Tennessee General Assembly Passes Highly-Anticipated CON Reform Bill

June 7, 2021
Firm Publication

On May 5, 2021, after several years of extensive debate and negotiations, including a 2020 legislative session ending in an impasse, the 112th Tennessee General Assembly passed a highly anticipated certificate of need (CON) reform bill. The legislation, Public Chapter No. 557, HB0948/SB1281 (new law), was sponsored by Representative Clark Boyd (R – Lebanon) and Senator Shane Reeves (R – Murfreesboro). The new law makes significant changes to CON requirements for various healthcare providers and the Health Service and Development Agency’s (HSDA) ongoing administration of the CON program and builds upon substantial modifications made to the state’s CON program in 2016. Governor Lee signed the legislation into law on May 26.

While debate surrounding the efficacy of CON laws continues, the new law evidences a compromise among various lawmakers and stakeholders. It maintains CON requirements in many places, eases requirements in others and, most importantly, responds to the need for immediate improvement in: access to healthcare in rural communities, mental health and substance abuse treatment and healthcare delivery and infrastructure shortcomings exposed during the COVID-19 pandemic. The summary below outlines many of the new law’s critical changes to the state’s CON program. For a detailed comparison of the existing CON law and the new law, see the summary chart.

Healthcare Institutions, Services or Other Actions Exempt from CON Requirements

The new law creates several new exemptions to CON requirements for providers serving particular subsets of patients or geographic locations. These exemptions include the following:

Mental Health and Substance Abuse Treatment Providers

Under the new law, mental health hospitals are no longer considered “healthcare institutions” subject to CON requirements. And, while a CON will still be required to establish a nonresidential substitution-based treatment center for opiate addiction, the new law permits a licensed hospital to operate nonresidential substitution-based treatment centers located on the hospital’s campus without first obtaining a CON. A CON is also no longer necessary to initiate psychiatric services.

Projects in Economically Distressed Counties

The new law eliminates CON requirements for projects initiated in counties qualifying as economically distressed and lacking a hospital actively licensed under Title 68 (general acute care hospitals). As of July 1, 2020, the Tennessee Department of Economic & Community Development identified the following eleven counties as economically distressed: Bledsoe, Clay, Cocke, Grundy, Hancock, Hardeman, Lake, Lauderdale, Perry, Scott and Wayne (see Tennessee Distressed Counties Map). The Tennessee Department of Health (TDOH) 2019 Hospital Summary Report, showing licensed hospitals by county, can be found here.

Home Health Agencies and Hospices Targeting Specific Patient Populations

The new law establishes three exemptions to CON requirements for home health agencies. A CON will no longer be required for home health agencies furnishing home health services exclusively to patients under the federal Energy Employees Occupational Illness Compensation Program Act of 2000 or to patients less than 18 years of age. In addition, a CON is not required to establish a home health agency or a residential hospice limited to providing hospice services to patients under the care of a healthcare research institution.

Hospitals in Rural or Distressed Counties

Under the new law, a CON will not be required to restart a previously licensed Title 68 hospital (general acute care hospitals) located in a tier 2, tier 3 or tier 4 enhancement county or a county with a population less than 49,000. The new law empowers the TDOH to renew the hospital’s license upon finding the hospital will operate in substantially the same manner as it did before closure. But, the party seeking to establish the hospital must still apply for a CON within 12 months of submitting licensure renewal information to TDOH. Thus, it remains to be seen how these changes will be applied in practice. For a map of enhancement counties by tier, see here, and for census data on population by county, see here.

Healthcare Institutions, Services or Other Actions Subject to Modified CON Requirements

The new law also modifies several existing CON requirements to reduce the types of projects subject to CON requirements and to offer healthcare providers greater flexibility within the existing framework of CON laws.

Magnetic Resonance Imaging (MRI) and Positron Emission Tomography (PET) Services

The new law makes several changes to CON requirements for MRI and PET services. Generally, a CON will be necessary to initiate MRI or PET services or to increase the number of MRI machines only in counties with populations of 175,000 or less. This change reflects a significant shift in policy and, for the first time, treats MRI and PET services more equally under the CON program. For county-level census data, see here.

Nursing Homes

The new law makes several changes to CON requirements for nursing homes, including an extension of the moratorium on CONs for new nursing home beds to June 30, 2025, and the elimination of several provisions related to the relocation of nursing home beds. The new law also extends the default implementation period for a nursing home CON from two to three years.

Changes in Bed Complement

The new law vastly simplifies adjustments in licensed bed complement. Previously, a provider needed CON approval to adjust bed complements from one category to another (e.g., from acute to long-term); under the new law, a provider will be able to make such adjustments largely outside of the CON program. With the new law, a CON will be required for such adjustments only if the provider lacks a license for the bed category at issue. In addition, a CON will be required only in instances where a provider seeks to increase the number of nursing home beds.

