HLT-38-13-00007-RP Certificate of Public Advantage

8/27/14 N.Y. St. Reg. HLT-38-13-00007-RP

NEW YORK STATE REGISTER

VOLUME XXXVI, ISSUE 34

August 27, 2014

RULE MAKING ACTIVITIES

DEPARTMENT OF HEALTH

REVISED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. HLT-38-13-00007-RP

Certificate of Public Advantage

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

Proposed Action:

Addition of Subpart 83-1 to Title 10 NYCRR.

Statutory authority:

Public Health Law, section 2999-bb

Subject:

Certificate of Public Advantage.

Purpose:

For the health care industry to obtain reasonable protections from antitrust liability through an active state oversight program.

Substance of revised rule:

The proposed rule would add a new Subpart 83-1 to 10 NYCRR titled Certificate of Public Advantage.

Section 83-1.1 Contains definitions for purposes of this Subpart, including definitions for “Attorney General,” “Certificate of Public Advantage,” “Cooperative Agreement,” “Federal or State Antitrust Laws,” “Health Care Provider,” “Mental Hygiene Agency,” “Person,” “Planning Process” and “Primary Service Area.”

Section 83-1.2 Certificate of Public Advantage. Describes the effect of obtaining a Certificate of Public Advantage (“COPA”) and sets forth the basic contents of an application.

Section 83-1.3 Public notice. Provides for public notice of an application, by both the department and each party to the agreement or proposed agreement for which approval is sought.

Section 83-1.4 Fees for applications and monitoring. Sets forth fees and costs to be paid in relation to applications and renewals.

Section 83-1.5 Review process. Sets forth the factors to be considered by the Department in its review of applications for a COPA.

Section 83-1.6 Issuance of a Certificate of Public Advantage. Provides for consultation with the Attorney General, the mental hygiene agencies (as appropriate), and the Public Health and Health Planning Council (“PHHPC”) in the issuance of a COPA, sets forth examples of conditions which may be imposed in the issuance of a COPA, and provides for the period for which such COPA may be valid.

Section 83-1.7 Record keeping. Requires the Department to maintain a record of all Cooperative Agreements for which COPAs are in effect and a copy of the certificate, including any conditions imposed in it.

Section 83-1.8 Modification and termination. Provides that any material modification of an approved cooperative agreement is subject to the prior review and approval of the Department in consultation with the Attorney General, mental hygiene agencies (as appropriate), and the PHHPC, and that any party to a Cooperative Agreement covered by a COPA must file notice of such termination with the Department at least thirty days prior to the termination. The notice of termination will be provided by the Department to the Attorney General and the mental hygiene agencies (as appropriate).

Section 83-1.9 Periodic reports. Requires periodic filing of reports of activity pursuant to a COPA, and sets forth the frequency and contents of such reports.

Section 83-1.10 Review after issuance of Certificate of Public Advantage. Provides for Department review of reports, and includes provisions addressing corrective measures the Department may take under certain circumstances.

Section 83-1.11 Application for renewal. Provides for renewal of an approved COPA.

Section 83-1.12 Revocation. Provides for revocation of a COPA by the Department under certain circumstances, and a procedure for doing so.

Section 83-1.13 Hearing rights. Provides for a right of hearing prior to the Department’s revocation of a COPA.

Section 83-1.14 Voluntary surrender. Allows for the voluntary surrender of a COPA.

Section 83-1.15 Effect of consultation or recommendations. Clarifies treatment of input received pursuant to consultations with, or recommendations from, the Attorney General, mental hygiene agencies (as appropriate), or the PHHPC.

Section 83-1.16 Certificate of need and other requirements. Provides that nothing in this Subpart shall relieve parties from any responsibility for compliance with laws or regulations governing certificate of need or other approval or notice submission requirements.

A copy of the full text of the regulatory proposal is available on the Department of Health website (www.health.ny.gov).

Revised rule compared with proposed rule:

Substantial revisions were made in sections 83-1.1, 83-1.2, 83-1.3, 83-1.4, 83-1.5, 83-1.6, 83-1.8, 83-1.9, 83-1.10, 83-1.11, 83-1.12 and 83-1.14-1.15.

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

Katherine Ceroalo, DOH, Bureau of House Counsel, Reg. 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:

30 days after publication of this notice.

Revised Regulatory Impact Statement

Statutory Authority:

The authority for the proposed addition of a new Subpart 83-1 to Title 10 NYCRR is Article 29-F of the Public Health Law (“PHL”).

