Tennessee healthcare providers now have a very different certificate of need (CON) law to consider when they plan new facilities or expand services. Tennessee's legislature and governor recently enacted the Health Services and Planning Act of 2021 (Public Chapter 557 or "the Act"), which became fully effective Oct. 1, 2021. The Act changes the substantive requirements for CON approval, as well as the application process to obtain a CON. It also sets in motion a process to consolidate the Health Service & Development Agency (HSDA) and Tennessee Department of Health (TDH) licensure into a new single agency.
The Act enacts several changes to the state's CON law for impacted providers and services, which was most recently revised its CON law in 2016.
General Criteria for Approving a CON: For more than a decade, the HSDA granted CONs based on four criteria: need, orderly development, economic feasibility and adequate quality. The Act keeps the need and appropriate quality standards criteria. However, the Act eliminates the "economic feasibility" standard and reframes "orderly development" as "consumer advantage." Under the "consumer advantage standard "the effects attributed to competition or duplication [must] be positive for the consumers."
Mental Health Hospitals/Psychiatric Services: The Act effectively removes all mental health services from the CON law's ambit by deleting mental health hospitals and the initiation of psychiatric services from CON requirements. As a result, obtaining a CON is no longer required to establish a mental health hospital or other facility to provide psychiatric services, nor to initiate psychiatric services at an existing provider.
Nursing Homes: The Act aligns incremental increases in nursing home beds with the existing process for hospitals by reinstating the so-called "10 Bed, 10 Percent Rule." This will permit a nursing home to increase its total number of licensed beds by the lesser of 10 beds or 10 percent of its licensed capacity without obtaining a CON. A nursing home must request the bed increase in writing from the HSDA prior to submitting its request to the Board for Licensing Health Care Facilities (BLHCF) to modify its bed count. An increase cannot be requested within one year after initial licensure, nor more often than once every three years.
Rural and Economically Distressed Counties: In addition to the hospital revival provision, under the Act, a CON is not required for any action that would otherwise require a CON in counties designated as "distressed eligible" by the state Department of Economic and Community Development as of Jan. 1, 2021, where there is no actively licensed hospital. Additionally, a closed hospital in a rural or distressed county may now reopen without applying for CON so long as it operated within the previous 15 years.
Relocation of Existing Healthcare Facilities: The Act delegates authority to the HSDA's executive director when providers wish to relocate their facilities. Under the new law, the executive director may issue an exemption from the CON requirement to relocate a healthcare facility if (a) at least 75 percent of the patients to be served following relocation are reasonably expected to reside in the same zip codes as the facility's existing patient base and (b) relocation would not reduce access to consumers, particularly those who live in underserved or economically distressed communities, who are uninsured or underinsured, on TennCare, or women and/or members of racial or ethnic minorities. Also, the relocation of the principal office of a home care agency within its licensed service area does not require CON approval.
"Use It or Lose It" Provision: The Act also ensures that applicants promptly implement the CONs they receive. A CON will now become void "if the actions it authorizes have not been performed for a continuous period of one year after its implementation." For home care organizations, this provision applies to each county where they are licensed. The provision permits the HSDA to revoke a CON unilaterally, and there is no hearing prior to revocation. Once a CON becomes void, the state cannot issue or renew licenses for the facility or activity. The HSDA executive director may issue temporary exemptions to the provision This provision does not affect existing licensed healthcare facilities with an active or inactive license.
Home Health and Hospice (Home Care Agencies): The new law relaxes some restrictions on new home care agencies (i.e., home health agencies and hospices). A CON is no longer required to establish limited-purpose agencies that provide (a) services under the Energy Employees Occupational Illness Compensation Program Act of 2000 (EEOICPA), (b) pediatric home care services, or (c) hospice services to patients under the care of a healthcare research institution.
Any license issued by the TDH for such providers must be limited to the provision of those particular services. Additionally, any home care agency providing services without a CON must be accredited by the Joint Commission, the Community Health Accreditation Partner, or the Accreditation Commission for Health Care and submit proof of such accreditation to the HSDA within two years of the initiation of service or face licensure discipline.
Hospital-Operated Nonresidential Substitution-Based Treatment Centers: Under the new Act, if a treatment center is (or will be) located on the same campus as a licensed, operating mental health and substance-abuse-related hospital, a CON is not required to initiate treatment or establish a facility.
