be based upon the patients legal residence other

State Agency ReportProject #07-043Page 13 of 24 than a health care facility for the last six months immediately prior to admission. For all other projects for which referrals are required to support the project, patient origin information for the referrals is required. Each referral letter must contain a certification by the health care worker physician that the representations contained therein are true and correct. A complete set of the referral letters with original notarized signatures must accompany the application for permit. 2) that the location selected for a proposed project will not create a maldistribution of beds and services. Maldistribution is typified by such factors as: a ratio of beds to population (population will be based upon the most recent census data by zip code), within 30 minutes travel time under normal driving conditions of the proposed facility, which exceeds one and one half times the State average; an average utilization rate for the last 12 months for the facilities providing the proposed services within 30 minutes travel time under normal driving conditions of the proposed project which is below the Boards target occupancy rate; or the lack of a sufficient population concentration in an area to support the proposed project.” The applicants state all of the anticipated referrals are currently being seen at Lake Forest Hospital and that no existing provider will be adversely affected by the project. Also, Lake Forest Hospital will discontinue two gastro procedure rooms for this project. The hospital plans to use this space for surgical support and storage upon approval of this project. As noted, however, there is excess surgical capacity within the designated GSA. As a result, the location of the proposed facility may contribute to a maldistribution of service. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS DO NOT MEET THE REQUIREMENTS OF THE LOCATION CRITERION - 1110.230(a). B. Criterion 1110.230(b) - Background of Applicants “The applicants shall demonstrate that it is fit, willing and able, and has the qualifications, background and character to adequately provide a proper standard of health care service for the community. [20 ILCS 3960/6] In evaluating the fitness of the applicants, the State Board shall consider

State Agency ReportProject #07-043Page 14 of 24 whether adverse action has been taken against the applicants, or against any health care facility owned or operated by the applicants, directly or indirectly, within three years preceding the filing of the application.” The applicants are Lake Forest Endoscopy Center, LLC and Lake Forest Hospital. The applicants’ LLC is a newly formed joint venture between Lake Forest Hospital and five physicians who are partners in Associates in Gastroenterology and Liver Disease. The hospital has 30% ownership and the physicians have 70% ownership in the LLC. The applicants provided licensure and accreditation information as required. The applicants provided a letter permitting access to information in order to verify any documentation or information submitted in response to the requirements of this subsection. It appears the applicants are fit, willing and able and have the qualifications, background and character to adequately provide a proper standard of healthcare service for the community. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEETS THE REQUIREMENTS OF THE BACKGROUND OF THE APPLICANTS CRITERION - 1110.230(b). C. Criterion 1110.230(c) – Alternatives The criterion states: “The applicants must document that the proposed project is the most effective or least costly alternative. Documentation shall consist of a comparison of the proposed project to alternative options. Such a comparison must address issues of cost, patient access, quality, and financial benefits in both the short and long term. If the alternative selected is based solely or in part on improved quality of care, the applicants shall provide empirical evidence including quantifiable outcome data that verifies improved quality of care. Alternatives must include, but are not limited to: purchase of equipment, leasing or utilization (by contract or agreement) of other facilities, development of freestanding settings for service and alternate settings within the facility.” The applicants considered the following options:

State Agency ReportProject #07-043Page 15 of 24 1. Do Nothing The applicants rejected this alternative because the hospital needs the space currently allocated for gastroenterology procedures as additional support and storage space. If the facility is not approved, the hospital would need to relocate the procedure room, and there is no space in the hospital to relocate this room. In addition, the majority of the hospital’s gastro patients reside in a geographical area closer to the proposed facility, rather than the hospital. Therefore, the new location improves patient access. Also, the proposed facility would have lower charges than the hospital, thereby reducing cost for patients. Patients would also have the benefit of receiving services in a more efficient environment, thereby improving quality. The applicants state this alternative would have no cost. 2. Use Other Area Facilities The applicants rejected this alternative because area facilities are over utilized, do not have a dedicated gastroenterology procedure room, are not affiliated with a hospital (thereby ensuring hospital related peer review and quality assurance), or are located at a distance further than the proposed facility from the target population. The applicants also state that the current gastroenterology lab programs would be unable to support the volume of the proposed project without exceeding the State Agency guidelines or without having capacity to continue to also serve their current patients. The applicants state this alternative would have no cost. 3. Develop a Joint Venture Limited Specialty Endoscopy Center (ASTC) in Grayslake The applicants chose this alternative due to the opportunities it presented to improve access and quality. The hospital already has space available at its new, state-of-the-art outpatient center in Grayslake with available resources, environment and ancillaries for this service. The Lake Forest Hospital has a “5 star” rating from Health Grades for gastro services, enabling physicians to partner with a proven quality provider. The hospital partner will employ