Legislative Objectives:

In March 2011, Governor Cuomo’s Medicaid Redesign Team (“MRT”) recommended providing support for integration and collaboration among health care providers by conferring immunity from state and federal antitrust liability through the active state supervision of such activities. Subsequently, the Legislature accepted the recommendation of the MRT and enacted PHL Article 29-F (Chapter 59 of the Laws of 2011, Part H, § § 50-51).

In enacting PHL Article 29-F, the Legislature found that coordination of health care services is essential to the improvement of health care quality, efficiency, access and outcomes. In addition, the Legislature found that collaborative arrangements among, or consolidation, mergers or acquisition of, providers may be necessary to preserve access to essential services in some communities. Such collaborative agreements also may improve the quality of the services provided to patients, the efficiency of provider operations, and help contain costs. Furthermore, health system reform proposals at the federal and state levels, including mechanisms such as accountable care organizations, health homes, patient-centered medical homes and payment reforms such as penalties for potentially preventable readmissions all rely on integration and collaboration among providers.

The statute reflects the Legislature’s finding that competition as currently mandated by federal and state antitrust laws should be supplanted by a regulatory program to permit and encourage mergers, acquisitions, and cooperative, collaborative and integrative agreements among health care providers and others in order to assure access to essential health care services, to improve health care quality and outcomes, to enhance efficiency, or to minimize the cost of health care. Further, active state supervision should be provided to ensure that the benefits of such agreements outweigh any disadvantages attributable to any reduction in competition that may result from the agreements, and to provide “state action immunity” to the parties engaged in such activities. The proposed regulations provide a mechanism for accomplishing this objective.

Current Requirements:

Providers seeking to merge or to create a common active parent are currently required to receive approval from the Department as part of the Certificate of Need process. However, an operating certificate issued as a result of the Certificate of Need process does not provide protection from antitrust liability at the state or federal levels. Many other collaborative arrangements among providers and other entities, or between non-provider entities, may proceed without Department approval, are subject to little or no state oversight, and have no protection from antitrust scrutiny.

Other statutory provisions already provide for state supervision for the purpose of promoting health care collaborations and immunity from antitrust liability in specific contexts. These include the multipayor patient-centered medical home program (PHL Article 29-AA), accountable care organization program (PHL Article 29-E) and PHL Article 29-A, relating to rural health networks and rural health care access.

Needs and Benefits:

Increased integration and collaboration among health care providers, and among providers, payors and other healthcare-related entities, are essential to implementing many of the health system reform proposals under the Affordable Care Act and the state MRT initiatives. In addition, payment reforms, such as penalties for potentially preventable readmissions and value-based purchasing, will encourage integration and collaboration among providers. These collaborations promise to improve health care quality and outcomes, strengthen care coordination among providers, reduce inappropriate utilization, increase efficiency and contain health care costs. Further, a collaboration between an economically strong provider and an economically weak one may be able to protect the weaker provider from financial failure and preserve access to care in the community.

However, some collaborative arrangements might be construed as anti-competitive under the antitrust laws and might expose the participants to antitrust liability. Federal case law provides a defense against federal antitrust claims (“state action immunity”) where the arrangement is: subject to active state supervision to ensure that the public benefits derived from the integrative and collaborative arrangements outweigh any anticompetitive effects; pursuant to a state-created oversight and approval process; and based upon the state's explicit intent to supplant competition with state oversight and to confer state action immunity upon those entities and activities approved under the process. PHL Article 29-F expresses that intent, and the proposed regulations implement the program provided for by the statute, including the active supervision necessary to provide a state action immunity defense to a federal antitrust claim.

Health care providers that are entering into Cooperative Agreements or a planning process with other providers, or other health care-related entities, may gain a defense against federal antitrust claims and protection from private claims under state antitrust laws by obtaining a Certificate of Public Advantage and complying with these regulations.

This process is optional – providers and other entities may continue to enter into Cooperative Agreements or a planning process without seeking such protection. For example, an entity may determine that the risk of antitrust liability resulting from their arrangement is low and that a Certificate of Public Advantage is not necessary. However, these regulations will provide a path to pursue protection from antitrust liability for those providers that choose to seek a Certificate of Public Advantage, and engage in collaborations that would preserve or expand access to care, improve quality and outcomes, enhance efficiency, and/or curb costs, and which otherwise meet the criteria for approval under the program.

