HLT-12-10-00011-P Revisions to Certificate of Need (CON) Process for Threshold Levels

3/24/10 N.Y. St. Reg. HLT-12-10-00011-P

NEW YORK STATE REGISTER

VOLUME XXXII, ISSUE 12

March 24, 2010

RULE MAKING ACTIVITIES

DEPARTMENT OF HEALTH

PROPOSED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. HLT-12-10-00011-P

Revisions to Certificate of Need (CON) Process for Threshold Levels

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed Action:

Amendment of Parts 405, 410, 420, 600, 703, 705, 709 and 710 of Title 10 NYCRR.

Statutory authority:

Public Health Law, sections 2802 and 2803(2)(a)

Subject:

Revisions to Certificate of Need (CON) Process for Threshold Levels.

Purpose:

To constitute the first phase of regulatory changes as part of the Department's review of the CON process.

Substance of proposed rule (Full text is posted at the following State website:www.health.state.ny.us):

The proposed amendments to 10 NYCRR §§ 705.7, 705.8, 710.1, 710.5, 709.12, 709.15 and 600.3 described below, with corresponding changes to 10 NYCRR §§ 705.22, 410.3 and 420.2, represent the first phase of regulatory reforms to New York's Certificate of Need Process (CON) process. The initial phase of the reform effort is aimed at focusing the resources of the Department of Health (Department) and the State Hospital Review and Planning Council (SHRPC) on projects that involve the delivery of highly complex services, the investment of substantial resources, and/or the creation of new facilities or beds. In addition, the first stage of reform seeks to streamline the process for projects that require a less intensive review. Accordingly, the proposed regulatory amendments outlined herein will raise the project cost thresholds that establish the level of review, reduce the level of review for the acquisition by hospitals of certain medical equipment, combine limited architectural review and prior review into a single review category, and eliminate SHRPC review of certain project amendments.

Raise cost thresholds that determine the level of review:

The proposed amendments to § 710.1 and corresponding changes to § 600.3 will raise the project cost threshold for full review from $10 million to $15 million and the threshold for administrative review from $3 million to $6 million. In addition, the proposed regulation maintains the sliding threshold for administrative review of projects with a cost of up to 10 percent of operating costs, but raises the cap on projects eligible for administrative review under the sliding threshold from $25 million to $50 million for general hospitals. Under the proposal, facilities that are financed with publicly-backed debt would be eligible for administrative review under the sliding threshold.

Eliminate Council review of non-clinical projects and health information technology projects:

The proposed amendments to § 710.1 will eliminate full review of non-clinical and health information technology projects regardless of cost. This means that, regardless of cost, health information technology projects and projects that do not impact clinical services or space will be exempt from review by SHRPC. Non-clinical and health information technology projects with a total cost of up to $15 million will be subject to limited review, and such projects with a cost in excess of $15 million will be subject to administrative review.

Reduce level of review of hospital acquisitions of MRIs and CT scanners:

The proposed amendments will require only a limited review of acquisitions of an MRI or CT scanner by a general hospital. Under the proposed regulation, the acquisition of lithotripters will no longer be subject to CON review. However, the addition of lithotripsy as a service will remain subject to limited review.

Allow administrative review of certain project amendments:

The proposed amendments will eliminate SHRPC (full) review of certain non-substantive amendments to approved projects. Instead, these changes in approved projects will be reviewed administratively.

Consolidate limited architectural and prior review:

Prior review and limited architectural review will be combined into one category entitled "limited review," eliminating any confusion between the two categories and allowing for a consolidated application form. The single review category for limited review will also provide a more explicit process for projects that involve the addition or decertification of a service or implementation of health information technology and/or involve construction requiring an architectural review.

Eliminate obsolete provisions:

The amendments to § 710.1 create an opportunity to delete obsolete provisions and clarify dense or ambiguous provisions.

Update Part 705 provisions governing new medical technology demonstration projects:

These amendments will provide increased flexibility for the Department to approve demonstration projects to test the efficacy, safety, cost-effectiveness, and need for new medical technologies in New York.

