Tennessee Legislature Passes Sweeping Changes to CON Law

On April 20, 2016, the Tennessee House and Senate completed final actions to pass legislation that makes significant modifications to the state’s certificate of need (CON) laws. The legislation, SB1842/HB1730 was sponsored by Sen. Todd Gardenhire (R-Chattanooga) and Rep. Cameron Sexton (R-Crossville). The final legislation reflects a series of compromises amongst legislators, hospitals and other healthcare providers, groups representing physician group practices, opponents of CON regulations who advocate for more free market competition in healthcare services, and the Health Services and Development Agency (HSDA), which administers Tennessee’s CON program.

The bill makes significant modifications to the CON requirements now currently in statute by deleting or modifying numerous services, and then adding in some others. For easy understanding, this article includes a before/after summary chart by service that you can review here. Those key changes in the bill are best summarized as follows:

Services Deleted From CON Requirements

1. Eliminates the requirement of a CON to initiate the following services and/or establish a facility to provide those services:
             birthing centers;
             ithotripsy (including the requirement to register the equipment);
             rehabilitation services and hospital-based alcohol and drug treatment;
             discontinuation of obstetric or maternity services;
             closure of a critical access hospital;
             hospital swing beds; and
             alcohol and drug treatment.
2. Cost Thresholds Removed from CON: Deletes the CON requirement for capital investments for modification or renovating existing healthcare institutions, which has required a CON for any such modifications costing more than $5 million for a hospital and $2 million for any other healthcare facility.
3. Major Medical Equipment Removed from CON: Eliminates the existing CON requirement before obtaining and investing in major medical equipment, though certain individual services may still require a CON (such as PET imaging).

Services Where CON Requirements Are Significantly Modified

1. Magnetic Resonance Imaging (MRI) Services CON Requirement: For MRI services, eliminates the blanket requirement to obtain a CON for an MRI. That requirement is replaced by a provision that differentiates between rural and urban service areas. The bill eliminates the CON for initiation of MRI services or purchasing of additional MRI machines, but only for larger urban counties having a population greater than 250,000 (Hamilton, Davidson, Shelby, Rutherford and Knox). A CON is still required for MRI services in any county with a population of 250,000 or less. A CON is also required in all counties for MRI services that serve pediatric patients (less than 14 years of age).
2. Hospital Expansion: The bill liberalizes an existing CON exemption allowing an increase in the hospital’s licensed bed capacity without obtaining a CON. That provision is currently limited to hospitals of less than 100 beds, which can increase by 10 beds per year. Under the new law, the exemption is broadened to apply to any hospital, rehabilitation facility, or mental health hospital. It will allow an increase of up to ten percent (10%) of licensed capacity, but such increase is restricted to any one (1) campus over any period of one (1) year for any services or purposes that hospital is already licensed to perform. The exemption cannot be used to add beds for any service or purpose for which it is not licensed to provide (i.e., where CON for initiation of services is required), or to redistribute beds within its bed complement to a different category. Lastly, no more than one (1) increase every three (3) years can be done. A new facility must wait a year from its initial license date before increasing beds. In all instances, notice to HSDA is still required.
3. Outpatient Diagnostic Centers (ODC): CON still required as in current law, but the legislation adds a requirement that an ODC must become accredited by the American College of Radiology after obtaining a CON within the time set by HSDA.

Services Added to CON Requirements

The legislation does make some additions to the CON requirements. A CON will now be required when a hospital seeks to create a satellite emergency department facility at a location other than the hospital’s main campus. Also added is a specific requirement that a hospital must obtain a CON before starting organ donation/organ transplantation services. Programs in existence as of 2016 would not need a new CON so long as they maintain UNOS certification.

Areas with No Changes to CON Requirements

A number of providers and services were not changed under the new legislation. CON requirements did not change for:

1. Nursing homes/skilled nursing facilities, home health, hospice, and opiate addiction clinics, other than generally applicable provisions such as the elimination of cost thresholds;
2. The requirement of a CON to initiate most hospital services currently under CON, which still includes burn units, neonatal intensive care unit, open heart surgery and cardiac catheterization, linear accelerators, positron emission tomography and psychiatric services; or
3. Relocating an existing healthcare facility.

A Strong Dose of Quality

The new legislation increases dramatically the role of the HSDA in requiring and ensuring quality from CON applicants by changing the way quality of care is incorporated into the CON approval process. The new legislation specifically makes quality a factor in the decision to grant a CON by adding the responsibility to “weigh and consider the quality of healthcare to be provided” to the HSDA’s decision-making process on a CON application. That requirement is bolstered further by the addition of language to the review criteria stating that no certificate of need shall be granted unless the action proposed in the application “will provide healthcare that meets appropriate quality standards” as a fourth mandatory criteria. That is in addition to three (3) criteria of need, orderly development, and economic feasibility that the agency must currently weigh and consider. The review report from the Tennessee Department of Health (TDH) or other licensure agency on a CON application must also evaluate how the applicant will meet and maintain the quality criteria and make findings on that.

Those “quality criteria” also will not be vague standards that applicants can pick and choose based on what numbers favor their applications. A new section in the law empowers the HSDA to create such criteria by rulemaking, in consultation with the TDH State Health Planning Division and the Board for Licensing Healthcare Facilities. The bill suggests that the HSDA should involve stakeholders to advising on that process. There are enforcement “teeth” to these criteria as well. If the HSDA determines an entity fails to meet quality criteria, they can refer that issue to the Board for Licensing Health Care Facilities or appropriate State Department. If the HSDA determines that an entity has failed to meet any quality measure imposed as a condition for a certificate of need by the agency, the agency may impose penalties or seek to revoke the CON.

Lastly, the HSDA has new authority to maintain continuing oversight over any certificate of need that it approves on or after July 1, 2016. The agency may impose conditions on a certificate of need that require the demonstration of compliance with continued need and quality measures, provided, conditions for quality measures may not be more stringent than those measures identified by the applicant in the applicant’s submitted application. That oversight also includes requiring annual reports concerning continued need and the quality measures noted above as determined by the agency.

Fiscal Self-Sufficiency and Applicant Fee Changes

The Legislature also followed a common trend to make the agency dependent on fee generation for its own operations. The HSDA was and still is authorized to set fees for its operation and the consideration of CON applications. Fees in excess of operations used to be moved to support efforts on the state health plan; that will no longer happen. All fees will be retained by the HSDA, but it must adjust fees as necessary to ensure it is fiscally self-sufficient, but also that fees are not too high so as to result in revenues from fees exceeding its operations costs.

The new law revised some of the HSDA fees for applicants and opponents of CONs. New changes allow an unsuccessful CON applicant to request a refund of twenty-five percent (25%) of their application fee. Appealing a CON also is more costly, as the party challenging a CON approval or denial must pay an appeal fee equal to twenty-five percent (25%) of the original CON application fee.

Conclusion

The legislation now must be signed by Gov. Haslam. Most observers expect he will sign the bill and the new law will become effective on July 1, 2016. For providers, these changes mark the most significant revisions to the CON process since the formation of the HSDA from the former Health Facilities Commission, which occurred fourteen (14) years ago. As with any new laws, providers will inevitably have to examine and seek interpretations about how these provisions do or do not, or can or cannot, affect how they plan their business development going forward. The Bradley Arant Boult Cummings Certificate of Need attorneys have a long and deep experience in doing this and in working with CON legislation. Should your organization need those services, we are happy to discuss those issues with clients as they arise.