State Agency ReportProject #07-043Page 16 of 24 their quality standards for the service for procedures, staffing and medical review. Since all patients are already Lake Forest Hospital customers, there will be continuity of care. In addition, the partners will be able to demonstrate other activities that they share such as providing charity care and reduced costs. As previously noted, there is excess surgical capacity within the GSA. As such, it appears the more cost-effective alternative is to use existing providers. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS DO NOT MEET THE REQUIREMENTS OF THE ALTERNATIVES CRITERION - 1110.230(c). D. Criterion 1110.230(d) - Need for the Project The criterion states: “1) If the State Board has determined need pursuant to Part 1100, the proposed project shall not exceed additional need determined unless the applicants meets the criterion for a variance. 2) If the State Board has not determined need pursuant to Part 1100, the applicants must document that it will serve a population group in need of the services proposed and that insufficient service exists to meet the need. Documentation shall include but not be limited to: A) area studies (which evaluate population trends and service use factors); B) calculation of need based upon models of estimating need for the service (all assumptions of the model and mathematical calculations must be included); C) historical high utilization of other area providers; and D) identification of individuals likely to use the project. 3) If the project is for the acquisition of major medical equipment that does not result in the establishment of a category of service, the applicants must document that the equipment will achieve or exceed any applicable target utilization levels specified in Appendix B within 12 months after acquisition.”

State Agency ReportProject #07-043Page 17 of 24 The State Board has not determined need for this category of service; therefore, the applicants must document the project will serve a population group in need of the services proposed, and that insufficient service exists to meet the need. As referenced, there is excess surgical capacity within the GSA. It is also noted that facilities with excess surgical capacity in the GSA have the ability to provide gastroenterology service. As a result, the need for this project was not demonstrated. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS DO NOT MEET THE REQUIREMENTS FOR THE NEED FOR THE PROJECT CRITERION (IL IAC 1110.230(d)). E. Criterion 1110.230(e) - Size of the Project The criterion states: “The applicants must document that the size of a proposed project is appropriate. 1) The proposed project cannot exceed the norms for project size found in Appendix B of this Part unless the additional square footage beyond the norm can be justified by one of the following: A) the proposed project requires additional space due to the scope of services provided; B) the proposed project involves an existing facility where the facility design places impediments on the architectural design of the proposed project; C) the proposed project involves the conversion of existing bed space and the excess square footage results from that conversion; or D) the proposed project includes the addition of beds and the historical demand over the last five year period for private rooms has generated a need for conversion of multiple bed rooms to private usage. 2) When the State Board has established utilization targets for the beds or services proposed, the applicants must document that in the second year of operation the annual utilization of the beds or service will meet or exceed the target utilization. Documentation shall include, but not be limited to, historical utilization trends,

