TITLE 12. HEALTH

STATE BOARD OF HEALTH

Fast-Track Regulation

Title of Regulation: 12VAC5-381. Regulations for the Licensure of Home Care Organizations (amending 12VAC5-381-40, 12VAC5-381-70).

Statutory Authority: §§ 32.1-12 and 32.1-162.12 of the Code of Virginia.

Public Hearing Information: No public hearing is currently scheduled.

Public Comment Deadline: May 7, 2025.

Effective Date: May 22, 2025.

Agency Contact: Val Hornsby, Policy Analyst, Virginia Department of Health, 9960 Mayland Drive, Suite 401, Richmond, VA 23233, telephone (804) 875-1089, FAX (804) 527-4502, or email val.hornsby@vdh.virginia.gov.

Basis: Section 32.1-12 of the Code of Virginia gives the State Board of Health the responsibility to promulgate and enforce such regulations as may be necessary to carry out the provisions of Title 32.1 of the Code of Virginia. Section 32.1-162.12 of the Code of Virginia requires the board to adopt regulations governing the activities and services provided by home care organizations (HCOs).

Purpose: This regulatory change is essential to protecting the health, safety, and welfare of citizens because the Virginia Department of Health cannot provide adequate inspection and oversight for HCOs if the department loses funding equal to approximately three full-time HCO inspectors. The goal of the regulatory change is to preserve the department's current fee revenue and to eliminate inconsistencies in receiving and processing license changes and exemption requests.

Rationale for Using Fast-Track Rulemaking Process: This action is expected to be noncontroversial and therefore appropriate for the fast-track rulemaking process because the fee amount for the new three-year HCO license is the same amount on a per-year basis as the cost of a one-year license and because the vast majority of HCOs are already utilizing the forms created by the department to communicate changes to licenses or requests for an exemption.

Substance: The amendments (i) change HCO license terms from one to three years; (ii) increase the fee for an HCO license to $1,500; and (iii) specify that the written request for an exemption or license change must be on the relevant application.

Issues: The primary advantage to the public is that the regulation will be consistent with statute and HCO licensees will have clarification on written requests for a license change or exemption. The primary advantages to the agency and the Commonwealth are that VDH will not be losing approximately $300,000 in revenue annually and the data received from HCO licensees about license changes or request for an exemption will be consistent and more likely to be complete. There are no primary disadvantages to the public, the agency, or the Commonwealth.

Department of Planning and Budget Economic Impact Analysis:

The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Code of Virginia and Executive Order 19. The analysis presented represents DPB's best estimate of the potential economic impacts as of the date of this analysis.¹

Summary of the Proposed Amendments to Regulation. The State Board of Health (board) proposes to incorporate in this regulation a legislative mandate² that changed the home care organization (HCO) license renewal cycle from annual to triennial, such that each license is valid for a three-year period, compared to the previous one-year period. The mandate also increased the annual renewal fee from $500 for a one-year period to $1,500 for a three-year period. The board also proposes a discretionary increase in the initial license fee from $500 to $1,500 to correspond to the new triennial license renewal cycle that became effective July 1, 2022.

Background. Chapter 172 of the 2022 Acts of Assembly changed the duration of HCO licenses from an annual license to a three-year license beginning on July 1, 2022; the mandate also adjusted the license renewal fee from $500 per year to $1,500 every three years. However, the legislation did not adjust the initial license application fee of $500, which is now valid for a three-year period pursuant to the provisions of Chapter 172. The Virginia Department of Health (VDH) does not know why the initial license fee was not also increased in the legislation, but believes that it was an inadvertent omission. Thus, the board also proposes a discretionary increase in the initial license fee from $500 to $1,500 to correspond to the new three-year renewal cycle.

