USDA Community Facilities Feasibility Study Case Study: A $55 Million Replacement Critical Access Hospital in Milan, Missouri, Feasible With the Sales Tax Pledge

A county-owned critical access hospital in Milan, Sullivan County, Missouri is replacing a 1953 building of about 30,000 square feet and 25 beds, many with shared bathrooms and one shower, with a new campus of about 62,000 square feet, 16 private beds and two procedure rooms at a total cost of $55,000,000. The documentary trail is unusually complete: a USDA feasibility grant pursued in January 2024, a land option at $7,000 per surveyed acre in December 2024, a half-cent sales tax approved by voters 558 to 373 on April 8, 2025 for up to 40 years, USDA preapplication forms approved in June 2025, and a $4,000,000 federal Community Project Funding award. The structure is $44,000,000 of USDA Community Facilities direct debt at 4.625 percent fixed for 40 years, a $5,000,000 CF guaranteed bank tranche, the $4,000,000 federal award and $2,000,000 of local sources. The campus covers at 1.18x in Year 3 and 1.29x in Year 5 with the sales tax pledge and at 1.07x and 1.17x without it, with cost-based Medicare capital reimbursement carrying about $1,800,000 of the annual debt service. Determination: feasible with the sales tax pledge, conditioned on the HCRIS baseline, the rate tier confirmation and the site diligence.

Model study prepared by MMCG Invest | Michal Mohelsky, J.D., FMVA | October 4, 2026

MMCG concludes that the replacement campus for Sullivan County Memorial Hospital is feasible with the sales tax pledge. The credit does not rest on operating margin alone, and the study does not pretend that it does. A low-census critical access hospital that lost money most months through early 2025 and returned $97,918 in June 2026 with a year-to-date profit of $142,210 will not carry $2,798,130 of annual debt service from operations. It carries that debt service from three sources the program is designed to combine: cost-based Medicare reimbursement, which returns about $1,790,000 to $1,810,000 per year of the new campus's depreciation and interest through the Medicare share of allowable capital cost; an operating EBIDA that the new building lifts from roughly break-even to 6.2 percent of revenue by Year 3 through volume recapture, utility and maintenance savings and 340B; and the half-cent sales tax that Sullivan County voters approved 558 to 373 on April 8, 2025 for a period not to exceed 40 years, which the study carries at $300,000 per year against the $285,625 the county's existing hospital fund collected in 2023. Together they cover at 1.18x in Year 3 and 1.29x in Year 5. Without the tax, coverage is 1.07x and 1.17x, which is the honest statement of why the pledge exists.

The determination is conditioned on the items a lender and USDA will require before obligation: the HCRIS cost report baseline for CCN 261306, which this model replaces with stated assumptions; confirmation that Sullivan County's median household income places the loan in the 4.625 percent intermediate tier rather than the 4.750 percent market tier; the geotechnical report, FEMA panel check and utility confirmations on the selected site, in a county where the Roy Blunt Reservoir's 79-foot earthen dam is under construction on Locust Creek; and the independent CPA examination opinion on the guaranteed tranche, which is a separate engagement from this study. At the market tier the campus covers at 1.16x in Year 3, and at a 10 percent construction overrun, the risk the Sublette County, Wyoming bids proved real, it covers at 1.13x, so the determination survives its own stresses.

This is an MMCG model study: a complete feasibility analysis performed on a real, publicly documented hospital replacement program using public data, prepared to show USDA Rural Development lenders, bond counsel and hospital boards how MMCG tests a critical access replacement against the program, the tax base and the reimbursement mechanics before the application is filed. It is not a client engagement, MMCG has no relationship with Sullivan County Memorial Hospital, its board, HFG Architecture, Murray Construction or any lender, and the analysis is not an offer, an appraisal or a recommendation. Figures drawn from the hospital's board minutes, the April 2025 ballot measure, the county's 2023 state audit, USDA Rural Development's published rates and program pages, CMS and HRSA records and the land listings are identified as such. Figures labeled MMCG assumption are underwriting inputs set by MMCG from the USDA-financed replacement comparables and industry benchmarks. Items that could not be verified from a primary source at the study date, foremost the HCRIS cost report baseline, the acreage and utilities of the optioned tract and the Missouri nonmetropolitan wage set, are listed in the Conditions and Limitations section rather than estimated silently.