Specific amendments to Parts 705, 709, 710 and Section 600.3:

• Section 705.7 will be amended to allow for innovative forms of financing of demonstration projects with a total project cost of $100 million or more.

• Paragraph (a) of § 705.8 will be amended to give the Commissioner of Health the authority to approve demonstration projects with a duration in excess of two years.

• Subdivision (a) of § 709.12 will be amended to apply the specified need methodology for MRIs only to certificate of need applications involving the acquisition of MRIs by facilities other than general hospitals, consistent with amendments to Part 710.

• Section 709.15, which sets forth the public need methodology for the acquisition of lithotripters, will be repealed consistent with amendments to Part 710.

• Paragraphs (3) and (4) of § 710.1(b) concerning the Capital Architectural and Program Alternatives (CAPA) will be deleted, as these provisions are no longer utilized.

• Paragraph (1) of § 710.1(c) will be amended to clarify that the addition or deletion of part-time clinic services operated by the Department or a local health department does not require CON approval. The amendment also will delete an obsolete provision requiring CON approval of any project determined to be "inappropriate" or for which there has been a prior determination of no public need. A cross-reference to the limited review paragraph of § 710.1(c) will be updated. Subparagraph (vi) will raise the cost threshold for Certificate of Need applications from $3 million to $6 million dollars, except for non-clinical projects and health information technology projects which are subject to a higher cost threshold.

• Subparagraphs (i) and (iii) of § 710.1(c)(2) will be amended to increase the project cost threshold for applications requiring a full review from $10 million to $15 million.

• Paragraph (3) of § 710.1(c) will be amended in several places to raise the project cost threshold for applications eligible for administrative review and to raise the cap on the sliding administrative review cost threshold for general hospitals. In addition, this provision will exempt the acquisition of an MRI or CT scanner by a general hospital from administrative review and authorize an administrative review of non-clinical projects and health information technology projects with a project cost in excess of $15 million. This amendment also will eliminate CON review of lithotripters.

• Paragraph (4) of § 710.1(c) will be amended to raise the project cost threshold from $3 million to $6 million for projects involving repair or maintenance that are exempt from Certificate of Need approval.

• Paragraph 5 of § 710.1(c) will be amended to create a new "limited review" category which combines the existing prior review and the limited architectural review categories. The consolidated limited review category will be restricted to applications for certain construction projects and service changes with a total cost that is not in excess of $6 million, except that non-clinical and health information technology projects will be eligible for a limited review to the extent that project costs do not exceed $15 million. Provisions governing the submission and processing of applications for limited review projects will be moved to the beginning of the paragraph and duplicative language will be deleted.

• Paragraphs (7), (8), and (9) of § 710.1(c) will be renumbered as paragraphs (6), (7), and (8).

• Subdivisions (b) and (c) of § 710.5 will be amended to eliminate full review of certain post-approval project changes, including: increases in construction costs of up to ten percent of or $15 million; changes in financing which do not result in an increase in project cost on a present value basis in excess of ten percent or $15 million; and reductions in construction which account for 15 percent or more of total basic costs that result in a corresponding reduction in basic costs when fixed costs are considered.

• Corresponding changes in regards to the threshold increases in Part 710 and project amendment changes will be made to paragraphs (1), (2), and (3) of subdivision (c) and paragraph (3) of subdivision (e) of § 600.3.

• Amendments to cross references to 710.1 in Sections 405.22, 410.3, 420.2, and 703.6 also will be made.

Text of proposed rule and any required statements and analyses may be obtained from:

Katherine Ceroalo, DOH, Bureau of House Counsel, Regulatory Affairs Unit, Room 2438, ESP, Tower Building, Albany, NY 12237, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

45 days after publication of this notice.

