Title of Regulation: 12VAC5-220. Virginia Medical Care Facilities Certificate of Public Need Rules and Regulations (amending 12VAC5-220-110, 12VAC5-220-200).

Statutory Authority: § 32.1-102.2 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: January 15, 2014.

Effective Date: February 3, 2014.

Agency Contact: Carrie Eddy, Senior Policy Analyst, Department of Health, 9960 Mayland Drive, Suite 401, Richmond, VA 23233, telephone (804) 367-2157, or email carrie.eddy@vdh.virginia.gov.

Basis: Section 32.1-102.2 of the Code of Virginia grants the Board of Health the legal authority to promulgate regulations that are consistent with Article 1 (§ 32.1-102.1 et seq.) of Chapter 4 of Title 32.1 of the Code of Virginia. Section 32.1-102.1 of the Code of Virginia requires that 12VAC5-220-110 and 12VAC5-220-200 be updated annually.

Purpose: The certificate of public need (COPN) program is the mechanism used in Virginia to restrain specified health care facilities and services from unnecessary duplication as a cost control measure. Section 32.1-102.1 of the Code of Virginia requires an annual adjustment to the project cost threshold by which health care entities subject to COPN can make necessary capital improvements, such as parking decks and computer systems, without having to register or obtain a certificate. Raising the cost threshold for capital expenditure projects benefits health care entities by reducing the costs of those projects.

The proposed regulatory action assists is protecting the health, safety, and welfare of Virginians by allowing medical care facilities and services providers subject to the COPN program to make necessary capital improvements quicker and for less cost thus improving service delivery of certain regulated medical services to those patients in need of those services. Adjusting the cost of miscellaneous expenditures also provides greater opportunity for smaller medical providers subject to certificate of need to expand their services, thus providing more patient choice in medical services available.

Rationale for Using Fast-Track Process: Because § 32.1-102.1 of the Code of Virginia does not specify which nationally recognized consumer price index to use in adjusting the capital expenditure threshold, the department chose to use the Consumer Price Index published by the U.S. Department of Labor (USDL). The discretionary decision prohibits use of the exempt regulatory action process for updating the project threshold each year. The department, however, has not received negative response from affected constituents in using the USDL. Therefore, the department believes this action will remain noncontroversial and is appropriate for the fast-track rulemaking process.

Substance: This action affects the cost threshold amounts for miscellaneous capital expenditure projects requiring a COPN by raising the threshold for registration for projects costing more than $5,859,565 and raising the threshold for projects requiring a COPN application to more than $17,608,697.

Issues: The proposed regulatory action has the advantage of ensuring that the provisions of § 32.1-102.1 of the Code of Virginia can be complied with in a more efficient manner. The proposed regulatory action does not pose any disadvantages to the public or the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The proposed changes will adopt a formula to update the threshold for capital expenditure projects for which a registration or the filing of an application for a Certificate of Public Need (COPN) is required.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. The proposed changes will adopt a formula to update the threshold for capital expenditure projects for which a registration or the filing of an application for a COPN is required. Section 32.1-102.1 of the Code of Virginia mandates that COPN registration and application thresholds are revised annually to reflect inflation. Currently, the registration threshold is $5,698,607 and application threshold is $17,095,823. The Board of Health proposes to adopt a formula which will increase these thresholds by 3%, or by $170,958 to $5,869,565 and by $512,874 to $17,608,697 according to Consumer Price Index published by the U.S. Department of Labor.

The main impact of these proposed changes will be on projects that would no longer register or apply for COPN due to the higher thresholds. Since the magnitude of the increase is relatively small, 3%, this change is not expected to have an impact on a significant number of projects in the short term. For example, last year the Virginia Department of Health (VDH) received one registration and four applications. Since the amounts of these projects were not within the incremental increase proposed by these regulations, all of these projects would still be required to register or apply under the revised thresholds. However, the proposed change is likely to have an impact on projects in the long term by increasing the threshold base automatically that will be employed for future revisions.

The COPN application fee is $20,000. In addition to the application fee, compliance costs for an applicant may include expenses associated with the preparation for and processing of an application in the review process. Some applicants may hire a consultant to manage the application. If no application is required for a project due to increased thresholds, these costs associated with a COPN review would represent savings in compliance costs to the applicant. Compliance costs for registration appear to be low. There is no fee charged for registration and the registration is reported to be a simple process.

The likely impact on VDH in the long term would include a reduction in the amount of fees collected and a reduction in the administrative resources usually needed for the application review.

Businesses and Entities Affected. The proposed regulations apply to entities that are required to register or apply for a COPN. There were four applications and one registration for capital projects last year.

Localities Particularly Affected. The proposed changes apply throughout the Commonwealth.

