Six Things to Know about Certificate of Need Program Changes
By Christian Heuer and Brandon Sanslow
- What is a Certificate of Need program?
Certificate of Need (CON) programs are intended to moderate healthcare costs and to allow state agencies oversight of healthcare services and facility construction. Not only are CON programs state specific, but they are usually accompanied by a plethora of other state regulatory requirements including licensing. CON programs typically represent the most challenging regulatory hurdle that must be overcome before services can be provided.
- Which US States have implemented Certificate of Need programs?
State governments generally began implementing Certificate of Need programs in the mid 1970’s in response to requirements related to Federal funding mechanisms, with all but Louisiana eventually adopting CON laws. Today, there are 35 states with CON programs in place, three with CON program variations, and 12 without CON programs.
- Support and Criticism of CON Programs
Supporters of CON laws say that CON programs limit healthcare spending and price inflation, help provide services in areas that might otherwise be ignored, and allow public input on the need for new healthcare facilities. Critics state that CON laws hinder market competition, with lack of competition driving up prices and reducing access and choice for patients.
- What is the future of CON programs?
Half a decade after the Federal government’s push for State regulations in the 1970’s, Washington has now changed its position. In an open letter accompanying the comprehensive report on Reforming America’s Healthcare System Through Choice and Competition dated December 2018, several Federal agencies recommended “state action to repeal or scale back Certificate of Need laws” in order to “to promote choice and competition in provider markets..” https://www.hhs.gov/about/news/2018/12/03/reforming-americas-healthcare-system-through-choice-and-competition.html
- How are Tennessee healthcare organizations affected?
Tennessee’s healthcare provider organizations operate across the United States; however, the top three healthcare markets, based on the number of facilities, are Tennessee, Texas, and Florida.
In Florida, CON requirements for general hospitals, complex medical rehabilitation beds, and tertiary hospital services are eliminated effective July 1, 2019, while specialty hospital CONs will sunset two years later. Texas does not have a CON program. In Tennessee, legislators are considering two bills that would terminate CON programs for healthcare facilities, home care, and satellite emergency departments.
- What are the opportunities and threats of deregulation of CON programs?
- Healthcare investment decisions will be driven by demand and supply of healthcare services as operators can enter new markets, expand operations, and offer new service lines without legacy regulatory restrictions.
- Health systems will be able to customize their service offerings to meet the needs of the communities they serve, rather than facing regulatory hurdles.
- Access to healthcare and patient choice is likely to improve.
- Existing providers are likely to face increased competition where demand exceeds supply.
- Healthcare systems looking to sell a service line previously subject to CON regulations will likely see a moderation in purchase prices.
- Provider organizations that have grown operations in Florida by purchasing healthcare entities previously subject to CON regulations face potential impairment of any CON assets and goodwill on their books. Elimination of CON requirements like in Florida is considered a triggering event for many entities and will require testing of goodwill impairment, even if the private company alternative was elected.
The healthcare industry continues to evolve at a rapid pace. Just as the retail and banking industries continue to scale back brick and mortar operations as consumers embrace e-commerce, healthcare is increasingly being provided outside traditional hospital settings as well. Hospital inpatient volumes have been declining as more and more procedures are performed on an outpatient basis. With the advent of telehealth, we are beginning to see a return to the time when physicians made home visits (albeit virtually). CON programs were well-intended when first established two generations ago, when delivery of care shifted from home-based settings into traditional brick and mortar inpatient facilities. Today’s delivery of care is moving towards outpatient settings and back into the home.
Christian Heuer is senior manager for healthcare valuation services with LBMC with 20 years of valuation and consulting experience across the continuum of care. A University of Kentucky graduate, Brandon Sanslow, CPA, joined LBMC in 2015. He was promoted to his current role as healthcare audit manager in May.