Regulatory Impact Statement

Statutory Authority:

The authority for the proposed revisions to Title 10 NYCRR Parts 705 and 710 is sections 2802 and 2803(2)(a) of the Public Health Law (PHL), which authorize the State Hospital Review and Planning Council (SHRPC) to adopt and amend rules and regulations, subject to the approval of the Commissioner of Health, to effectuate the provisions and purposes of Article 28 of the PHL with respect to hospitals, including but not limited to, requirements for construction projects subject to Certificate of Need (CON) review.

Legislative Objectives:

PHL Article 28 governs the establishment and construction of health care facilities and the addition of certain health care facility services and equipment. The CON process has been implemented to carry out this statutory mandate. The mission of the CON process is to promote an accessible, high-quality, cost-effective health care delivery system. The Department of Health has undertaken a comprehensive review of the CON process to ensure that it advances its intended objectives, is responsive to a changing health care environment, focuses limited staff and SHRPC resources on issues and projects with the greatest impact, and is streamlined to the extent appropriate.

Current Requirements:

Title 10 NYCRR Part 705 establishes a process for approving demonstration projects to evaluate the medical efficacy, cost effectiveness, and efficiency of, as well as the need for, new medical technologies and health services.

Title 10 NYCRR Part 710 establishes criteria governing the types of medical facility construction projects, including service changes and equipment acquisitions, that require review and the level of review applicable to each type of project. The two most intensive levels of review are full review and administrative review. These types of review consider several elements: public need, financial feasibility, character and competence (or current compliance for existing operators), architectural and engineering standards, and legal matters. Projects subject to full review are reviewed by both Department staff and SHRPC. SHRPC makes a recommendation to either the Commissioner of Health or, for projects that involve the establishment or a change of ownership of a facility, to the Public Health Council (PHC) for a final determination. Administrative reviews require only a staff recommendation to the Commissioner for a final decision. Less costly and less complex projects may be subject to prior limited review or limited architectural review and are exempt from Council review.

Certain types of CON applications are subject to full review regardless of cost. For example, applications involving the establishment of an operator of a health care facility or a change in ownership of an existing operator require the review of the SHRPC and PHC regardless of the cost of the project. Similarly, applications involving the addition of highly complex services, such as cardiac services or transplants, require SHRPC review regardless of cost.

However, in most cases, the projected cost of a project is the primary determinant of its level of review. Under section 710.1, projects with a capital cost in excess of $10 million are subject to full review. Applications with a projected capital cost of at least $3 million and up to $10 million are subject to an administrative CON review, although some projects may qualify for administrative review under a sliding threshold based on the facility's operating costs and the total project costs. Current regulations subject non-clinical projects with a project cost of up to $10 million to prior limited review.

In addition to construction projects and services, the CON review process applies to expensive medical equipment, helping control the proliferation of equipment that may be subject to over-utilization or that presents patient safety concerns if used inappropriately. Currently, the acquisition of MRIs, CT scanners, and lithotripters are subject to administrative review under Part 710, which requires consideration of public need, financial feasibility, architectural and programmatic issues, and current compliance.

Section 710.5 regulates project amendments. Under current regulations, amendments of approved projects that were subject to full review require another full review including a recommendation by SHRPC. Amendments are defined to include (among other changes in the project):

o A change in the financing of the project, unless the applicant demonstrates that the change will not result in a more expensive project on a present-value basis for third-party payors;

o An increase in the total construction cost in excess of $3 million and in excess of 10 percent or $10 million whichever is less; or

o A reduction in the scope of the project which accounts for 10 percent or more of the total costs without a corresponding reduction in construction costs.

Need and Benefits:

The CON process is an effective health care planning tool that helps to improve the distribution of health care resources, enhance health care quality, and control health care costs. The proposed changes in the CON review process are needed to respond to changes in the health care environment, maximize the effectiveness of the CON process, and use Department of Health resources most effectively. In addition, the proposed regulations eliminate obsolete provisions, clarify provisions that were difficult to understand, and make appropriate changes to other regulatory provisions that reference Parts 705 and 710.