State Agency ReportProject #07-043Page 18 of 24 population growth, expansion of professional staff or programs (demonstrated by signed contracts with additional physicians) and the provision of new procedures which would increase utilization.” The proposed GSF for the ASTC is 5,554. The project will contain two ORs, eight recovery stations and a sterilization area. The clinical space will comprise 3,955 GSF. Based on the State standard of 2,750 GSF per OR and 180 GSF per recovery station, the applicants can justify 6,940 GSF for the ASTC. Therefore a positive finding can be made. The applicants provided five physician referral letters from AGLD indicating 2,819 referrals. The applicants estimate the referrals will generate 2,497 surgical hours during the first year of operation and 2,694 surgical hours in the second year. Based on the State standard of 1,500 hours per OR, the applicants can justify two ORs. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEET THE REQUIREMENTS OF THE SIZE OF THE PROJECT CRITERION - 1110.230(e).IX. Review Criteria - Financial Feasibility A. Criterion 1120.210(a) – Financial Viability Lake Forest Hospital documented an “A” bond rating. Therefore, this criterion is not applicable. THE STATE AGENCY NOTES THE FINANCIAL VIABILITY CRITERION (77 IAC 1120.210(a)) IS NOT APPLICABLE TO THE PROJECT. B. Criterion 1120.210(b) - Availability of Funds The criterion states: “The co-applicants must document that financial resources shall be available and be equal to or exceed the estimated total project cost and any related cost.”

State Agency ReportProject #07-043Page 19 of 24 The applicants propose to fund the project with $403,356 from cash and securities, $1,365,300 from leases and $941,164 in debt in the form of a bank loan. Sufficient resources appear available for the project. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEET THE REQUIREMENTS OF THE AVAILABILITY OF FUNDS CRITERION (77 IAC 1120.210(b)). C. Criterion 1120.210(c) - Start-Up Costs The criterion states: “The applicants must document that financial resources shall be available and be equal to or exceed any start-up expenses and any initial operating deficit.” The applicants identified $314,090 as estimated start-up costs and operating deficit. The applicants propose to fund the project with $403,356 from cash and securities, $1,365,300 from leases and $941,164 in debt in the form of a bank loan. Sufficient resources appear available for the project. Sufficient resources appear available for the start-up costs and operating deficit. In addition the applicants provided a letter from The Northern Trust Company verifying that AGLD and the partner physicians have maintained a positive banking relationship with them since 2001. The bank is supportive of financing the project including build-out, equipment and cash flow. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEET THE REQUIREMENTS OF THE START-UP COSTS CRITERION (77 IAC 1120.210(c)).X. Review Criteria - Economic Feasibility A. Criterion 1120.310(a) - Reasonableness of Financing Arrangements This criterion is not applicable as the applicants documented an “A” bond rating.

State Agency ReportProject #07-043Page 20 of 24 THE STATE AGENCY FINDS THE REASONABLENSS OF FINANCING ARRANGEMENTS (77 IAC 1120.310(a)) IS NOT APPLICABLE TO THE PROJECT. B. Criterion 1120.310(b) - Terms of Debt Financing This criterion states: “The applicants must certify that the selected form of debt financing the project will be at the lowest net cost available or if a more costly form of financing is selected, that form is more advantageous due to such terms as prepayment privileges, no required mortgage, access to additional indebtedness, term (years), financing costs, and other factors. In addition, if all or part of the project involves the leasing of equipment or facilities, the applicants must certify that the expenses incurred with leasing a facility and/or equipment are less costly than constructing a new facility or purchasing new equipment. Certification of compliance with the requirements of this criterion must be in the form of a notarized statement signed by two authorized representative (in the case of a corporation, one must be a member of the board of directors) of the applicants entity.” A notarized statement was provided that attests the selected form of debt financing will result in the lowest net cost available, and the expenses incurred with leasing the space and equipment will be less costly than constructing a new facility or purchasing equipment. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEET THE REQUIREMENTS OF THE TERMS OF DEBT FINANCING CRITERION (77 IAC 1120.310(b)). C. Criterion 1120.310(c) - Reasonableness of Project Cost The criteria states: “1) Construction and Modernization Costs Construction and modernization costs per square foot for non- hospital based ambulatory surgical treatment centers and for facilities for the developmentally disabled, and for chronic renal dialysis treatment centers projects shall not exceed the standards detailed in Appendix A of this Part unless the applicants

