Cleveland Clinic Health System Obligated Group - FMSbonds.com

The rate of discovery of new drugs and devices has grown dramatically for several reasons. First, asmedical discovery grows, it generates new avenues of research and discovery. Second, pharmaceutical and medicaldevice companies are devoting increasing amounts of money to research and development spurred in part byreforms in the regulation of product approval for sale and distribution. The 1990s witnessed significant reforms atthe FDA, the agency that regulates the introduction of new drugs and devices to the market. In 1992, Congresspassed the Prescription Drug User Fee Act that levied fees on industry to support a substantial upgrade andreorganization of the agency for the purpose of dramatically decreasing the time required to secure approval for newdrugs and devices. This Act was renewed and new FDA reforms enacted by the Food and Drug AdministrationModernization Act of 1997. The result of these pieces of legislation has been to cut in half the median time requiredfor new drug approval. Other effects include decrease in the types of devices regulated, reform of the biologicsapproval process and decrease in clinical development times.Once these drugs secure market approval, they are often included on hospitals’ formularies — the list ofdrugs maintained by the hospitals for patient care. These may add significant operating expense with no immediatereimbursement through government payors for inpatient services.Medical discoveries could also reduce utilization or render obsolete the way that services are currentlyrendered, thereby either increasing expense or reducing revenues. However, any such effect cannot currently bequantified or predicted.Technological advances in recent years have accelerated the trend toward the use by hospitals ofsophisticated and costly equipment and services, and the Obligated Issuers may have to incur significant costs toacquire the equipment needed to maintain or enhance their competitive position. Recently, President Bush called forthe establishment of a nationwide electronic medical records system by 2014 and created a national healthinformation technology office within DHHS to lead the effort. The costs to acquire and implement an electronicmedical records system are significant but it is widely believed that such systems will lead to greater efficiencies inthe provision of patient care and improved quality of care. The acquisition and operation of certain equipment andservices may continue to be a significant factor in hospital utilization, but the ability of the Obligated Issuers to offersuch equipment or services may be subject to the availability of equipment and specialists, governmental approvaland the ability to finance such acquisitions and operations. CMS recently published new Stark exceptions forelectronic prescribing and electronic medical records technology. The OIG published similar safe harbors for theAnti-Kickback Law. The final rules provide some relief from the restrictions hospitals have faced in providing suchtechnology to physicians.Enforcement of Remedies; Risks of BankruptcyThe obligations of the Obligated Issuers under the Master Trust Indenture and the Master Notes are generalobligations of the Obligated Issuers and are not secured by any liens on real estate, equipment or other assets or anypledge of the revenues of the current Obligated Issuers or any future Obligated Issuers, other than the securityinterest granted to the Master Trustee in the Gross Receipts of the Obligated Issuers and except that the StateFinancing Lease may be deemed to constitute a security agreement under Ohio law. Enforcement of the remediesmentioned under the headings “APPENDIX C — SUMMARY OF BASIC DOCUMENTS — The State FinancingLease — Defaults and Remedies,” “ — The Bond Indenture — Acceleration, Waiver and Rescission,” “— TheMaster Trust Indenture — Events of Default,” may be limited or delayed in the event of application of federalbankruptcy laws or other laws affecting creditors’ rights and may be substantially delayed and subject to judicialdiscretion in the event of litigation or the required use of statutory remedial procedures.If an Obligated Issuer were to file a petition for relief under Title 11 of the United States Code (the“Bankruptcy Code”), the filing would operate as an automatic stay of the commencement or continuation of anyjudicial or other proceeding against such Obligated Issuer and any interest it has in property. If a bankruptcy courtso ordered, such Obligated Issuer’s property, including its accounts receivable and proceeds thereof, could be used,at least temporarily, for the benefit of such Obligated Issuer’s bankruptcy estate despite the claims of its creditors.In a case under the current Bankruptcy Code, an Obligated Issuer could file a plan of reorganization. Theplan is the vehicle for satisfying, and provides for the comprehensive treatment of all claims against such ObligatedIssuer, and could result in the modification of rights of any class of creditors, secured or unsecured. To confirm a46