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The 1997 Amendments to Florida’s Certificate of Need Law

Health Law

After four years of trying, in the 1997 session, the legislature enacted Committee Substitute for Senate Bill 238, revising Florida’s certificate-of-need law, which regulates the development and construction of health care facilities and health services. The legislation deregulates a number of projects and health services that are presently subject to review, as well as revises the list of projects which may be subject to expedited or full batch review. The new law also revises the requirements for letters of intent and applications.

Florida’s Certificate of Need Program

F.S. §§408.031 through 408.045 are known as the Health Facility and Services Development Act. The act establishes the statutory basis for Florida’s certificate of need (CON) program. The CON program is designed to control entry into and development within the health care market of certain health care facilities and services by requiring the Agency for Health Care Administration (AHCA) to certify that the proposed facility or service is needed. controlling the supply of health care facilities and services, the CON program attempts to minimize the costs of excess supply, helps prevent nonprice competition, and slows the proliferation of new technology before its usefulness has been established. In addition, the CON program is designed to promote equal service and equal geographic access to quality health care, assure and reward quality care, and encourage responsiveness to community interests.

The establishment of hospitals, nursing homes, home health agencies, intermediate care facilities for the developmentally disabled, hospices, and certain institutional health services are currently subject to review under CON regulation.

The agency reviews CON applications under one of two review concepts: comparative review or expedited review. The agency also maintains an oversight function by virtue of its grant or denial of requests for exemption. Projects subject to comparative review are identified under F.S. §408.036(1). Comparative review requires that applications submitted in the same batching cycle for beds, services, or programs for the same planning area are competitively evaluated by the agency for purposes of awarding a certificate of need.

F.S. §408.036(2) specifies projects that are subject to expedited review. Expedited review allows for nonbatched, noncomparative review of CON applications, resulting in a shorter review period.

F.S. §408.036(3) allows the agency to exempt a proposed project from review altogether. Prior to undertaking a project, an applicant must request that the agency evaluate its project and determine it is not subject to review. The agency must make a determination of whether the proposed project is exempt from CON review, notify the applicant in writing of its decision, provide the applicant with specific reasons if the request is denied, and publish its notice of exemptions in the Florida Administrative Weekly within 30 days of the decision date. A granted exemption is valid only for the project for which it was issued and the health care facility to which it was granted. Following such a determination the applicant may proceed with licensure and other business-related activities necessary to start or pursue the proposed project.

1997 Amendments

Committee Substitute for Senate Bill 238 amends F.S. §408.032 to revise the definition of “agency” to mean the Agency for Health Care Administration; includes hospices and long-term care hospitals within the term “health care facility”; and deletes the definition of “major medical equipment.” The effect of the addition of the terms “hospices” and “long-term care hospitals” to the definition of “health care facility” is, in part, to allow such entities not only to be regulated under the CON program, but also to grant existing providers standing to contest or intervene in CON proceedings.

The deletion of the definition of “major medical equipment” was necessary in order to deregulate projects involving capital expenditures. Upon the effective date of the legislation, the acquisition of major medical equipment will no longer be subject to CON regulation at all.

The bill also amends F.S.§408.035 relating to review criteria by requiring the Agency for Health Care Administration to consider alternatives to replacement construction in evaluating capital expenditures proposals for new inpatient health services. This change is necessary in order to properly allow for the review of projects involving the replacement of health care facilities. The bill also deletes the requirement that applications be considered for consistency with the State Health Plan.

F.S. §408.036(1) was amended to include the replacement of a health care facility which is not constructed on the same site as the existing facility within the list of projects subject to comparative (full batched) review. This provision, however, is subject to the language in the same bill which amends §§408.036(2) and (3). The net effect of the three provisions is that the replacement of health care facilities will be governed by the following scheme:
Type of Type of Review


On the same site as Exempt

the existing facility

Within a one mile radius Expedited

of the existing facility

To any other site Batched
This new review scheme for replacement of health care facilities, and the related revisions to the provisions on standing, effectively overrule the decision of the First District Court of Appeal in Cleveland Clinic Florida Hospital v. Agency for Health Care Administration, 679 So. 2d 1237 (Fla. 1st DCA 1996).

The bill also eliminates review of projects that only involve capital expenditures, applications that involve a reduction of licensed bed capacity, donations and acquisition of land, emergency projects or those required by unforeseen major public hazards, expenditures not directly related to the provision of health services, including office buildings, and expenditures necessary to eliminate or prevent safety hazards or to replace equipment destroyed by acts of God. These latter projects are, however, exempt under present §408.036(3) in any event. It also raises the cost overrun thresholds from 10 to 20 percent of the originally approved cost of the project.

Contingent upon federal adoption of a per-episode prospective payment reimbursement methodology, CON review of home health agencies is ended (this is expected to occur in approximately 2002).

The bill creates a new §408.036(3)(n) to exempt adult inpatient cardiac catheterization services in hospitals. This provision requires an applicant for exemption to submit appropriate documentation to assure that a) only diagnostic procedures will be performed; b) the facility will meet and maintain minimum licensure requirements adopted by the agency; and c) the facility will provide at least two percent of its services to charity and Medicaid.