COSTS

Costs to Private Regulated Parties:

As a Certificate of Public Advantage is optional, this regulation creates no mandatory burdens or costs to regulated parties. However, applicants will be charged a $5,000 fee for applications, and for renewals, and will be required to pay for any consultants needed by the Department to analyze the application and the balance of benefits and disadvantages presented by the proposed collaborative arrangement. Applicants will also have ongoing costs with regard to periodic reporting and response to issues arising in the course of oversight. Those costs will vary depending on the size and nature of the project, the complexity of the review, the extent of any issues arising subsequent to initial approval, and other factors. In most cases, however, such costs will be more than offset by the savings resulting from not having to go through federal antitrust reviews, which require similar analysis. Such costs could be several multiples of the cost of participating in the program, even with imposition of the application and consultant fees. Entities need not participate if they choose not to, whether for financial or any other reason. Accordingly, the program may often provide an opportunity for cost savings.

Costs to Local Government:

There are no costs to local government, except to the extent that a local government chooses to seek a certificate of public advantage for its covered activity.

Costs to the Department of Health:

The review of Certificate of Public Advantage applications will require the commitment of staff resources. However, the number of applications is expected to be small, and the reviews will be conducted largely by consultants paid for by the applicants.

Costs to Other State Agencies:

The regulations will require the dedication of some staff resources by the Antitrust Bureau of the Attorney General’s Office and, as appropriate, the mental hygiene agencies, which will also review these applications. However, the number of applications is expected to be small, and the Attorney General already engages in antitrust-related reviews. Accordingly, the associated costs to other state agencies should be nonexistent or minimal.

Local Government Mandates:

The proposed regulation does 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 regulation requires the submission of an application if the parties to a cooperative agreement wish to seek protection from antitrust liability, together with subsequent ongoing reports and provision of additional information as requested by the Department where necessary during the course of its active supervision of the arrangement. Such paperwork will likely be less burdensome than would be associated with obtaining approval from state and federal antitrust authorities, in addition to possible ongoing enforcement risks in the absence of state action immunity.

Duplication:

There are no relevant State regulations which duplicate, overlap or conflict with the proposed amendment.

Alternatives:

The Certificate of Public Advantage (COPA) process has been adopted in several other states. The Department opted for this type of process because it is known to the federal antitrust enforcement agencies and has withstood their scrutiny. The Department considered alternative fee requirements and determined that a $5,000 fee plus the costs of needed consultants would be appropriate for both applications and renewals. The Department also considered making all COPAs valid for the same number of years, but determined that the better course would be to tailor the COPA and its duration to the particular arrangement in question.

Federal Standards:

These regulations do not duplicate or conflict with any federal regulations.

Compliance Schedule:

The proposed amendment will be effective upon publication of a Notice of Adoption in the New York State Register.

Revised Regulatory Flexibility Analysis, Revised Rural Area Flexibility Analysis and Revised Job Impact Statement

Changes made to the last published rule do not necessitate revision to the previously published RFA, RAFA and JIS.

Assessment of Public Comment

Comment: The definition of “Cooperative Agreement” under proposed § 83-1.1(c)(1) should be amended to clarify that collaborative efforts to be created are in addition to the FTC-recognized “clinically integrated” entities. Therefore, the definition should include the phrase “including, but not limited to”.

Response: Section 83-1.1(c)(1) is revised to include the phrase “including but not limited to”.

Comment: The regulations should not apply to transfers of assets through a sale, merger or other change-of-control transaction. This type of transaction is not a Cooperative Agreement between two independent entities and should be subject to traditional antitrust scrutiny.

Response: Mergers and acquisitions are referenced in Public Health Law (PHL) § 2999-aa. The Department of Health (DOH) is authorized to determine which proposed collaborations, integrations, mergers or acquisitions will be covered.

Comment: “Regional health improvement collaborative” should be defined.

Response: Reference to regional health improvement collaborative has been removed in favor of a broader reference to planning entities approved by DOH, providing DOH the flexibility to consider a range of potential planning processes.

Comment: Providers licensed or certified under the Mental Hygiene Law (MHL) should be included.

Response: Section 83-1.1(e) is revised to include entities licensed, certified or funded under MHL Articles 16, 31, 32 or 41.

Comment: The definition of “health care provider” should be extended to an Article 44 managed care organization (MCO).

Response: DOH has determined no changes to the regulation are needed.

