On September 21, the Massachusetts Department of Public Health conducted the first of two public hearings on proposed changes to the Determination of Need (DoN) regulations. The Proposal would implement significant changes impacting stakeholders in furtherance of the Department’s aim to simplify the DoN regulations and better align them with the public policy goals of improved access, quality and cost control. Public comments on the Proposal are due by October 7, 2016.
On September 21, the Massachusetts Department of Public Health (DPH or the Department) conducted the first of two public hearings on proposed changes to the Determination of Need (DoN) regulations (the Proposal). The Proposal would implement significant changes in furtherance of the Department’s aim to simplify the DoN regulations and better align them with the public policy goals of improved access, quality and cost control. Public comments on the Proposal are due by October 7, 2016. Now is the time to comment on these regulations, which have been a source of frustration for many stakeholders.
1. System-Level Focus on DoN Applicant, “Holder” and Patient Panel
The Proposal more closely aligns the DoN Program with the Health Policy Commission’s goals of “accountable care” via a system’s management of a defined patient population. For example, both the definition of DoN Applicant and the holder of the DoN now incorporate the term “Provider Organization,” as used in the HPC regulations. Only where there is no Provider Organization is the health care entity seeking the DoN for itself considered the “Applicant” and the “Holder” of the DoN, as in the past. The Proposal also includes an assessment of the impact of the project on the DoN Applicant’s “Patient Panel” (i.e., the total of individual patients seen over the course of the past 3 years) as part of the DoN process. This new focus on systems and wider population health concepts—rather than individual providers—could lead to some uncertainties in the assessment process, e.g., whether DoN modalities held by competitors would be discounted in the process.
2. Opening the Window a Crack for ASCs for Hospitals and Hospital-Affiliated Joint Ventures
The Proposal opens a small window of opportunity on the longstanding DoN moratorium on ambulatory surgery centers (ASCs), but in a manner that discriminates against applicants that are not hospital systems or hospital-affiliated joint ventures. Under the Proposal, DPH will only accept a new application for an ASC project when the DoN application is filed by an existing acute care hospital’s Provider Organization. The Proposal leaves no room for a new freestanding ASC that is not affiliated with a hospital or hospital system.
3. DoN Review of Changes of Ownership
Historically, Massachusetts DoN broadly defined a “change of ownership” (CHOW), and required a DoN for CHOWs of hospitals, their inpatient and outpatient satellites and clinics licensed as ambulatory surgery centers under an “alternate” or “expedited review” process for hospitals and ASCs. The Proposal completely eliminates this “alternate” or “expedited review” process, which has operated essentially as the exclusive DoN process for merger and acquisition transactions over the past many years. Subjecting all future CHOWs to the full review process under the Proposal, notwithstanding DPH’s assertions of streamlining the process, may pose a significant obstacle to obtaining timely approval for even routine CHOWs such as ones affecting financing or indirect changes of control. Of concern is the fact that the definition of a “change of ownership” or “transfer of ownership” has been removed from the Proposal as well. One thing that has not changed is the fact that the phrases “change of ownership” and “transfer of ownership” are still used interchangeably.
The Proposal does not appear to take into account that, in some cases, a change of ownership is simply a change of indirect ownership or corporate restructuring that does not impact access to the facility or the services delivered by the facility. Indeed, in the past, some transactions that simply affected the financing or corporate structure of a health facility were treated as a CHOW subject to a DoN because of DPH’s broad definition of a CHOW. By way of contrast, in many of these types of transactions, Medicare does not consider it a “change of ownership” and only requires that information regarding the new indirect owners be filed.
4. DoN Factors
The materials accompanying the Proposal make a point that the current ten (10) regulatory factors are used to review the merits of a DoN application have been reduced to six. A textual comparison of the old factors with the factors in the Proposal suggests that is correct only with respect to the number of the factors designated by a separate Arabic number, and that the various subparts of the new factors in fact add more complexity. As noted above, these Factors now focus on systems-level population health concepts, health outcomes and price competition, as opposed to the current factors that refer to more general health planning objectives and service area duplication.
Moreover, Factor 4 of the Proposal merits scrutiny as to the added level of assurance that the applicant must furnish, provided by a certified public accountant (CPA) under penalties of perjury, as to present and future financial performance of the applicant. This may create barriers for applicants, who may be unable to find CPAs willing to sign under this standard, or who may question whether they could even do so consistent with professional accounting standards.
5. DoN Conditions, Post-Approval Reporting and Compliance Sanctions
The DoN regulations currently contain extensive “Mandatory Terms and Conditions” imposed on each DoN Holder, which the Proposal continues and expands upon. Historically, the DoN holder has been required to expend, over a five-year period, an amount reasonably related to the cost of the project for the provision of primary and preventive health care services for underserved populations in the project’s service area in accordance with a plan submitted as part of the DoN application, as approved by the Department in the DoN process.
The Proposal requires the DoN holder to expend over a five-year period (unless another period is specified by DPH), an amount in total greater than or equal to 5 percent of the total capital expenditure of the project in furtherance of the Department’s Community-Based Health Initiative Guideline, which will stand among the sub-regulatory guidance that the Department may issue under the Proposal without the benefit of a full public hearing process. The DoN Holder must report to DPH, at least on an annual basis, on “measures related to the project’s achievement” of the DoN Factors. If DoN Holder fails to sufficiently demonstrate compliance with this and all other Standard and Other Conditions of the DoN, the Proposal requires that the Holder fund projects that address Health Priorities set out in the Department’s Community-Based Health Initiative Guideline in an amount equal to 2.5 percent of the total capital expenditure of the approved project. It is unclear from the proposal how this 2.5 percent obligation that the Department can impose for non-compliances relates to the mandatory 5 percent or greater DoN condition. The 2.5 percent obligation and the ongoing reporting obligations are just a few examples in the panoply of post-DoN award reviews and sanctions that the Department can impose upon a Holder for non-compliance with mandatory or discretionary conditions. Furthermore, the Department reserves its ability to use of sub-regulatory guidelines and interpretational documents, which underscores the need for stakeholders to carefully monitor developments on an ongoing basis.
6. DPH Plan Review of Projects
Stating the goal of saving applicants significant time and costs, the Proposal combines DoN and facilities licensure “plan review” as concurrent processes. DPH plan review, which currently takes place as a two-step process, first before, and then after a DoN award, can be a lengthy and costly undertaking. Project scheduling and construction under the Proposal, however, may be made more complex in view of the extensive mandatory post-DoN award conditions (including coordination with the Department for review and approvals in project development and completion schedules), as it is still unclear from the Proposal how the process will actually be coordinated in practice.
Testimony at the September 21 hearing indicates that the Proposal will be subject to lively discussion and debate on the Commonwealth’s regulation of the delivery of, and access to, health services. DPH is accepting comments on the proposal until October 7, 2016.