The Project will replace the 1953 hospital building at 630 W. 3rd Street in Milan with a new single-story campus of about 62,000 square feet containing 16 private inpatient rooms, each with its own bathroom, two procedure rooms, a 24-hour emergency department, imaging, laboratory, outpatient therapy, the rural health clinic and the support core, retaining the critical access hospital certification under CCN 261306 and the 25-bed license as the regulatory ceiling. The hospital will continue to operate as a county-owned critical access hospital with cost-based Medicare reimbursement at 101 percent of reasonable cost less sequestration, 340B pharmacy participation held since October 1, 2015 with contract pharmacies including Walmart, CVS and Evercare Pharmacy in Princeton, swing beds, and the separately certified long-term care unit. The board has been in monthly design meetings with HFG Architecture and Murray Construction since 2024, authorized bids for an environmental site assessment of the new campus on July 30, 2026, and holds a purchase option on land from the Milan Oakwood Cemetery Association at $7,000 per surveyed acre. The borrower is the county hospital as a political subdivision, which is what makes the loan a Community Facilities credit: a public body in a community under 20,000 residents, ineligible for SBA financing under 13 CFR 120.110 and squarely inside the program USDA built for essential community facilities.

Referral and Outreach Strategy

The hospital's market strategy is retention before recruitment. Sullivan County residents who bypass Milan today for inpatient and outpatient care at Kirksville, Trenton or Brookfield are the recapture base, and the replacement building is the instrument: private rooms replace shared bathrooms and a single shower, which is the stated reason the board stopped reinvesting in the old plant. The second channel is the emergency department and swing beds, which hold post-acute patients locally after tertiary discharges. The third is the rural health clinic and outpatient therapy, which feed imaging and laboratory volume under the cost-based model. Management's expectation of growth from the Roy Blunt Reservoir and its recreation economy is carried as management expectation, not as a demographic forecast, and the model's volumes do not depend on it.

Facility Program

The board's actual site is a tract under option from the Milan Oakwood Cemetery Association at $7,000 per surveyed acre, whose acreage, frontage and utilities are not disclosed in the public minutes reviewed; the hospital Foundation committed to fund the geotechnical testing and at least $30,000 toward the site. For the model's listed-parcel discipline, the study carries the 24.8-acre parcel at 53930 E. 3rd St, Milan (LandSearch 5074613), listed at $149,900 after an $18,100 reduction on August 28, 2026, about $6,044 per acre and on the same street as the existing hospital. A 10-acre alternate (LandSearch 5408362) at $82,500 is the minimum workable footprint for a single-story 62,000 SF hospital with parking and a helipad. The LandSearch Milan market average of $5,774 per acre across 495 listed acres brackets all three options and supports a land line of $150,000 to $210,000.

Milan is the seat of Sullivan County in north central Missouri, a county of roughly 6,000 residents whose only acute care facility is the subject. The site liabilities are hydrological and documentary rather than locational: the county is crossed by Locust Creek and its tributaries, and the Roy Blunt Reservoir, with an earthen dam 79 feet tall creating a 2,328-acre permanent pool per NRCS as reported in March 2026, is under construction in the county. A FEMA panel check on the selected parcel is mandatory, and zoning, water and sewer capacity, frontage and the ASCE 7 wind and seismic parameters have not been verified for any of the three parcels. Northern Missouri is generally a low-seismic, moderate-wind region, which is a regional assumption and not a site determination.

Public water and sewer are assumed available at the E. 3rd Street parcel given its position relative to the existing hospital and are a condition, with utility extension carried at $810,000 in the cost estimate. A county public hospital is a political subdivision and is expected to be exempt from Missouri ad valorem property tax; the study carries no property tax line and flags the exemption as an MMCG assumption pending county assessor confirmation. Connection and impact fees were not identified for Milan and are carried inside the sitework allowance.

The primary service area is Sullivan County, modeled on Milan (63556) and Green City, with a secondary ring extending into adjacent counties toward Unionville, Trenton and Brookfield. The county profile that matters to a critical access underwrite is age and coverage rather than growth: a small, aging, Medicare-heavy population in a state that adopted Medicaid expansion by constitutional amendment on August 4, 2020 with 53.27 percent of the vote, covering adults 19 to 64 at or below 138 percent of the federal poverty level. Expansion lowers the uninsured share a Missouri rural hospital carries relative to the non-expansion states, and the 2027 federal Medicaid changes are carried as a stress input rather than a base-case cut. The county-level age mix, coverage rates and income data require an ACS pull that is listed as a condition; the model's volumes are set from the hospital's own documented scale rather than from a demand formula, which is the conservative direction for a facility of this size.

