Cleveland Clinic Health System Obligated Group - FMSbonds.com

OhioOhio Certificate of Need ProgramOhio previously had certificate of need (“CON”) laws that regulated the activities and expenditures of theObligated Issuers and other health care providers. As of May 1, 1997, Ohio’s CON laws were substantially phasedout, limiting their current applicability to nursing facilities only. As a result, the Obligated Issuers could faceincreased competition from other providers. Therefore, the ability of each Obligated Issuer and of the ObligatedGroup, taken as a whole, to generate sufficient revenues to meet its obligations and to pay the debt service on theSeries 2008 Bonds and its other indebtedness could be adversely affected.Ohio LicensureThe Licensure Department within the Ohio Department of Health is responsible for licensure andregistration of health care facilities. All hospitals in Ohio must be Medicare certified or accredited by the JCAHO orthe American Osteopathic Association. The Ohio Department of Health prescribes licensing requirements forcertain health care facilities, including ambulatory surgical facilities, freestanding dialysis centers, freestandinginpatient rehabilitation facilities, freestanding birthing centers, freestanding radiation therapy centers, andfreestanding or mobile diagnostic imaging centers.The Healthcare Simplification Act. On March 25, 2008, the Governor of Ohio signed House Bill 125,commonly referred to as The Healthcare Simplification Act (the “HSA”), into law. Set to become effective on June25, 2008, the HSA makes many revisions to Ohio law that may impact hospitals. Specifically the HSA will imposenew regulations on health care contracts between health plans and providers. Some of these regulations includeestablishing a moratorium on the use of “most favored nation” clauses in certain health care contracts, subjectingcertain contractual disputes to binding arbitration, and restricting the use of rental networks. Additionally, the HSArequires the Ohio Department of Insurance to establish standard credentialing forms for providers. Due to the recentpassage of the HSA, its impact on the Obligated Group cannot be ascertained at this point. It is possible that theregulations contained in the HSA could impose, among other things, material adverse operational, financial andlegal burdens, costs and risks upon the Obligated Group.FloridaFlorida Certificate of Need ProgramThe CON program in Florida is administered by AHCA. Florida’s CON program covers new facilityconstruction, as well as the initiation of certain specialized hospital services, bed conversions, increases in thenumber of inpatient beds at hospitals and SNFs, hospice services, transfers of services and other projects that couldsignificantly affect services or costs. Such CON requirements may restrict the Obligated Issuers from expanding,adding or changing facilities and services as necessary to respond to competitive and market forces. If an ObligatedIssuer were to proceed with a future capital expenditure program that required a CON but for which a CON had notbeen obtained, the Obligated Issuer would be in violation of Florida law, subject to injunctions and/or othersanctions and possibly guilty of a misdemeanor of the second degree. No assurance can be given as to the ability toobtain CON approval of future projects necessary for the maintenance of competitive rates and charges or qualityand scope of care.Florida LicensureAHCA’s Hospital and Outpatient Services Unit within the Division of Health Quality Assurance isresponsible for licensing, registering and regulating hospitals, outpatient facilities and health care service facilities.Hospital facilities must meet state licensing requirements, submit a completed application, provide requireddocumentation and have a satisfactory survey in order to be licensed. Florida licensure requires compliance with anarray of operational, physical plant and other statutory and regulatory requirements. In addition, Florida’s hospitallicensing law includes a requirement for treatment of persons with emergency medical conditions that is similar tothe provision contained in the Medicare law. While each Obligated Issuer believes it is in material compliance with39