State Agency ReportProject #07-043Page 21 of 24 documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities. For all other projects, construction and modernization costs per square foot shall not exceed the adjusted (for inflation, location, economies of scale and mix of service) third quartile as provided for in the Means Building Construction Cost Data publication unless the applicants documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities. 2) Contingencies Contingencies (stated as a percentage of construction costs for the stage of architectural development) shall not exceed the standards detailed in Appendix A of this Part unless the applicants documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities. Contingencies shall be for construction or modernization only and shall be included in the cost per square foot calculation. BOARD NOTE: If, subsequent to permit issuance, contingencies are proposed to be used for other line item costs, an alteration to the permit (as detailed in 77 Ill. Adm. Code 1130.750) must be approved by the State Board prior to such use. 3) Architectural Fees Architectural fees shall not exceed the fee schedule standards detailed in Appendix A of this Part unless the applicants documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities. 4) Major Medical and Movable Equipment A) For each piece of major medical equipment, the applicants must certify that the lowest net cost available has been selected, or if not selected, that the choice of higher cost equipment is justified due to such factors as, but not limited to, maintenance agreements, options to purchase, or greater diagnostic or therapeutic capabilities.

State Agency ReportProject #07-043Page 22 of 24 B) Total movable equipment costs shall not exceed the standards for equipment as detailed in Appendix A of this Part unless the applicants documents construction constraints or other design complexities and provides evidence that the costs are similar or consistent with other projects that have similar constraints or complexities. 5) Other Project and Related Costs The applicants must document that any preplanning, acquisition, site survey and preparation costs, net interest expense and other estimated costs do not exceed industry norms based upon a comparison with similar projects that have been reviewed.” The State Agency notes only the clinical costs of the project will be compared to the established standards in Part 1120. Preplanning Costs – This cost is $18,125, or 2.5% of modernization, contingencies and equipment costs. This appears high compared to the State standard of 1.8%. Under the standard, the applicants would be allowed $13,112. The applicants’ cost exceeds the standard by $5,013, or 38.2%. Table Six displays the State Agency’s finding. TABLE SIX Applicants’ Proposed Preplanning Costs Applicants’ Proposal State Standard Difference $18,125 $13,112 $5,013 Modernization and Contingencies - The costs of modernization and contingencies are estimated to be $561,457, or $141.96 per GSF. This appears reasonable compared to the adjusted State standard of $163.14 per GSF. Contingencies - The contingency allocation is $73,234, or 15% of modernization costs. This appears reasonable compared to the State Agency standard of 10% - 15%. Architects and Engineering Fees -These costs total $53,703, or 9.5% of construction and contingency costs. This appears reasonable compared to the Capital Development Board’s fee structure of 4.2%-10.5% that is utilized as the State standard.

State Agency ReportProject #07-043Page 23 of 24 Consulting and Other Fees - These costs total $62,370. The State Board does not have a standard for this expense. Movable or Other Equipment - Equipment costs total $166,977, which is $83,488 per OR. This appears reasonable compared to the adjusted State standard of $471,993 per OR. FMV Leased Space and Equipment – The FMV of leases totals $1,365,300. This includes FMV of Leased Space - $824,774 and FMV of Leased Equipment - $540,526. The State Board does not have a standard for these costs. Other Costs to be Capitalized – This amount is $80,868. The State Board does not have a standard for these costs. THE STATE AGENCY NOTES IT DOES NOT APPEAR THE APPLICANTS MEET THE REQUIREMENTS OF THE REASONABLENESS OF PROJECT COST CRITERION (77 IAC 1120.310(c)). D. Criterion 1120.310(d) - Projected Operating Costs The applicants project $257 direct annual operating costs per procedure. The State Board does not have a standard for these costs. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEET THE REQUIREMENTS OF THE PROJECTED OPERATING COSTS CRITERION (77 IAC 1120.310(d)). E. Criterion 1120.310(e) - Total Effect of the Project on Capital Costs The applicants’ project capital costs per procedure will be $93. The State Board does not have a standard for these costs. THE STATE AGENCY NOTES IT APPEARS THE APPLICANTS MEET THE REQUIREMENTS OF THE TOTAL EFFECT OF THE PROJECT ON CAPITAL COSTS CRITERION (77 IAC 1120.310(e)).

