Navigating the RapidsCertificate of Need Issues in West Virginia

Charles M. Johnson, Esq.May 22, 2015

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Does the CON process seem like high adventure?

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Certificate of Need Issues Affecting West Virginia Hospitals

When is a CON required? Overview of the CON process Recent developments in the CON

Standards Important Decisions of the HCA Financial Impact of the CON

Program Important Issues Affecting

Financial Feasibility Financial Disclosure Requirements Sanctions for CON Violations

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HCA Mission

Certificate of Need Rate setting for hospitals Financial Disclosure Rural Health System Grants WV Health Information Network

(electronic health exchange network) Data collection and analysis State Privacy Office

WV Hospitals

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When is a CON required?

New services not offered in the past 12 months

New ambulatory health care facility

Capital expenditures over $3,112,823

Major medical equipment over $3,112,823

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When is a CON required?

Closure of health care facility with capital a expenditure

Acquisition of a health care facility

Acquisition of a private practice

Diagnostic centers

Overview of the CON Process

Request for Ruling Letter of intent Application submitted

Exemption for acquisitions less than $2,000,000

Regular application Standard application

Application Declared Complete

Notice—legal ad and newsletter

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Overview of the CON Process

Request for hearing Hearing process

Discovery Prehearing conference Hearing

Decision Administrative Appeal Appeal to Circuit Court Appeal to WVSCOA

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Important Decisions of the HCA

CAMC Develops Comprehensive Cancer Center

Cabell Huntington proposes to acquire St. Mary’s Hospital

ARH/Williamson Memorial Acquisition Denied

United Hospital Center to purchase St. Joseph’s Hospital

Fairmont General Hospital acquired by Alecto Hospital Services—Fairmont Regional Medical Center

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Important Decisions of the HCA

Boone Memorial constructs a new facility

WVUH and Mon General joint venture for cancer care

Mon Health Systems acquires Preston Memorial

MountainView Rehab adds 16 beds in Bridgeport

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Recent Developments in the CON standards

End Stage Renal Disease Standards Approved by Governor Tomblin 3/3/15

Increased access to ESRD services in rural WV MRT Standards Approved by Governor Tomblin

3/3/15 Hospital Ambulatory Care Facilities (WVCSR 65-

27—4/7/2010) WVHIN Rules (WVCSR 65-28—3/8/2014)

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Financial Impact of CON Program

Profits for WV hospitals down Profits margins of 3.5%

(previously 5.5%) HCA focuses on net revenues

from operations and ignores market fluctuations

18 of 31 acute care hospitals made a profit

9 of 19 CAHs made a profit 2 LT acute care hospitals

made a profit 4 Psych hospitals lost money 2 Rehab facilities made money

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Financial Impact of CON Program

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Financial Impact of CON Program

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Financial Impact of CON Program

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Financial Impact of CON Program

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Financial Impact of CON Program

NY—started CON in 1964 In 1966 the Public Health Service Act lead to

state and local planning agencies Health Planning Resources Development Act

of 1974– all states must have health planning

WV started CON program circa 1977 WVHCA currently provides health planning

and CON functions 36 States currently have some form of CON

and 14 States have repealed CON

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Financial Impact of CON Program

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Financial Impact of CON Program

1978—FTC determines tighter CON laws actually increase health care costs

1986—Health planning (CON) is ineffective in controlling costs

1995—Florida’s CON laws ineffective in controlling health care costs

2009—CON laws have limited the growth and supply of hospital beds and has lead to a slight reduction in health care expenditures

2015—Pros and Cons

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Pros

Distribute care to areas that are ignored or neglected

Avoid unecessary duplication of services Cost containment CON programs are a resource for

policymakers and planners Beneficial effect on indigent care Beneficial effect on quality of care Beneficial impact on State budget

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Cons

Controlling costs--“Regulated market” vs. “Open market” discussions

CONs drive up the cost of care CONs granted based upon economic self-

interest political influence, institutional prestige or other factors apart from the interests of the community

Community needs assessments differs from services that are approved

Costs increase anyway

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Financial Impact of CON Program

Financial Feasibility

Not a true feasibility study under GAAP

Compilation based upon management representations and assumptions

EROE within 3 years of implementation of project

Include all reasonable expenses

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Financial Feasibility

Definition of capital expenditure Attorney’s fees Architect fees Consultants

Revenues match payors and payment streams

Conservative assumptions based upon population and health care trends

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Financial Disclosure

Audited /unaudited financial statements

Legal Advertisement Revenues and expenses Balance sheet Ownership Copy at HCA

Statement of Services Budget

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Financial Disclosure

Current rates Cost reports (Mc, Md, etc.) Statement of payments made

for services in excess of $55,000

Statements of collections in excess of $55,000 (not for health care services)

10-K

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Financial Disclosure

Income tax returns/990s-federal and state

Hospitals Trial balance HCA Financial Report UB date

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Sanctions?

Sanctions for CON violations

Denial or revocation of license Cease and desist order Injunctive relief ( WVC 16-2D-13) Civil penalty between $500 and $25,000 per

violation Denial of CON

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The Future of CON in West Virginia

Hospital consolidation CAHs affiliate with acute care

hospitals Nursing home and home health

consolidation Nursing homes reorganize beds Hospitals acquire private physician

practices Hospital based ASCs Increasing specialization in areas of

need or in future profit centers

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Questions ?

4829-6856-8093 v2

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Thanks!!!

Charles M. Johnson, Member

Frost Brown Todd, LLC

Laidley Tower, Suite 401

500 Virginia Street East

Charleston, WV 25301

(304) 348-2420

(304)345-0115 (Fax)

cmjohnson@fbtlaw.com