59A-35.062. Proof of Financial Ability to Operate

(1) Proof of financial ability to operate must be demonstrated for initial licensure and change of ownership applications, by submitting AHCA Form 3100-0009, July 2009, Proof of Financial Ability to Operate, incorporated herein by reference, and available online at: http://www.ahca.myflorida.com/Publications/Forms/HQA.shtml, as provided under Section 408.810(8), F.S., for the following provider types:

(a) Nursing Home Facilities, as specified in Part II, Chapter 400, F.S.;

(b) Assisted Living Facilities, as specified in Part I, Chapter 429, F.S.;

(c) Home Health Agencies, as specified in Part III, Chapter 400, F.S.;

(d) Hospices, as specified in Part IV, Chapter 400, F.S.;

(e) Adult Day Care Centers, as specified in Part III, Chapter 429, F.S.;

(f) Prescribed Pediatric Extended Care Centers, as specified in Part VI, Chapter 400, F.S.;

(g) Home Medical Equipment Providers, as specified in Part VII, Chapter 400, F.S.;

(h) Intermediate Care Facilities for the Developmentally Disabled, as specified in Part VIII, Chapter 400, F.S.;

(i) Health Care Clinics, as specified in Part X, Chapter 400, F.S.; and

(2) Proof of financial ability must be demonstrated for initial licensure and change of ownership applications for Nurse Registries, as specified in Part III, Chapter 400, F.S., by submitting AHCA Form 3110-7004A, September 2009, Nurse Registry Proof of Financial Ability to Operate, incorporated herein by reference, and available online at: http://www.ahca.myflorida.com/Publications/Forms/HQA.shtml.

(3) Definitions. The following definitions apply to this section for proof of financial ability to operate.

(a) “Assumptions” means the basis and rationale used in the financial projections to estimate the number and type of patients, the method of acquiring patients, the amount of resources needed to serve patients, the method by which these resources will be acquired, the method of recruiting and maintaining staff, the method of collecting revenue and paying expenses, and the basis for anticipated salaries and employee benefits.

(b) “Charity care” means the term as defined in Section 409.911, F.S.

(c) “Contingency funding” means a source of funding available to the licensee or applicant to cover the cost of events not considered in the financial projections, including, but not limited to, a drop in patient volume, a delay in Medicare and/or Medicaid certification, major repairs, purchase of capital equipment. The contingency fund will be a minimum of one month’s average operating expense over the first year of operations.

(d) “Contractual adjustments” means the difference in the established charges or rates of the provider and the rates negotiated by Medicare, Medicaid, HMO/PPOs, and Insurers.

(e) ”Financial instability” means the provider cannot meet its financial obligations. Evidence such as the issuance of bad checks, an accumulation of delinquent bills, or inability to meet current payroll needs shall constitute prima facie evidence that the ownership of the provider lacks the financial ability to operate. Evidence shall also include the Medicare or Medicaid program’s indications or determination of financial instability or fraudulent handling of government funds by the provider.

(f) “Financial projections” means the expected operating results of the applicant as presented on AHCA Form 3100-0009, July 2009.

(g) “Full time equivalent” or “FTE” means a measure of full-time employment of 40 hours per week (1FTE = 40 hours per week or 2,080 hours annually).

(h) “Generally Accepted Accounting Principles” or “GAAP” means the term as defined in Rule 61H1-20.007, F.A.C., Department of Business and Professional Regulation, Board of Accountancy.

(i) “Liquid assets” means assets of the licensee or applicant that can easily and quickly be converted to cash such as publicly traded stocks, bonds, certificates of deposit, and money market accounts.

(j) “Net patient service revenue” means patient service revenue minus deductions from revenue. Deductions from revenue include contractual adjustments and charity care.

(k) “Operating expense” means total expenses incurred through the normal course of business.

(l) “Operating margin” means a measure of profitability and is calculated as follows: ([Net Patient Service Revenue - Operating Expenses] ÷ Net Patient Service Revenue) = Operating Margin.

(m) “Patient service revenue” means the total charge for a service provided.

(n) “Pre-opening costs” means the costs necessary to begin operations including advertising, equipment purchases, legal fees, accounting fees, consulting fees, pre-paid insurance, pre-paid rent, licensure fees, deposits (rent, utilities), requirement, staffing, and training.

(o) “Working capital” means the cash needed to sustain operations until a positive cash flow is achieved. (Largest cumulative cash need from Schedule 7 Line 21 of AHCA Form 3100-0009, July 2009).

(4) All documents required under this section must be prepared in accordance with generally accepted accounting principles.  All documents required under this section for Home Health Agencies, Home Medical Equipment Providers and Health Care Clinics must be compiled and signed by a certified public accountant.

(5) A pro forma balance sheet, a pro forma cash flow statement and a pro forma income and expense statement for the first 2 years of operation which provide evidence of having sufficient assets, credit, and projected revenues to cover liabilities and expenses must be included. An application for change of ownership may elect not to complete the 2nd year of operations on AHCA Form 3100-0009, July 2009, if all of the following apply:

(a) As of the date of the application, the entity subject to the change of ownership has been licensed for at least 5 consecutive years;

(b) The applicant’s assets, credit, and projected revenues meet or exceed projected liabilities and expenses by the end of the first year;

(c) The largest cumulative cash need on Schedule 7, Line 21 on AHCA Form 3100-0009, July 2009 occurs prior to month 12.

(6) The applicant shall have demonstrated financial ability to operate if the applicant’s assets, credit, and projected revenues meet or exceed projected liabilities and expenses.

(7) An applicant for renewal of a license shall not be required to provide proof of financial ability to operate, unless the licensee or applicant has demonstrated financial instability. If an applicant or licensee has shown signs of financial instability, as provided in Section 408.810(9), F.S., at any time, the Agency may require the applicant or licensee to provide proof of financial ability to operate by submission of:

(a) AHCA Form 3100-0009, July 2009, Proof of Financial Ability Form, that includes a balance sheet and income and expense statement for the next 2 years of operation which provide evidence of having sufficient assets, credit, and projected revenues to cover liabilities and expenses, and

(b) Documentation of correction of the financial instability, including but not limited to, evidence of the payment of any bad checks, delinquent bills or liens. If complete payment cannot be made, evidence must be submitted of partial payment along with a plan for payment of any liens or delinquent bills. If the lien is with a government agency or repayment is ordered by a federal or state court, an accepted plan of repayment must be provided.

Rulemaking Authority 408.819 FS. Law Implemented 408.806, 408.810 FS. History–New 7-14-10.