Quartet of Bills Propose Significant Changes to North Carolina’s CON Law

Nelson Mullins Riley & Scarborough LLP

In four different bills introduced over the last month, North Carolina’s General Assembly is once again proposing changes to North Carolina’s certificate of need (“CON”) law, first enacted in 1971. This law extensively regulates the acquisition, development and expansion of a variety of health care services in North Carolina, such as hospital beds, operating rooms, ambulatory surgery facilities, MRI scanners and long-term care facilities. In North Carolina, CON requirements may be triggered by how much something costs (such as a CT scanner) or by the nature of a new institutional health service (such as a MRI scanner). The proposed changes range from what appear to be relatively minor updates to complete repeal and share common sponsors who appear intent on revising, if not wholesale repealing, the CON Law. In this post, we briefly review the changes under consideration.  

The Repeal Bills

First are the two CON repeal bills, Senate Bill 309 and House Bill 410, each proposing to repeal the CON Law entirely. These two bills are substantially identical and propose to repeal the entire CON Law effective January 1, 2022.  Senate Bill 309 is sponsored by Senators Hise (R-Madison, McDowell, Mitchell, Polk, Rutherford and Yancey), Krawiec (R-Davie, Forsyth) and Burgin (R-Harnett, Johnston and Lee). House Bill 410 is sponsored by Representative Kidwell (R-Beaufort and Craven), Hanig (R-Currituck, Dare, Hyde, Pamlico), Goodwin (R-Bertie, Camden, Chowan, Perquimans, Tyrrell, Washington), Sasser (R-Cabarrus, Rowan, Stanly), Carter (R-Rockingham), Moss (R-Montgomery, Richmond, Stanly), and Pittman (R-Cabarrus).  As of the time of this report, Senate Bill 309 has been referred to the Committee on Rules and Operations of the Senate, and House Bill 410 has been referred to the Committee on Rules and Operations of the House. 

The Modifier Bills

Next are two CON modifier bills. The first of these bills, Senate Bill 462, may be regarded as an update to the law; the second bill, Senate Bill 506, proposes updates and more significant changes. 

On April 1, Senate Bill 462 was filed which primarily proposes to increase three significant cost thresholds triggering CON review: 

  • New Institutional Health Services: doubling the cost threshold from $2,000,000 to $4,000,000;  
  • Diagnostic Centers: increasing the cost threshold from $500,000 to $1,500,000; and 
  • Major Medical Equipment: increasing the cost threshold from $750,000 to $2,000,000. 

Beginning on September 30, 2022, each of these proposed cost thresholds would be adjusted annually based on the consumer price index. CON thresholds have not been increased in decades. If these cost thresholds are raised, many more projects would no longer be subject to CON Review.   

In addition, Senate Bill 462 provides for the expiration of CONs where construction of an approved project does not commence within either: four years following the final approval date for projects with a capital expenditure exceeding $50 million; or two years following the final approval date for projects with a capital expenditure of $50 million or less. Presently, while the North Carolina Department of Health and Human Services (“NC DHHS”) has the authority to revoke a CON if good faith efforts are not being made to develop a project, such extreme measures are rarely used. See N.C. Gen. Stat. § 131E-189.   

Senate Bill 462 is sponsored by Senators Krawiec, Perry (R-Lenoir, Wayne), Hise, Burgin and Ford (R-Rowan, Stanly). If enacted, Senate Bill 462’s revisions to the CON Law would take effect on October 1, 2021. As of the time of this report, Senate Bill 462 has been referred to the Committee on Rules and Operations of the Senate.

Shortly thereafter, on April 6,  legislators filed Senate Bill 506. While proposing the same cost threshold and expiration provisions included in Senate Bill 462, Senate Bill 506 also presents several other sweeping changes further expanding projects exempted from CON review (as well as certain licensure requirements), most notably with the treatment of ambulatory surgical facilities (“ASFs”) including: 

  • Exempting from CON review proposals to develop, acquire, construct, expand, or replace a health service facility or service that obtained CON approval as an ASF prior to October 1, 2019, essentially grandfathering in such facilities and allowing these grandfathered facilities to expand without further CON review;
  • Exempting from CON review the construction, development, acquisition, or establishment of an ASF in a county with a population of 100,000 or more when specified conditions are met; 
  • Exempting from CON review any capital expenditures exceeding $4,000,000;
  • Exempting services or facilities from CON review for the replacement, renovation, or relocation in the same county of an original need determination, if a CON has already been issued for the services or facilities; 
  • Eliminating psychiatric beds and chemical dependency beds from the definition of health service facility beds and creating a wholesale exclusion from CON review of acute care beds that are converted to psychiatric beds; and
  • Determining that any CON not “used” in the immediately preceding 12 months is expired.

The legislation does not define “use,” creating significant ambiguity. For example, would a provider who, through no fault of its own, stopped using a CON project due to a fire, flood or other disaster lose its CON? Moreover, automatic expiration is a substantial penalty to impose on providers who have invested considerable sums in planning, preparation, and seeking approval and/or implementation of their projects. 

Senate Bill 506 is sponsored by Senators Krawiec, Burgin, Craven (R-Guilford, Randolph) and Jarvis (R-Davidson, Montgomery). If enacted, Senate Bill 506 would be effective in phases.  The ASF and expiration provisions would become effective on January 1, 2022 and the psychiatric and chemical dependency licensure provisions would become effective 18 months after Senate Bill 506 becomes law. At this time, Senate Bill 506 has been referred to the Committee on Rules and Operations of the Senate.

Conclusion

The current version of North Carolina’s CON law has been in effect since 1977. Proponents of the law assert that CON helps control costs and ensures that all North Carolinians have access to necessary healthcare services. Opponents contend the law restrains competition. Although similar CON repeal bills have failed in the past, it remains to be seen whether this North Carolina state legislature has an appetite for narrowing the scope of the State’s CON Law. 

We continue to actively monitor these issues. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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