State Agency ReportProject #07-043Page 24 of 24 F. Criterion 1120.310(f) - Non-Patient Related Services This criterion is not applicable. THE STATE AGENCY FINDS THE NON-PATIENT RELATED SERVICES CRITERION (77 IAC 1120.310(f)) IS NOT APPLICABLE TO THE PROJECT G:FACSAR2007sar|07-043.doc KK – Review completed on 6/26/07

30 Minute Drive Time Name Address City State ZipTHE GLEN ENDOSCOPY CENTER 2551 COMPASS ROAD GLENVIEW IL 60026-RITACCA LASER CENTER 230 Center Drive VERNON HILLS IL 60061Grand Oaks Surgery Center 1800 Hollister Drive Libertyville IL 60048HEALTHSOUTH SURG. CNTR OFHAWTHORNE 1900 HOLLISTER DRIVE LIBERTYVILLE IL 60048VICTORY AMBULATORY SURGERY CENTER 1050 RED OAK LANE LIINDENHURST IL 60046NORTH SHORE ENDOSCOPY CENTER 988 Carriage Park Avenue LAKE BLUFF IL 60144Glenbrook Hospital 2100 Pfingsten Road Glenview IL 60025-0000Northern Illinois Medical Center 4201 Medical Center Drive McHenry IL 60050-0000Advocate Good Shepherd Hospital 100 Haverton Way Barrington IL 60010-0000Condell Medical Center 500 Valley Park Drive Libertyville IL 60048-0000Lake Forest Hospital 660 North Westmoreland Lake Forest IL 60045-0000Highland Park Hospital 718 Glenview Avenue Highland Park IL 60035-0000Victory Memorial Hospital 1324 North Sheridan Road Waukegan IL 60085-0000Midwestern Regional Medical Center 2520 Elisha Avenue Zion IL 60099-0000

45 Minute Drive Time and Distances Name Address City State Zip Time DisADVANTAGE HEALTH CARE, LTD. 203 EAST IRVING PARK ROAD WOOD DALE IL 60191 41Advocate Good Shepherd Hospital 100 Haverton Way Barrington IL 60010-0000 21ALBANY MEDICAL SURGICAL CENTER 5086 NORTH ELSTON AVENUE CHICAGO IL 60630 39Alexian Brothers Medical Center 800 Biesterfield Road Elk Grove Villa IL 60007-0000 34AMERICAN WOMENS MEDICAL GROUP 2744 NORTH WESTERN AVENUE Chicago IL 60647 44Condell Medical Center 500 Valley Park Drive Libertyville IL 60048-0000 10DIMENSIONS MEDICAL CENTER, LTD. 1455 GOLF ROAD DES PLAINES IL 60016-2237 28Elmhurst Memorial Hospital 200 Berteau Avenue Elmhurst IL 60126-0000 42Evanston Hospital 2650 Ridge Avenue Evanston IL 60201-0000 41FOOT & ANKLE SURGICAL CENTER 1455 GOLF ROAD DES PLAINES IL 60016-1253 28Glen Oaks Medical Center 701 Winthrop Avenue Glendale Heights IL 60139-0000 42Glenbrook Hospital 2100 Pfingsten Road Glenview IL 60025-0000 27GOLF SURGICAL CENTER 8901 GOLF ROAD DES PLAINES IL 60016-4000 29Gottlieb Memorial Hospital 701 West North Avenue Melrose Park IL 60160-0000 45Grand Oaks Surgery Center 1800 Hollister Drive Libertyville IL 60048 12HEALTHSOUTH SURG. CNTR OF HAWTHORNE 1900 HOLLISTER DRIVE LIBERTYVILLE IL 60048 12Highland Park Hospital 718 Glenview Avenue Highland Park IL 60035-0000 23Holy Family Hospital 100 North River Road Des Plaines IL 60016-1278 30Illinois Sports Medicine & Orthopedic Surgery Center 9000 Waukegan Road Morton Grove IL 60053 34Kindred Chicago Central Hospital 4058 West Melrose Street Chicago IL 60641-0000 42Kindred Hospital Chicago North 2544 West Montrose Avenue Chicago IL 60618-0000 44Kindred Hospital - Chicago Northlake 365 East North Avenue Northlake IL 60164-0000 42Lake Forest Hospital 660 North Westmoreland Lake Forest IL 60045-0000 16LAKESHORE PHYSICANS & SURGERY CTR. 7200 NORTH WESTERN AVENUE CHICAGO IL 60645-1812 41Lutheran General Hospital 1800 Parkside Dr Park Ridge IL 60068-0000 32Memorial Medical Center New 3500 Doty Road Woodstock IL 60098-0000 35Midwestern Regional Medical Center 2520 Elisha Avenue Zion IL 60099-0000 21Neurologic and Othopeadic Institute of Chicago 4550 North Winchester Avenue Chicago IL 60640-0000 46NORTH SHORE ENDOSCOPY CENTER 988 Carriage Park Avenue LAKE BLUFF IL 60144 13NORTH SHORE SAME DAY SURGERY CENTER 815 HOWARD STREET EVANSTON IL 60202-3916 42NORTHEAST DUPAGE SURGERY CENTER, LL 1580 WEST LAKE STREET ADDISON IL 60101 41

