Is Certificate of Need regulation extinct?

By Harriet Franklin, Esq.

Survival of the fittest, Pennsylvania style

A long time ago, dinosaurs ruled the world. Then they became extinct. For the past 17 years, CON ruled Pennsylvania’s health care industry. Now it is extinct.

The certificate of need (CON) provisions of the Health Care Facilities Act (Act) sunsetted on December 17, 1996 after the Pennsylvania General Assembly’s lame duck session failed to extend the law for a 12-month period. This came as a shock to most of the health care industry since the Governor, the Department of Health, the Hospital Association of Pennsylvania and many business groups and politicians supported the extension of CON for another year.

The CON provisions of the Act came into being in 1979 with the goal of containing health care costs by requiring health care providers to obtain approval prior to engaging in construction and expansion of plant and services, or developing new services or facilities. Until 1992, the CON provisions were limited to hospitals, nursing homes and other “health care facilities”. In 1992, the CON provisions were amended to attempt to level the playing field. For the past four years anyone, including physicians, who wished to establish, develop or substantially expand a “clinically-related health service” had to first receive CON approval. Clinically-related health services were defined by the Department of Health and included MRI, ambulatory surgery centers, PET scanners, lithotripsy, cardiac catheterization, inpatient rehabilitation, skilled nursing, inpatient psychiatry and more.

Over the past year, there was serious debate as to the continued need for CON, especially as the health care industry is changing to a market-driven industry. Consensus was, however, that it was a bit premature to let the CON provisions sunset—that the CON process still served a need in the Commonwealth. Oh well, CON is now T-Rex.

Or is it?

What will happen now? Since just about every faction supported the extension of CON, there is a possibility it will reappear in 1997. If it does, will it look, smell and taste like the old law? During 1996, lots of suggestions were made to modify the law: changing the appeals process, eliminating and adding certain services included on the list of clinically-related health services, increasing the threshold spending amount that triggers CON review and more.

Perhaps more interesting, what happens if a new CON law is enacted soon with an effective date of December 18, 1996? Can there be retroactive legislation of this sort? And, if there is no retroactivity, how far along does a project have to be grandfathered?

Another possibility is that the Department of Health will, through its authority to license health care facilities, move substantially the entire CON process into its licensure division. The Act presently contains licensing provisions which grant the Department broad regulatory latitude. If the Department truly believes the CON process was valuable with respect to the health and safety of the people of Pennsylvania, the Department could establish a new mechanism for licensing which looks very similar to the CON process.

And what happens to the dozens of CON applications that were in process as of December 17, 1996? Can these applicants simply start the service for which they had previously sought a CON? If everyone else can, why not?

While all of the answers are not yet available, it certainly appears that permitting the CON provisions of the Act to sunset with no advance warning and absolute surprise is creating a frenzy for the Pennsylvania health care industry. Opportunities may exist for those who either were previously disapproved for a CON or who never tried due to the lengthy and cumbersome public process. Threats exist for those who are fearful that additional competition will have a detrimental economic impact on them.

Regardless of whether CON exists or not, a good planning process should be undertaken prior to establishing or expanding any health service. Planning includes financial, economic and community need to create a level of confidence that the proposed project makes sense. Planning also should include reviewing what other laws and regulations may be applicable to the project: licensure, Medicare certification, accreditation standards and others.

Remember, while CON as we know it is extinct, isn’t the lizard the direct descendant of a dinosaur? There is a distinct possibility, if not probability, that CON, in some form, will return.

Harriet Franklin, Esq., is with the firm, Schnader Harrison Segal & Lewis in Philadelphia.