Commercial Litigation Healthcare
North Carolina’s Certificate of Need (“CON”) law regulates the development, offering, and acquisition of new institutional health care services, facilities and equipment by requiring providers to first obtain a certificate of need from the state before engaging in such activities. However, on March 9, 2023, the Senate Rules and Operations Committee of the North Carolina General Assembly approved substantial changes to the CON law as part of a deal brokered to expand Medicaid coverage to North Carolinians. Although it does not repeal the CON law entirely, House Bill 76, if approved as proposed, would loosen the restrictions on providers seeking to develop, acquire or offer health care services to North Carolinians in a tiered, multi-year approach. This article briefly summarizes the proposed changes to the CON law and when those changes would take effect.
Changes Exempting Certain Activities from CON Review Immediately
House Bill 76 proposes to make several changes to the CON law that would either eliminate the requirement for obtaining a CON or exempt certain activities from CON review. The following changes to the CON law would take effect on the date that House Bill 76 becomes law and apply to any activities occurring on or after that date.
- CON Not Required. A CON will no longer be required to develop or offer the following health care services and facilities:
- Psychiatric beds and facilities;
- Chemical dependency treatment beds and facilities;
- The conversion of previously approved health service facility beds into chemical dependency treatment facility beds or psychiatric beds; or
- An increase in the number of previously approved health service facility beds as chemical dependency treatment facility beds or psychiatric beds.
- Exemptions from CON Review.
- Early and periodic screening, diagnosis and treatment services to children under age 21 provided by a licensed home care agency will be exempt from CON review if the North Carolina Department of Health and Human (“DHHS”) Services receives prior written notice from the entity proposing the service.
- Monetary thresholds for the following activities have been increased:
- Nursing Homes, Adult Care Homes, Intermediate Care Facilities and Existing Health Service Facilities on Main Campus. The proposed capital expenditure for renovating, replacing on the same site, or expanding an existing nursing home facility, adult care home facility, intermediate care facility for individuals with intellectual disabilities, or existing health service facility located on the main campus will be increased from $2 million to $4 million. A capital expenditure for these activities in excess of $4 million will be exempt from CON review, subject to the entity who is proposing to incur such expenditure satisfying certain conditions.
- Replacement Equipment. The threshold for the purchase of replacement equipment will be increased from $2 million to $3 million thereby exempting purchases of replacement equipment in excess of $3 million if certain conditions are met. The purchase of replacement equipment costing less than $3 million will be exempt from CON review. Additionally, on September 30, 2023 and on September 30 each year thereafter, the cost threshold amount for replacement equipment will be adjusted using the Medical Care Index component of the Consumer Price Index published by the U.S. Department of Labor for the 12-month period preceding the prior September 1.
- Diagnostic Centers. The aggregated monetary threshold for all medical diagnostic equipment used by a diagnostic center which costs at least $10,000, will be increased from $1.5 million to $3 million, meaning that only diagnostic centers utilizing medical diagnostic equipment costing in excess of $3 million will be subject to CON review. Diagnostic centers are defined by the CON law as a freestanding facility, program or provider, including physicians’ offices, clinical laboratories, radiology centers, and mobile diagnostic programs.
Changes Impacting Ambulatory Surgical Facilities in Two (2) Years
Under the proposed revised CON law, an ambulatory surgical facility (“ASF”) that meets all of the following criteria will no longer be subject to CON review: (a) is licensed by DHHS to operate as an ambulatory surgical facility; (b) has a single-specialty or multi-specialty ambulatory surgical program; and (c) is located in a county with a population in excess of 125,000. ASFs who meet the foregoing criteria will be known as a Qualified Urban Ambulatory Surgical Facility. A Qualified Urban Ambulatory Surgical Facility will be required to commit 4% of their total earned revenue to charity care.
If approved, the aforementioned changes to the CON law concerning ASFs will become effective two (2) years after the date that DHHS issues the first payment to hospitals in accordance with the Healthcare Access and Stabilization Program (“HASP”) under N.C. Gen. Stat. § 108A-148.1 and apply to activities occurring on or after that date.
Changes Impacting Magnetic Resonance Imaging Scanners in Three (3) Years
Under the proposed revised CON law, certain Magnetic Resonance Imaging (“MRI”) scanners will be no longer be subject to CON review. Specifically, a CON will no longer be required to purchase, donate, lease, or transfer MRI scanners located in counties with a population in excess of 125,000.
If approved, the changes to the CON law as it relates to MRI scanners will become effective three (3) years after the date that the first HASP payment is made to hospitals and apply to activities occurring on or after that date.
The proposed changes to the CON law have been said to be the “most significant modification” to the CON law since the law was implemented. While not the full-scale repeal that was under consideration, these changes, if approved, will make it considerably easier for providers to develop and offer necessary health care services to North Carolinians in more urban areas of the State.
Regardless of whether House Bill 76 is approved as proposed or modified from its current state, it appears that changes to the CON law are imminent. We will provide a further update if and when changes to the CON law become effective.
For questions related to how the changes to the CON law might impact your business or for assistance with CON-related matters generally, please contact our team of experienced CON attorneys at Wyrick Robbins:
From our Commercial Litigation Practice, Lee Whitman, Blakely Kiefer, and Charles George. From our Healthcare Practice, Frank Kirschbaum, Dean McCord, and Trevor Presler.