Comment: The definition of “person” in § 83-1.1 should explicitly refer to payors such as HMOs, insurers or Medicare.

Response: DOH has determined no changes to the regulation are needed.

Comment: The terms “market”, “geography” and “region” appear to be interchangeable; they should be clarified and defined.

Response: The proposed regulations have been revised to use the term Primary Service Area (PSA), defined in § 83-1.1.

Comment: Section 83-1.2(a), stating that a person with a COPA will not be subject to federal antitrust laws, should be revised as State law cannot unilaterally declare that an arrangement is exempt from federal law.

Response: Section 83-1.2(a) is revised to clarify that the regulations further the statutory intent to provide state action immunity for collaborative arrangements that promote improved quality, efficiency of and access to health care services through the COPA process.

Comment: Section 83-1.2, allowing for retroactive enforcement by the Attorney General of arrangements approved under a COPA on the basis of an antitrust analysis, is inconsistent with the statute.

Response: Article 29-F states that it is not intended to limit the authority of the Attorney General. The regulations achieve the statute’s intent to provide state action immunity under the state and federal antitrust laws for collaborative arrangements that promote improved quality, efficiency of and access to health care services through the COPA process while preserving the Attorney General’s authority as authorized by law.

Comment: Approvals of COPAs granted over the Attorney General’s objection should not be afforded immunity from a private right of action under state antitrust law.

Response: The regulations, consistent with Article 29-F, establish a process to provide state action immunity from private claims under state antitrust laws, as well as from federal antitrust claims. In reviewing COPA applications, DOH will consult with the Attorney General and applications will be reviewed on a case by case basis.

Comment: Some comments indicated that DOH should explicitly preclude a Cooperative Agreement from authorizing the setting or negotiating of payment rates or methodologies or sharing or distributing revenue, while others said the regulations should expressly state that obtaining a COPA enables such entity to negotiate pricing with an insurance company.

Response: In consultation with the Office of the Attorney General, the mental hygiene agencies and the Public Health and Health Planning Council (PHHPC), DOH will review COPA applications on a case by case basis. If it is determined that the Cooperative Agreement or planning process is beneficial to New York residents and the setting of price is integral to implementation of a Cooperative Agreement, DOH may issue a COPA and may include conditions related to the negotiation of reimbursement contracts.

Comment: DOH should institute a “sliding scale” fee schedule.

Response: The application fee will be the same for everyone; the consulting fee will vary based on the complexity of the application.

Comment: The “factors to be considered” under § 83-1.5 should be required for a Cooperative Agreement.

Response: Cooperative Agreements or planning processes which are the subject of COPA applications may take many different forms and consist of a broad range of factual circumstances. Factors stated in the proposed regulations will guide DOH’s review and applications will be reviewed on a case by case basis.

Comment: The review process should consider: (a) existing agreements between or among the parties to a proposed Cooperative Agreement; (b) price information; and (c) an assessment that the services intended to be preserved by a COPA is needed and not already provided by other providers in the community.

Response: Factors stated in the proposed regulations will guide DOH’s review and application will be conducted on a case by case basis. Upon review of an application, DOH will determine if additional information is necessary.

Comment: To the extent that the proposed regulations would allow COPAs to be issued for purposes of mergers, acquisitions or regional health planning, a showing of clinical quality improvements should be required.

Response: Clinical quality improvements would be captured under § 83-1.5(c).

Comment: Approval of a COPA should be based on a “clear and convincing” standard.

Response: The regulations permit DOH to approve a COPA if the benefits likely to result from the cooperative agreement or planning process outweigh the potential disadvantages, including reduced competition, which is consistent with Article 29-F.

Comment: In weighing potential disadvantages, the regulations require DOH to consider whether issuance of the COPA would render payers unable to negotiate "reasonable payment and service arrangements". Section 83-1.5(d)(3) should be revised to include an "optimal" standard as used in several other states.

Response: The “reasonable” standard is an appropriate standard in weighing the interests of providers and payors. This is one factor that will guide DOH’s review and each application will be reviewed on a case by case basis.

Comment: An executed Cooperative Agreement should not be permissible until a COPA is granted.

Response: A COPA is discretionary. Parties may choose to enter into cooperative arrangements or collaborative planning without seeking the protections that a COPA can provide. Cooperative arrangements and collaborative planning processes that are directed at improving access, improving quality and lowering cost often do not raise antitrust concerns. Moreover, the regulations are consistent with Article 29-F, which states that the planning and negotiations that precede executed agreements may be the subject of COPA applications.