The demand case for a replacement critical access hospital is not a growth case. It is a retention case with three documented anchors. First, the facility is the only acute care hospital in its county, and the nearest alternatives are 20 to 30 miles away, which supports the community-need finding USDA requires and the necessary-provider logic of the CAH designation. Second, the existing plant is the constraint: a 1953 building where renovations completed in 2023 left plumbing and electrical systems outdated, with shared bathrooms and one shower across the inpatient unit, and a board that concluded further investment in the old building was not fiscally responsible. Third, the sector context is the reason the program exists: the Chartis 2026 State of the State reports 417 rural hospitals vulnerable to closure and 41.2 percent of rural hospitals operating in the red, and Missouri's $216,276,818 FY2026 Rural Health Transformation award, the ninth-largest in the country but only $115.09 per rural resident, cannot fund new construction and caps capital and infrastructure spending at 20 percent, which leaves USDA Community Facilities as the construction program of record.

The volume table is an MMCG assumption set against the hospital's documented scale of about 140 annual discharges and the one cost-report-style snapshot showing $13.6 million of gross patient revenue, whose internally contradictory utilization fields the study does not use. Volumes rise 20 to 30 percent from Year 1 to Year 5 on recapture into private rooms, not on population growth.

MMCG identified four inpatient facilities within about 45 driving miles. None has been verified on its own website or Care Compare at the study date, and all distances are straight-line pending routed measurement; both items are disclosed in Conditions and Limitations.

Competitor Number 1 Putnam County Memorial Hospital This 15-bed critical access hospital is located in Unionville, MO, about 20 miles from Milan. It is the nearest inpatient alternative and, like the subject, a small county-anchored CAH.

Competitor Number 2 Wright Memorial Hospital This Saint Luke's affiliated critical access hospital is located in Trenton, MO, about 25 miles from Milan. Its system affiliation gives it a referral and recruiting advantage the subject does not have.

Competitor Number 3 Northeast Regional Medical Center This prospective payment system hospital is located in Kirksville, MO, about 29 miles from Milan. It is the nearest PPS referral point and the destination for the acuity the subject transfers out.

Competitor Number 4 Pershing Memorial Hospital This 25-bed critical access hospital is located in Brookfield, MO, about 30 miles from Milan.

Hedrick Medical Center in Chillicothe and Harrison County Community Hospital in Bethany are probably beyond 45 driving miles and are noted without analysis. The rural health clinic, FQHC and urgent care inventory from the HRSA data warehouse was not completed and is a condition. The competitive conclusion does not depend on it: no facility offers a closer inpatient alternative for Sullivan County residents, which is the finding that matters to USDA's community-need test.

The subject is reimbursed as a critical access hospital: Medicare pays 101 percent of reasonable cost for inpatient, outpatient and swing-bed services, reduced by the 2 percent sequestration, which the study carries as an effective 99 percent of allowable cost on the Medicare share. The mechanics are the center of this credit. When the new campus opens, its depreciation of $1,979,250 per year on the modeled asset lives and its Year 1 interest of about $2,372,500 become allowable capital costs, and the Medicare share of those costs returns through the cost report. The study carries traditional Medicare at 42 percent of allocable utilization, an MMCG assumption pending the HCRIS baseline, producing incremental capital reimbursement of $1,809,458 in Year 1 declining gently to $1,773,260 in Year 5 as interest amortizes. Missouri's Medicaid expansion status supports the balance of the payer mix, 340B supports pharmacy margin, and the 2027 federal Medicaid changes are carried as a sensitivity of a 10 percent reduction in Medicaid net revenue on a modeled 18 percent Medicaid share. The half-cent sales tax is not patient revenue and is carried on its own line at $300,000 in Year 1 escalating 2 percent per year, benchmarked to the $285,625 the county's existing hospital fund received in 2023.

Construction is carried at 24 months from obligation, and the five-year pro forma begins with the first full year in the new building.

Net patient revenue and the margin walk are MMCG assumptions: revenue grows on recapture and ordinary rate escalation, and the margin lifts from roughly break-even, which is where the board minutes place the hospital through early 2025, to 6.2 percent by Year 3 on the new plant's utility and maintenance savings, private-room recapture and 340B, before any count of the capital reimbursement that is stated separately below.

Location: Milan, Sullivan County, MO 63556 Units: 16 beds (62,000 SF)

Source: Marshall & Swift CoreLogic, MMCG

At $887 per square foot all-in and $3,437,500 per bed at the 16-bed program, the budget sits above the USDA-financed replacement comparables: St. Croix Falls at $808 per SF, Colby at $614, Bethany at $618 and Harlowton at $568. The premium is the diseconomy of a 62,000 SF program carrying a full emergency department, imaging and clinic core across 16 beds, priced at 2026 cost levels, and the study states it rather than trimming it, because the Sublette County, Wyoming precedent, where bids came in at $80.2 million against a smaller funding stack and USDA later offered supplemental loans, is the argument for a real contingency and an honest unit cost, not a padded pro forma.