• Demonstration Projects

The Department proposes to update Part 705 to provide more flexibility to accommodate capital-intensive demonstration projects necessary to evaluate new technologies and services that demonstrate the potential to improve outcomes, and reduce morbidity and mortality. Part 705 was written in the early 1980's to assess and approve MRIs -- an emerging technology at that time. Medical technology has evolved since Part 705 was originally adopted, and flexibility is needed to support large scale, capital-intensive projects. The Department needs flexibility to authorize demonstration projects beyond the two years currently authorized, in order to fully assess the technologies in terms of efficacy, safety, cost-effectiveness, the ramifications of the financing approaches deployed, and any additional statewide need for these projects.

• Increasing Cost Thresholds

The Department proposes to raise the monetary thresholds that determine the level of review of most projects, in order to keep pace with the increasing cost of construction and medical equipment, to expedite the processing of less complex projects, and to allow the Councils and Department staff to focus their attention and resources on the more significant projects. It has been estimated that health care facility construction costs have increased between 4 and 12 percent annually since CON cost thresholds were last adjusted 10 years ago. By streamlining and expediting CON reviews, these proposed regulations will help to reduce the regulatory burden on health care providers and will reduce project cost increases that are sometimes attributed to CON processing delays.

Increasing the cost thresholds will mean that some projects formerly subject to full review would be subject to administrative review; while projects that were subject to administrative review would be subject to lesser levels of review depending on their scope. Even with this shift, projects in excess of $6 million would continue to require review of public need, financial feasibility, current compliance, and architectural, engineering and legal issues. However, many lower cost projects would be subject only to a limited review comprised of architectural and engineering or programmatic considerations.

The changes in review levels will not limit the Department's ability to recommend disapproval of a project deemed unnecessary, programmatically unsound, or fiscally imprudent. If a project were to be disapproved, the applicant could submit a CON application to be processed for full review.

• Non-Clinical Projects, Health Information Technology, and Limited Reviews

Recently adopted revisions to Part 710 shifted non-clinical projects with a total cost of up to $10 million to prior review, while non-clinical projects with a total cost in excess of $10 million remained subject to full review. In implementing the revised regulation, it became apparent that most non-clinical projects require construction and some architectural review. Similarly, many service changes and decertifications currently covered under prior review also involve construction. In order to better address hybrid projects under the limited review process, the Department proposes to combine the two levels of review into a single "limited review" category. By removing non-clinical projects from Council review entirely, and raising the monetary threshold for non-clinical projects eligible for limited review, the Councils and Department staff may focus their attention on the projects that involve medical services and have a greater impact on the health care delivery system.

In addition, growing numbers of health care facilities are moving to adopt electronic health records and other forms of health information technology. Recognizing the important role that health information technology can play in supporting health care quality, patient safety and efficiency, the amendments provide an explicit and streamlined review process for health information technology projects.

• Medical Equipment

Over the past decade, the use of MRI and CT scanners for diagnostic purposes has become the standard of care in general hospitals. The majority of general hospitals in New York operate at least one MRI and CT scanner. MRIs and CT scanners are minimally invasive imaging tools and are available at prices that are affordable to most hospitals. Accordingly, a rigorous CON review of these types of equipment in general hospital settings is not longer necessary, and the goals of CON can be accomplished by a less intensive review. Moreover, by reducing the level of review of this equipment to limited review, the Department will facilitate these acquisitions, while assuring that the equipment is installed in a setting that meets State architectural and engineering safety standards.

Under this proposal, the initial purchase of an MRI or CT scanner by a diagnostic and treatment center would remain subject to administrative review. These devices have not become the standard of care in diagnostic and treatment centers and are supply-sensitive. Accordingly, the acquisition of this type of equipment outside of a hospital setting should be scrutinized for community need.