The agency is directed to adopt licensure requirements by rule that will govern the operation of outpatient cardiac catheterization services exempted by the bill. The rules must, in part, regulate the equipment and health personnel, hours of operation, protocols to ensure availability and appropriate referrals in emergencies, and appropriate program volumes to assure quality and safety.

Exemptions may not be granted until the agency adopts rules or March 1, 1998, whichever occurs first; however, if the agency fails to adopt final rules by that date, it is directed to review exemption requests based on its proposed rules until final rules are adopted. Once the facility obtains an exemption, if it fails to comply with the rules relating to the types of procedures performed, equipment, protocols, availability, or times of operations at any time, the exemption is revoked. An 18-month grace period beginning with the first date of operation is provided for the requirements of minimum program volumes or the two percent charity and Medicaid patient loads.

The bill amends §408.037 to delete the requirement that the application contain a statement of need for the proposed project in relation to the applicant’s long-range plan and delete a requirement for a statement of the applicant’s projected revenue and expenses for the period of construction. The first requirement was deleted in response to industry concerns over disclosure of sensitive information. The applicant must still certify that it will license and operate the health care facility ( See Brookwood-Jackson County Convalescent Center v. Department of Health and Rehabilitative Services, 591 So. 2d 1085 (Fla. 1st DCA 1992)); however, the current requirement that a certified copy of a resolution by an applicant’s board of directors be included is deleted.

Section 5 of the bill amends §§408.039(1), (2), and (5) and eliminates the requirement that letters of intent be submitted to local health councils; deletes the requirement that the letters of intent name those with controlling interest in the applicant and contain a certified copy of the resolution required under §408.037(4); increases from 14 days to 21 days the time within which AHCA must publish notice of the filing of letters of intent; and deletes the need for local publication of the filing of a letter of intent. In response to the growth in litigation in this area, the bill provides that an applicant’s failure to comply strictly with the requirements relating to application content and letters of intent is harmless error, unless the failure impairs the failure of administrative hearings or affects the correctness of AHCA’s action on an application.

The administrative hearing process is revised by deleting the restriction on standing to challenge the issuance or denial of an application involving solely a capital expenditure from §408.039(2)(b), and deleting language that requires AHCA to issue its final order within 45 days after receipt of the administrative law judge’s recommended order. In addition, the existing language of the statute is amended to grant standing in any administrative proceeding involving any application, including one initially reviewed on an expedited basis.

The bill removes existing provisions that permitted the agency to extend the validity period for CONs from one year to 18 months; in the future, all CONs will be valid for 18 months. Private accreditation is no longer required for the issuance or maintenance of a CON.

Section 14 provides for the prospective application of all revisions and modifications contained in the bill. The provisions of the new legislation that govern the review of replacement applications do not apply to those applications filed before April 1, 1997. The remaining portions of the legislation, including all application content and harmless error provisions, will apply only to those applications filed after July 1, 1997.

Practical Effects on Health Care Providers

For much of the existing CON process, such as for the establishment of a Medicare-certified home health agency, the bill maintains the status quo . Many otherwise potential providers of home health services are kept out of the market for providing Medicare-reimbursed home health services. This limits competition among providers. Since a provider is not required to charge the maximum allowed reimbursement for a service, if more providers of Medicare-reimbursed home health services were able to operate, a more competitive environment could emerge. This competition could result in reduction of charges to patients and third party payers as providers vie to acquire and increase market share and other types of competitive advantages, netting health care consumers (including governmental payers) significant costs savings.

According to AHCA, inpatient diagnostic cardiac catheterization application fees totaled approximately $101,000 for each of the past two state fiscal years. Therefore, future applicants will typically save $100,000 in application fees to bring this service on-line. At present, 102 hospitals have not been approved for an inpatient diagnostic cardiac catheterization program. The agency estimates that approximately 50 percent of these hospitals may pursue opening an inpatient diagnostic cardiac catheterization program, some involving new construction of facilities. The effect of this new exemption on the marketplace is unknown.

The deregulation of the various CON projects, however, represents a major victory for the health care industry in its battle for less regulation. It will also permit the agency to concentrate on the remaining regulated projects, perhaps allowing more in-depth and sophisticated review of such proposals, to the benefit of Florida’s residents. Regardless, taking into consideration the fact that it took four years for the legislature to enact reforms in this area, it is unlikely, and unwise, that the legislature revisit the statute for additional reform or deregulation for several years. q

F. Philip Blank, of the Tallahassee law firm of Blank, Rigsby & Meenan, has been involved in civil litigation, administrative law, and health law for the past 20 years. He was formerly general counsel for the Florida House of Representatives. He has a J.D. degree from Florida State University and is board certified in health law.

This column is submitted on behalf of the Health Law Section, Michael J. Glazer, chair, and Robert C. McCurdy, editor.

Health Law