Loan Assumptions

The direct rate is fixed at the lower of the rate at approval or at closing with no prepayment penalty, and the guaranteed tranche carries the FY2026 CF guarantee of 80 percent. Precedent bank tranches ran 9 to 18 percent of total cost (St. Croix 9.5 percent, Delhi 11.4 percent, Harlowton 18.1 percent), and the $5,000,000 tranche at 9.1 percent sits at the bottom of that band. Representative Busick's request for $4,000,000 to $8,000,000 of state funds was not included in the Governor's budget, so state money is carried as upside only, and the pending Rural Hospital Revitalization Act's temporary zero-interest CF loans belong in an upside scenario, not the base case.

The borrower is a public body in a community well under the 20,000-resident ceiling, the facility is an essential community facility, and the project is construction and equipping, all inside the Community Facilities charter. The 40-year term is limited by useful life and state statute, and the half-cent sales tax authorized for up to 40 years matches the term, which is what makes it pledgeable security rather than soft support. The study carries a debt service reserve consistent with USDA practice of accumulating one annual payment over ten years, seeded with a $1,000,000 initial deposit in the budget. On the guaranteed tranche, 7 CFR 5001.304(b) requires a financial feasibility analysis supported by an examination-level opinion from an independent certified public accountant; agency practice extends a comparable expectation to large direct loans. MMCG prepares the feasibility study, the market and volume analysis and the financial model, and does not issue the examination opinion, which is a separate CPA engagement and is listed as a condition. The SBA programs are not an alternative structure here: a public hospital is not an eligible SBA borrower under 13 CFR 120.110, which is why the comparison set for this credit is USDA precedent, not SBA precedent.

The Year 3 operating budget is stated at the EBIDA level consistent with a cost-report presentation rather than by department, because the department-level baseline belongs to the HCRIS pull that is a condition of this study.

The expense base embeds the staffing and wage structure of a Missouri nonmetropolitan critical access hospital, with the BLS OEWS wage set flagged as an open input, and assumes the new plant's utility, maintenance and workflow savings against a 1953 building. A 6.2 percent EBIDA margin is an ambitious but defensible target for a CAH exiting a replacement, sitting above the thin medians Chartis reports for rural operators generally and below what fully stabilized CAH replacements with strong outpatient platforms achieve; the sensitivity table prices the case where it stops at 4.5 percent.

The Year 1 shortfall of $186,172 is funded from the $1,000,000 debt service reserve deposit with $813,828 remaining. The pledge contributes about 11 points of coverage in each year, which is the quantitative statement of what the April 2025 referendum bought: the difference between a credit that covers at 1.07x in Year 3 and one that covers at 1.18x. The capital reimbursement line is the program's own arithmetic, not optimism; it is the reason cost-based facilities can carry replacement debt that a PPS hospital of this size could not.

At Year 3 revenue, capital reimbursement and tax receipts, the operating EBIDA margin is the governing variable.

A hospital that merely holds a 3.6 percent EBIDA margin, barely better than the break-even operation the board minutes describe for 2026, covers its debt with the pledge. The forecast margin of 6.2 percent sits 0.4 points above the 1.15x line, which is thin, and the study says so: the pledge and the capital reimbursement do the heavy lifting, and the operating turnaround does the rest.

Every single-factor case holds above 1.00x. The cost overrun case holds 1.13x because the larger asset base also enlarges the capital reimbursement, which is the cost-based model absorbing part of its own shock. The 25-bed sensitivity is stated for comparability with the St. Croix and Delhi pattern; the base case models the 16 beds the board is actually designing, because a model that forces 25 beds onto a 16-bed plan is less credible to a lender, not more.

The determination of feasible with the sales tax pledge is subject to the following conditions precedent:

The following items could not be verified from a primary source at the study date and are disclosed: the acreage, frontage and utilities of the optioned tract; the four competitors' bed counts, services and distances from their own websites and routed drive times; the rural health clinic, FQHC and urgent care inventory; the county ACS demographic and coverage profile; the Missouri nonmetropolitan OEWS wage set and CAH margin medians; the CF guaranteed tranche fee; and the hospital's audited legacy debt position, which the county's 2023 audit indicates is minimal.

This model study applies the methodology described on MMCG's hospital feasibility study and medical feasibility study pages. MMCG prepares hospital and medical facility feasibility studies for USDA Community Facilities and Business and Industry lenders, SBA lenders and conventional lenders nationwide, with fixed-fee engagements quoted by facility type and delivery in 9 to 16 business days.