Estimated Benefits and Costs: The legislative increase of the renewal fee from $500 per year to $1,500 every three-years would require the regulated HCOs to provide $1,500 in upfront costs in each three-year renewal cycle. Prior to the legislation, regulants had to expend $500 annually for the one-year license fee, while under the new renewal cycle, they would have to set aside $1,500 upfront for the next three years. The changes to the licensure fees, both the discretionary initial fee and the mandated renewal fee, would have certain economic effects, as follows. Some HCOs may incur licensure fees but subsequently cease operations. The Virginia HCO industry appears to experience high turnover. According to VDH, there were 1,580 licensed HCOs as of July 1, 2022, while the annual number of expected initial applications is 300.³ This indicates that, on average, an HCO operates in Virginia for about five years; in other words, every year about 20% of the existing HCOs (approximately 300) leave the industry. This high turnover rate means that some of the HCOs that would be going out of business in the next year and in the year after that would be paying renewal fees for the years they will not be in operation. Assuming 300 HCOs exit the industry annually, approximately $300,000 per year would be paid by companies that would not be in operation the following year. Some HCOs may have liquidity problems and may not be able to fund the additional $1,000 in upfront costs. This may result in the inability of some HCOs to renew their licenses and further exacerbate the already high turnover. All HCOs would lose the time-value of the additional $1,000. Prior to the legislation, HCOs could use the $1,000 to purchase other goods or services. Assuming a 3.0% simple discount rate, the time value of the additional $1,000 would be $45 (i.e., $15 for paying $500 a year earlier and $30 for paying $500 two years earlier). On the other hand, the new three-year renewal cycle is expected to reduce administrative costs for regulants and VDH as the licenses would be renewed less frequently. VDH expects $60,204 in savings annually as a result of this effect. The likely impacts discussed so far directly stem from the legislation and are already in effect. The incorporation of the legislatively amended renewal cycle and adjusted fees in this regulation mainly have the benefit of aligning the regulatory text with the Code of Virginia and eliminating potentially conflicting information. However, VDH estimates that the $1,000 increase in initial application fee would discourage about 60 HCOs from applying for an initial license because they tend to have less cash on hand and will not be able to pay the higher fee. As a result, VDH estimates that only 240 (out of the typical 300) applications for initial licensure would be received. The proposed adjustment of the initial license fee from $500 for a one-year period to $1,500 for a three-year period is discretionary and has not yet been implemented. Unlike the legislatively mandated increase for the renewal licensure fee, the main impact of this proposed discretionary change to the initial licensure fee is avoidance of revenue that would otherwise be lost by the board. More specifically, the legislative increase of only one licensure fee had the unintended consequence of effectively reducing the revenues from initial applications by two-thirds, because an initial license is now effective for a three-year period. If not adjusted, VDH estimates that it would lose $240,000 in fee revenues (i.e., a $1,000 loss from each of the 240 expected applications for initial licensure). Thus, the proposal would help ensure VDH has adequate fee revenue to support sufficient staff to perform inspections and other oversight functions of HCOs. The legislation may have also inadvertently created an incentive for existing licensees to seek an initial license rather than a renewal; this would be addressed by increasing the fee for initial licensure. If this incentivized behavior occurs, it would result in additional decreases in fee revenue.

Businesses and Other Entities Affected. VDH reports that there are approximately 1,580 licensed HCOs in Virginia as of July 1, 2022. In addition, approximately 240 initial license applications are expected to be received and 60 potential applications are estimated would be discouraged after the increase in initial license fee. None of the HCOs appear to be disproportionately affected within the meaning of § 2.2-4007.04 of the Code of Virginia. The Code of Virginia requires DPB to assess whether an adverse impact may result from the proposed regulation.⁴ An adverse impact is indicated if there is any increase in net cost or reduction in net revenue for any entity, even if the benefits exceed the costs for all entities combined. As noted above, the discretionary proposal to increase the initial license fee would add $1,000 to each licensee's compliance costs and would discourage some from applying for an initial license. Thus, an adverse impact is indicated.

Small Businesses⁵ Affected.⁶ The proposed amendments appear to adversely affect small businesses.

Types and Estimated Number of Small Businesses Affected: VDH estimates that the vast majority (i.e. 90%) of the 1,580 licensed HCOs in Virginia are small businesses.

Costs and Other Effects: The proposed increase in the initial license fee would add $1,000 in compliance costs to each HCO, including those that are small businesses, and discourage some from becoming a licensed HCO. Thus, an adverse economic impact on small HCOs is indicated.

Alternative Method that Minimizes Adverse Impact: There does not appear to be an alternative method that both reduce adverse impact and meet the intended policy goals.

Localities⁷ Affected.⁸ The proposed amendments do not introduce costs for localities.

Projected Impact on Employment. The proposed fee increase is expected to discourage some HCOs from being licensed, which would have a negative impact on employment.

Effects on the Use and Value of Private Property. The expected $1,000 one-time increase in compliance costs would likely reduce the profitability of HCOs and thus negatively affect asset values. No effect on real estate development costs is expected.

_____________________________

¹ Section 2.2-4007.04 of the Code of Virginia requires that such economic impact analyses determine the public benefits and costs of the proposed amendments. Further the analysis should include but not be limited to: (1) the projected number of businesses or other entities to whom the proposed regulatory action would apply, (2) the identity of any localities and types of businesses or other entities particularly affected, (3) the projected number of persons and employment positions to be affected, (4) the projected costs to affected businesses or entities to implement or comply with the regulation, and (5) the impact on the use and value of private property.