Northern Illinois Medical Center 4201 Medical Center Drive McHenry IL 60050-0000 23 ARLINGTONNORTHWEST COMMUNITY DAY SURG. 675 WEST KIRCHOFF ROAD HEIGHTS IL 60005-2392 33Northwest Community Hospital 800 West Central Road Arlington Heights IL 60005-0000 33 ARLINGTONNORTHWEST SURGICARE HEALTHSOUTH 1100 WEST CENTRAL ROAD HEIGHTS IL 60005-2493 33NOVAMED SURGERY CENTER OF CHICAGO NORTHSHORE 3034 WEST PETERSON CHICAGO IL 60659- 40Our Lady of Resurrection Medical Center 5645 West Addison Street Chicago IL 60634-0000 44Peterson Surgery Center (Peterson Medical Surgicenter) 2300 West Peterson Avenue Chicago IL 60659 43POPLAR CREEK SURGICAL CENTER 5292 Landers Drive SCHAUMBURG IL 60192 36Ravine Way Surgery Center 2350 Ravine Way Glenview IL 60025 29RESURRECTION HEALTH CARE SURGERY CENTER 3101 NORTH HARLEM AVENUE CHICAGO IL 60634- 43Resurrection Medical Center 7435 West Talcott Avenue Chicago IL 60631-0000 38RITACCA LASER CENTER 230 Center Drive VERNON HILLS IL 60061 14ROGERS PARK ONE DAY SURGERY CENTER 7616 NORTH PAULINA CHICAGO IL 60626 43Rush North Shore Medical Center 9600 Gross Point Road Skokie IL 60076-0000 34Sherman Hospital 934 Center Street Elgin IL 60120-0000 41SIX CORNERS SAMEDAY SURGERY 4211 NORTH CICERO AVENUE CHICAGO IL 60647-1699 40St. Alexius Medical Center 1555 Barrington Road Schaumburg IL 60194-0000 33St. Francis Hospital 355 Ridge Avenue Evanston IL 60202-0000 43Swedish Covenant Hospital 5145 North California Avenue Chicago IL 60625-0000 43THE GLEN ENDOSCOPY CENTER 2551 COMPASS ROAD GLENVIEW IL 60026- 30The Hoffman Estates Surgery Center 1595 North Barrington Road Hoffman Estates IL 60194 33VICTORY AMBULATORY SURGERY CENTER 1050 RED OAK LANE LIINDENHURST IL 60046 11Victory Memorial Hospital 1324 North Sheridan Road Waukegan IL 60085-0000 16

DOCKET NO: A - 18 BOARD MEETING: July 24-25, 2007 PROJECT NO ...

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DOCKET NO: A - 18 BOARD MEETING: July 24-25, 2007 PROJECT NO ... Document Transcript