Comment: Review and renewal of COPAs should provide for public input. The review and renewal should confirm that the benefits achieved were pursuant to the least restrictive means. The role of the PHHPC should be clarified.

Response: The regulations provide that information about COPA applications, including renewal applications, will be available on DOH’s website. There will be opportunity for public comment on a COPA application, either in writing or in person, at a meeting of a designated PHHPC committee. The recommendation of the committee will be presented to the full PHHPC for review and recommendation. The regulations provide that the review of COPA applications will include consideration of the availability of arrangements that are less restrictive to competition and achieve equivalent benefits.

Comment: The regulation should be revised to require PHHPC approval of a COPA application as a condition of issuance of a COPA, not just the receipt of a recommendation of the PHHPC.

Response: The regulation is consistent with PHL § 2999-aa, which requires the Commissioner to consult with, and receive recommendations from, the PHHPC before approving COPA applications.

Comment: One of the factors that should be considered in evaluating applications is workforce protection, status of which is to be determined in consultation with caregivers and their representatives.

Response: Section 83-1.6 is revised to include the health care workforce as a factor to be considered in the review of a COPA application.

Comment: While allowing DOH broad discretion to impose any appropriate condition on a case-by-case basis makes sense, some conditions should be required in all cases and included in the regulations, such as: contracting parameters with third party payors; inclusion of a most favored nations clause; prior approval by DOH before the termination or non-renewal of a contract with a third-party payor; restrictions on operating margins, and price, cost and physician employment caps.

Response: Cooperative Agreements or planning processes which are the subject of COPA applications may take many different forms and consist of a broad range of factual circumstances. Factors stated in the proposed regulations will guide DOH’s review and each application will be reviewed on a case by case basis.

Comment: Revise the requirements applicable to annual reports to require reports each year the COPA is in effect, to add specific reporting criteria related to the exercise of pricing power, and to allow for public comment on each annual report.

Response: Section 83-1.9 was revised to require an annual report for each year that a COPA is in effect and to add language authorizing the Department to require additional information as warranted; if appropriate, this could include information related to the exercise of pricing power.

Comment: Reports under proposed § 83-1.9 should be filed quarterly, or at least bi-annually, for the duration of the COPA and the collaboration should be required to reflect upon the application submitted and report if the desired results were achieved.

Response: The proposed regulations require annual reports as a minimum, which shall include a description of the activities conducted pursuant to the Cooperative Agreement or planning process, and additional reports at such other times as DOH, in consultation with the Office of the Attorney General, may determine.

Comment: To assure meaningful input from the community on an ongoing basis, the regulations should be revised to require the establishment of a community advisory board for each COPA. The purpose of the advisory board would be to establish community health goals and planning needs, coordinate services, review and comment on annual reports, and receive and act on consumer complaints.

Response: The regulations provide that information about COPA applications, including renewal applications, will be available on DOH’s website. There will be opportunity for public comment on a COPA application, either in writing or in person at a meeting of a designated PHHPC committee.

Comment: While § 83-1.10 allows DOH to request additional information from the parties to a Cooperative Agreement any time it appears that they have failed to comply with the COPA certificate and related conditions, it grants no express enforcement authority other than revoking or amending the certificate. The regulations should be revised to afford DOH with the same degree of oversight and enforcement authority that it has with any other DOH regulated/licensed/certified entity, including the ability to conduct surveys, issue statement of deficiencies, require the submission of acceptable plans of correction, and issue fines. Such oversight will provide a necessary mechanism to assure ongoing compliance and is required to satisfy the "active supervision" necessary to obtain state action immunity.

Response: Article 29-F authorizes DOH to engage in appropriate supervision necessary to promote state action immunity under the state and federal antitrust laws, and revocation or amendment of a COPA is the appropriate remedy for any lack of compliance.

Comment: DOH should have the authority to dismantle the Cooperative Agreement and terminate any COPA if the review process determines that the negative effects to competition outweigh the benefits and efficiencies, regardless of the cost incurred for terminating the arrangement.

Response: Article 29-F confers upon DOH the authority to grant, modify, renew and revoke COPAs but not to require the termination of a Cooperative Agreement. When determining whether to revoke a COPA, it is appropriate to consider additional facts such as the unavoidable costs of terminating a Cooperative Agreement.