² https://lis.virginia.gov/cgi-bin/legp604.exe?221+ful+CHAP0172&221+ful+CHAP0172.

³ Data from VDH shows 242, 326, and 311 new applications per year for fiscal years 2020, 2021, and 2022, respectively. Similarly, there were 890, 1,235, and 919 renewal applications for fiscal years 2020, 2021, and 2022, respectively.

⁴ Pursuant to § 2.2-4007.04 D: In the event this economic impact analysis reveals that the proposed regulation would have an adverse economic impact on businesses or would impose a significant adverse economic impact on a locality, business, or entity particularly affected, the Department of Planning and Budget shall advise the Joint Commission on Administrative Rules, the House Committee on Appropriations, and the Senate Committee on Finance. Statute does not define "adverse impact," state whether only Virginia entities should be considered, nor indicate whether an adverse impact results from regulatory requirements mandated by legislation.

⁵ Pursuant to § 2.2-4007.04, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

⁶ If the proposed regulatory action may have an adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include: (1) an identification and estimate of the number of small businesses subject to the proposed regulation, (2) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the proposed regulation, including the type of professional skills necessary for preparing required reports and other documents, (3) a statement of the probable effect of the proposed regulation on affected small businesses, and (4) a description of any less intrusive or less costly alternative methods of achieving the purpose of the proposed regulation. Additionally, pursuant to § 2.2-4007.1 of the Code of Virginia, if there is a finding that a proposed regulation may have an adverse impact on small business, the Joint Commission on Administrative Rules shall be notified.

⁷ "Locality" can refer to either local governments or the locations in the Commonwealth where the activities relevant to the regulatory change are most likely to occur.

⁸ Section 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.

Agency Response to Economic Impact Analysis: The State Board of Health concurs with the analysis of the Department of Planning and Budget with the following exceptions:

Estimated Benefits and Costs: DPB states, "Some HCOs may incur licensure fees but subsequently cease operations. Virginia's HCO industry appears to experience high turnover. According to VDH, there were 1,580 licensed HCOs as of July 1, 2022, while the annual number of expected initial applications is 300. This indicates that, on average, an HCO operates in Virginia for about five years; in other words, every year about 20% of the existing HCOs (approximately 300) leave the industry. This high turnover rate means that some of the HCOs that would be going out of business in the next year and in the year after that would be paying renewal fees for the years they will not be in operation. Assuming 300 HCOs exit the industry annually, approximately $300,000 per year would be paid by companies that would not be in operation the following year. Some HCOs may have liquidity problems and may not be able to fund the additional $1,000 in upfront costs. This may result in the inability of some HCOs to renew their licenses and further exacerbate the already high turnover."

In response, the agency would like to clarify the following: DPB estimates the average number of years an HCO operates to be five years and that 20% of HCOs leave the industry every year. While some HCOs leave the industry every year, the number of applicants (approximately 300) is the number of new HCOs that join the industry every year. Many of the new HCOs are owned and operated by individuals who have closed a previous HCO, have moved addresses, and are opening an HCO in a new service area, have a change of ownership and HCO title, or have operated an HCO previously, closed, and then reopened. Therefore, the number of HCOs is not decreasing by 300 total each year. If, for any reason, an HCO ceases operation in less than three years, the HCO can notify the Office of Licensure and Certification and will not have to pay a fee beyond the initial licensure fee. VDH reports that there are approximately 2,061 licensed HCOs in Virginia as of March 10, 2025.

DPB states, "On the other hand, the new three-year renewal cycle is expected to reduce administrative costs for regulants and VDH as the licenses would be renewed less frequently. VDH expects $60,204 in savings annually as a result of this effect."

In response, the agency would like to clarify the following: Given the number of change and exemption requests VDH receives annually, VDH expects $21,435 in savings annually as a result of reduced administrative costs for regulants.

DPB states, "More specifically, the legislative increase of only one licensure fee had the unintended consequence of effectively reducing the revenues from initial applications by two-thirds, because an initial license is now effective for a three-year period. If not adjusted, VDH estimates that it would lose $240,000 in fee revenues (i.e., a $1,000 loss from each of the 240 expected applications for initial licensure). Thus, the proposal would help ensure VDH has adequate fee revenue to support sufficient staff to perform inspections and other oversight functions of HCOs. The legislation may have also inadvertently created an incentive for existing licensees to seek an initial license rather than a renewal; this would be addressed by increasing the fee for initial licensure. If this incentivized behavior occurs, it would result in additional decreases in fee revenue."