The Department has determined that the acquisition of lithotripters should no longer be regulated by the CON process. Lithotripters do not raise the cost and patient safety concerns that once justified review under the CON process. They are now recognized as an affordable, minimally-invasive, first-line treatment for renal stones. Because they are used to treat a specific condition, utilization of lithotripters does not appear to be supply-sensitive. Thus, eliminating CON review for lithotripters is not likely to generate a significant increase in utilization or associated health care costs. However, the addition of lithotripsy as a service will remain subject to a limited review.

Project Amendments

By reducing the number of projects that must come before the Councils repeatedly due to cost increases or other non-substantive changes, the Department seeks to target staff and Council resources more effectively. Specifically, the proposed regulatory revisions will allow administrative review of amendments to projects that are substantively unchanged, but experience:

o a change in financing, where the project is no more costly on a present value basis over the expected life of the project than 10 percent of approved costs or $15 million whichever is less;

o an increase in total construction costs of up to $6 million and up to 10 percent or $15 million whichever is less; or

o a reduction of scope of construction which accounts for 15 percent or more of projected costs, if there is a corresponding reduction in construction costs, which may include consideration of fixed costs.

This proposal would increase the existing dollar thresholds that trigger a Council review to reflect the increases in construction costs over the last 10 years and to conform to proposals to raise the administrative and full review thresholds.

The elimination of a second Council review of these types of amendments would reduce costly delays in construction and would allow staff and the Councils to focus resources on projects that have not previously been approved.

COSTS

Costs to the Department of Health:

The proposed amendments will impose no new costs on the Department. By raising cost thresholds and lowering the level of review for certain projects, if adopted, the amendment will help free up staff and Council resources for higher cost, more complex projects and reduce the costs of CON approval to the health care industry.

Costs to Other State Agencies:

There will be no costs to other State agencies or offices of State government.

Costs to Local Government:

There will be no costs to local government.

Costs to Private Regulated Parties:

Because the proposed amendments impose no new requirements, duties or responsibilities on any entity subject to Article 28 of the PHL, they will not result in cost increases for private regulated parties.

Local Government Mandates:

The proposed amendment will not impose any new programs, services, duties or responsibilities upon any county, city, town, village, school district, fire district or other special district.

Paperwork:

The proposed amendments will impose no new reporting requirements, forms or other paperwork. The amendments actually will reduce paperwork by shifting projects to lower levels of review and removing the requirement for the filing of a CON application for the acquisition of lithotripters.

Duplication:

There are no relevant State or Federal rules which duplicate, overlap or conflict with the proposed amendments.

Alternatives:

Hospital industry groups requested that monetary thresholds be raised to even higher levels and that reviews be eliminated for MRI and CT scanners. After considering their concerns, the Department determined that a 100 percent increase in the threshold for administrative review and a 50 percent increase in the threshold for full review would be sufficient to streamline the process, while maintaining Council involvement in costly and complex projects. In addition, the Department determined that an architectural review of MRI and CT scanner acquisitions is needed to ensure patient safety.

Federal Standards:

The proposed amendments do not exceed any minimum standards of the Federal government. There are no Federal rules currently addressing the CON process.

Compliance Schedule:

The proposed amendments will be effective on the thirtieth day after publication of a Notice of Adoption in the New York State Register. A compliance schedule is not needed as the regulations will not impose any new requirements on regulated entities.

Regulatory Flexibility Analysis

No regulatory flexibility analysis is required pursuant to section 202-(b)(3)(a) of the State Administrative Procedure Act. The proposed amendments will not impose an adverse economic impact on small businesses or local governments, and will not impose reporting, record keeping or other compliance requirements on small businesses or local governments.

Rural Area Flexibility Analysis

No rural area flexibility analysis is required pursuant to section 202-bb(4)(a) of the State Administrative Procedure Act. The proposed amendments will not impose an adverse impact on facilities in rural areas, and will not impose reporting, record keeping or other compliance requirements on facilities in rural areas.

Job Impact Statement

No Job Impact Statement is required pursuant to section 201 a(2)(a) of the State Administrative Procedure Act. It is apparent, from the nature of the proposed amendments, that they will not have an adverse impact on jobs and employment opportunities.