Changes in Location of Existing Facilities

The new law maintains a CON requirement for most location changes of existing healthcare facilities but authorizes the Executive Director to exempt certain relocation projects. The new law also expands home health agencies’ and hospices’ ability to relocate their principal offices without a CON.

Addition of Annual Reporting Requirements

The new law adds annual reporting requirements for several health services, including cardiac catheterization, open heart surgery, organ transplantation, home health, hospice, burn units and neonatal intensive care units.

Changes of Ownership and Control/CON Transfers

While the new law eliminates the requirement for providers to notify the HSDA of changes of ownership occurring within two years of the initial date of licensure, it both maintains and alters restrictions related to changes of control and transfers of CONs. It remains to be seen how these changes will work in practice. Going forward, the HSDA must approve the transfer of CONs occurring as part of the change of control of a licensed healthcare institution and will consider various factors, such as satisfaction of quality standards and maintenance of access to at-risk and underserved communities.

Changes to HSDA Procedures and Administration

In addition to extending the HSDA’s sunset provision to June 30, 2024, the new law makes various changes to the CON application and review process and the HSDA’s administration and oversight of the CON program. Those modifications include the following:

CON Application and Review Process

The new law revises various provisions prescribing requirements for the CON application and review process, including changing the filing deadlines for letters of intent and CON applications, expediting the CON application review cycle from approximately 60 days to 30 days and formalizing procedures for issuing emergency CONs and for qualifying for consent calendar review.

CON Opposition Procedures

The new law dramatically alters who can oppose a CON project application. Whereas before opposition to a CON project application could come from virtually anywhere, the new law requires an opponent to be located within 35 miles of the proposed project. For home care organization-related projects, the opponent must now demonstrate that it has served patients in the proposed service area within two years (730 days) of the filing of the CON application being opposed.

CON Implementation Period

The new law contains several provisions affecting the length of time a provider has to implement a CON project once approved. Previously, a provider was required to demonstrate good cause for an extension of time and “substantial progress” toward implementation; the new law eliminates the substantial progress requirement. The new law also voids a CON if the service authorized by the CON has not been performed for a continuous one-year period after the date of implementation. Notably, for home care organizations, this provision applies to each county in which the home care organization is licensed. If CON authorization is voided, state licensing agencies are prohibited from issuing or renewing licenses.

Annual Licensure Fees

The new law imposes more substantial annual fees on most healthcare providers. Previously, annual fees ranged from $50-$300 per license, depending on the license type. Now, fees range from $50-$5,000 per license, with facilities like hospitals, nursing homes, ambulatory surgery centers and outpatient diagnostic centers seeing the steepest increases. For example, before, hospitals faced a maximum annual fee of $300 per license; now, hospitals will face fees up to $5,000 per license.

Expansion of HSDA Duties to Promote Healthcare Quality

The new law includes numerous provisions focused on improving healthcare quality and enhancing the HSDA’s role in ensuring that it appropriately evaluates and approves projects that further access to necessary, high quality and cost-effective healthcare services across the state. For example, the HSDA will now be required to conduct studies related to healthcare, including annual needs assessments measuring access to healthcare, identifying access gaps and informing the criteria and standards for issuing CONs. Similarly, at least once every five years, the HSDA must evaluate and update its criteria and standards for issuing CONs based on input received from relevant state agencies and governing bodies, such as the TDOH and the General Assembly’s committees on healthcare.

Changes to HSDA Executive Director Duties

Overall, the new law increases the Executive Director’s responsibilities for overseeing the administration of the CON program and the standards under which CONs are evaluated. In particular, the Executive Director’s modified duties include submitting an annual report to the General Assembly comparing the actual payer mix and uncompensated care of CON holders to the projections submitted in CON applications and, by January 1, 2023, a plan to consolidate the HSDA and the Board for Licensing Health Care Facilities into a single health facilities commission. While the new law expands some of the Executive Director’s duties and responsibilities, it also limits certain responsibilities that members of the HSDA can delegate to the Executive Director.

Conclusion

The majority of changes under the new law take effect on October 1, 2021. A few, however – particularly those related to nursing homes – were effective once the legislation became law. While the new law makes comprehensive changes to the state’s CON program that generally reduce or eliminate CON requirements, for most healthcare providers, the CON framework remains largely intact. For example, the new law preserves existing CON requirements for two heavily debated healthcare provider types: ambulatory surgery centers and outpatient diagnostic centers. Thus, healthcare providers must continue to evaluate carefully whether their projects are subject to the CON program. The HSDA is expected to provide additional insights on the impact of the new law at its June 23, 2021, meeting.

If you have questions about the requirements of the new CON legislation, please contact the authors.