PET and MRI Services in Urban Counties: Public Chapter 557 relaxes CON requirements regarding the establishment of institutions and rendering of services in urban counties with higher populations. Tennessee's 2016 revision to the CON law set a population threshold of 250,000 for several provisions, which the Act lowers to 175,000. Consequently, some CON requirements will be loosened for Davidson, Hamilton, Knox, Rutherford, Shelby, and Williamson counties. Among other provisions, providers in these counties will no longer be required to obtain CON approval prior to initiating positron emission tomography (PET) services, provided they receive accreditation within two (2) years of licensure. Additionally in these counties, a CON for initiation of magnetic resonance imaging (MRI) services for adult patients is no longer required; a CON will still be needed for pediatric MRI services. In rural counties with populations below 175,000, a provider will still need to obtain a CON for these activities. Also, certain types of providers may still need to seek a CON for an outpatient diagnostic center, even if the equipment in the center does not require a CON.
Medical Equipment: Under the new law, providers will no longer need to obtain the HSDA's approval to replace or relocate medical equipment that originally required a CON.
In addition to changing many of the substantive requirements for CON approval, the Act also streamlines the CON process and reduces the burden on providers.
Independent Review: The Act changes the review process for CON applications. Currently, two agencies review a CON application - the HSDA reviews a CON application and declares it complete, and then the applicable licensing agency also does an evaluation. Under the new Act, the HSDA will now complete the entire review of the CON application. Additionally, the HSDA may not deem a CON application complete under the new process until it has overseen an independent review and verified all the information submitted. This independent review will verify objective data such as the existing provider capacity within a region, occupancy rates, regional demographics, and utilization (i.e., number of procedures performed).
Opposition to CON Applications Restricted: Under the Act, a healthcare institution may oppose a CON application only if the opponent is located within 35 miles of the proposed project, which significantly limits who can oppose a CON. For home care applications, the opposing healthcare institution must have served patients in one of the counties in the applicant's proposed service area within two years prior to CON application. Opponents now also have more stringent requirements that apply to presenting their opposition.
Changes in Ownership or Control: The Act removes a longstanding requirement for a provider to notify the HSDA of ownership changes occurring within two years of a healthcare institution's initial licensure. It also creates a process allowing the HSDA to permit CON transfers for as-yet-unimplemented CONs where the agency determines the new CON holder would provide healthcare that meets appropriate quality standards and the transfer would not reduce access to consumers, especially those in underserved communities, those who are uninsured or underinsured, women and racial and ethnic minorities, TennCare or Medicaid recipients and low income groups.
Emergency CON Process: Public Chapter 557 also codifies existing regulatory provisions authorizing HSDA to issue temporary emergency CONs, which are generally valid for 120 days. An emergency CON can be issued at a scheduled meeting, or the HSDA's chair or vice-chair can act immediately if not doing so would lead to an interruption in services.
Reporting Provisions: The new law requires providers of cardiac catherization, open heart surgery, organ transplants, burn unit operations, neonatal intensive care unit operations, home health services, or hospice services to file an annual report with HSDA that includes utilization data sorted by payment source and patient zip codes.
Schedule of Fees: Public Chapter 557 eliminates the per-application fee in favor of a new, annual fee process. To fund the HSDA, the Act establishes annual licensure fees for all licensed providers by category. This reflects a policy decision that that licensed facilities who benefit from a CON should also fund the CON process.
Future of Healthcare Facility Regulation in Tennessee
This new statute also reflects the Legislature's longstanding goal to make healthcare services and facility licensure more efficient by creating a single agency to oversee healthcare facilities and services from initial planning through ongoing operation. The Act also directs the HSDA executive director to create a plan that will ultimately combine the functions of licensure (currently under the Board for Licensing Health Care Facilities) and CON approval (under the HSDA) into a new, independent Health Facilities Commission. The Act continues the reliance on using quality standards to regulate facilities and services and ensure accountability. The plan is not due until Jan. 1, 2023, but discussions are already ongoing regarding how this new commission will operate.
Overall, the new Act reflects the Tennessee Legislature's intent to create healthcare oversight that emphasizes competition, rather than regulation, by applying CON requirements to only those facilities and services where attention is most needed. The Act simultaneously relaxes CON requirements for some facilities and services, while retaining or even tightening requirements on others. Obviously, providers must still meet all other licensure requirements imposed by state and federal agencies. As with any new law, providers will have to examine these provisions as they plan strategically for the future.
Christopher C. Puri is a nationally recognized healthcare attorney with vast experience in regulatory matters, specifically representing clients in post-acute care. His deep industry knowledge allows him to provide comprehensive representation on a full array of legal issues facing providers. Contact Chris at firstname.lastname@example.org.