In response, the agency would like to clarify the following: If the initial fee is not adjusted to reflect the change in the renewal fee, VDH estimates that it would lose $240,000 annually in fee revenue. The proposal will contribute to VDH's ability to perform inspections and oversight functions of HCOs. Existing HCOs cannot seek initial licensure but only renewal of the current license, unless they close the HCO and choose to reopen.

Businesses and Other Entities Affected: DPB states, "VDH reports that there are approximately 1,580 licensed HCOs in Virginia as of July 1, 2022," and states "The discretionary proposal to increase the initial license fee would add $1,000 to each licensee's compliance costs and would discourage some from applying for an initial license. Thus, an adverse impact is indicated."

In response, the agency would like to clarify the following: VDH reports that there are approximately 2,061 licensed HCOs in Virginia as of March 10, 2025. The proposed increase in initial license fee could discourage some from applying for an initial license, which would have a nominal adverse impact.

Small Businesses Affected: DPB states, "The proposed amendments appear to adversely affect small businesses. VDH estimates that the vast majority (i.e., 90%) of the 1,580 licensed HCOs in Virginia are small businesses. The proposed increase in the initial license fee would add $1,000 in compliance costs to each HCO, including those that are small businesses, and discourage some from becoming a licensed HCO. Thus, an adverse economic impact on small HCOs is indicated. There does not appear to be an alternative method that both reduce adverse impact and meet the intended policy goals. The proposed amendments do not introduce costs for localities. The proposed fee increase is expected to discourage some HCOs from being licensed that would have a negative impact on employment. The expected $1,000 one-time increase in compliance costs would likely reduce the profitability of HCOs and thus negatively affect their asset values. No effect on real estate development costs is expected."

In response, the agency would like to clarify the following: VDH estimates that the vast majority (i.e., 90%) of the 2,061 licensed HCOs in Virginia are small businesses. The proposed amendments appear to adversely affect small businesses to a nominal degree. The proposed increase in the initial license fee would restore $1,000 in compliance costs for each HCO, including those that are small businesses. These are costs that were inadvertently omitted by the General Assembly in 2022. This could discourage some from becoming a licensed HCO. Thus, a nominal adverse economic impact on small HCOs is indicated. The proposed fee disbursement over three years could discourage some HCOs from being licensed, which would have a negative impact on employment. The expected $1,000 one-time disbursement over three years of compliance costs could nominally reduce the profitability of HCOs and their asset values.

Summary:

Pursuant to Chapter 172 of the 2022 Acts of Assembly, the amendments (i) change home care organization (HCO) license terms from one to three years; (ii) increase the fee for an HCO license to $1,500 for a three-year license; and (iii) specify that the written request for an exemption or license change must be on the relevant application.

12VAC5-381-40. License application; initial and renewal.

A. The OLC provides prelicensure consultation and technical assistance regarding the licensure process. The purpose of such consultation is to explain the regulation and the survey process. Prelicensure consultations are arranged after a completed initial application is on file with the OLC.

B. Licensure applications are obtained from the OLC. The OLC shall consider an application complete when all requested information and the appropriate fee, stated in 12VAC5-381-70, is submitted. If the OLC finds the application incomplete, the applicant will be notified in writing.

C. The activities and services of each applicant and licensee shall be subject to an inspection by the OLC to determine if the organization is in compliance with the provisions of this chapter and state law.

D. A completed application for initial licensure must be submitted at least 60 days prior to the organization's planned opening date to allow the OLC time to process the application. An incomplete application shall become inactive six months after it is received by the OLC. Applicants must then reapply for licensure with a completed application and application fee. An application for a license may be withdrawn at any time.

E. Licenses are renewed annually triennially. The OLC shall make renewal applications available at least 60 days prior to the expiration date of the current license.

F. It is the home care organization's responsibility to complete and return a renewal application to assure ensure timely processing. Should a current license expire before a new license is issued, the current license shall remain in effect, provided a complete and accurate application was filed on time.

12VAC5-381-70. Fees.

A. The OLC shall collect a fee of $500 $1,500 for each initial and renewal license application. Fees shall accompany the licensure application and are not refundable.

B. An additional late fee of $50 shall be collected for an organization's failure to file a renewal application by the date specified.

C. A processing fee of $250 shall be collected for each reissuance or replacement of a license and shall accompany the written request application for reissuance or replacement.

D. A one time one-time processing fee of $75 for exemption from licensure shall accompany the written exemption request application.