Projected Impact on Employment. Since the change in the revised threshold is relatively small, no projects are likely to be affected immediately. Thus, no significant impact on employment is expected in the short term. In the long term, automatically increased thresholds should eliminate the need for reviews in a number of projects reducing the labor demand due to reduced need for review staff and staff needed to prepare an application.

Effects on the Use and Value of Private Property. No significant economic impact is expected on the use and value of private property in the short run as the incremental increase in the thresholds are relatively small. However, reduced compliance costs in the long term due to automatically adjusted higher thresholds are expected to improve profits and have a positive impact on asset value of affected applicants.

Small Businesses: Costs and Other Effects. The proposed changes are not anticipated to have an impact on small businesses as the sizes of businesses requiring registration or application tend to be relatively large.

Small Businesses: Alternative Method that Minimizes Adverse Impact. No adverse impact on small businesses is expected.

Real Estate Development Costs. The proposed changes will likely reduce costs of capital projects in the long term some of which may be real estate development projects at least partially.

Legal Mandate. 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 Administrative Process Act and Executive Order Number 14 (10). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, a determination of the public benefit, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has an adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB's best estimate of these economic impacts.

Agency Response to Economic Impact Analysis: The Department of Health thanks the regulatory review staff of the Department of Planning and Budget with its suggestion and assistance in adopting a formula to annually update the threshold for capital expenditure projects under the certificate of public need program. Using a formula that will be updated will ensure a more timely process of the required annual increases.

VDH suggests there is a technical misstatement of the percentage amount used in the analysis writeup - the dollar amounts are correct, equating to an increase of 3.0%, taken from the Consumer Price Index for Urban Medical. The percentage recorded in the economic impact analysis is misstated at 3.2%. However, the misstatement is minor and does not affect the analysis or the agreed upon formula being promulgated in the regulation.

EDITOR'S NOTE: The Department of Planning and Budget economic impact analysis was updated to reflect the 3.0% increase noted in the Department of Health's response.

Summary:

The proposed amendments establish a formula to update the threshold for capital expenditure projects for which a registration or filing of an application for a certificate of public need is required.

12VAC5-220-110. Requirements for registration of certain capital expenditures.

A. At least 30 days before any person contracts to make or is otherwise legally obligated to make a capital expenditure by or on behalf of a medical care facility that is $5,698,607 or more but is less than $17,095,823 and as defined in this chapter that has not been previously authorized by the commissioner, the owner of any medical care facility as defined in this chapter such expenditure shall register be registered in writing such expenditure with the commissioner. The threshold amount for capital expenditure project registration shall be determined using the formula contained in subsection B of this section.

B. The threshold contained in subsection A of this section shall be adjusted annually using the percentage increase listed in the Consumer Price Index for All Urban Consumers (CPI-U) for the most recent year as follows:

A x (1+B)

where:

A = the capital expenditure threshold amount for the previous year

and

B = the percent increase for the expense category "Medical Care" listed in the most recent year available of the CPI-U of the U.S. Bureau of Labor Statistics.

C. The format for registration shall include information concerning the purpose of such expenditure and projected impact that the expenditure will have upon the charges for services. For purposes of registration, the owner shall include any person making the affected capital expenditure. See definition of "project."

D. Annually, the department shall (i) publish the threshold amount in the General Notices section of the Virginia Register of Regulations and (ii) post the threshold amount on its website.

12VAC5-220-200. One hundred ninety-day review cycle.

A. The department shall review the following groups of completed applications in accordance with the following 190-day scheduled review cycles and the following descriptions of projects within each group, except as provided for in 12VAC5-220-220.

BATCH GROUP	GENERAL DESCRIPTION	REVIEW CYCLE
		Begins	Ends
A	General Hospitals/Obstetrical Services/Neonatal Special Care Services	Feb. 10 Aug. 10	Aug. 18 Feb. 16
B	Open Heart Surgery/Cardiac Catheterization/Ambulatory Surgery Centers/Operating Room Additions/Transplant Services	Mar. 10 Sep. 10	Sep. 16 Mar. 19
C	Psychiatric Facilities/Substance Abuse Treatment/Mental Retardation Facilities	Apr. 10 Oct. 10	Oct. 17 Apr. 18
D/F	Diagnostic Imaging Facilities/Services Selected Therapeutic Facilities/Services	May 10 Nov. 10	Nov. 16 May 19
E	Medical Rehabilitation Beds/Services	June 10 Dec. 10	Dec. 17 Jun. 18
D/F	Selected Therapeutic Facilities/Services Diagnostic Imaging Facilities/Services	July 10 Jan. 10	Jan. 16 Jul. 18
G	Nursing Home Beds at Retirement Communities/Bed Relocations/Miscellaneous Expenditures by Nursing Homes	Jan. 10 Mar. 10 May 10 July 10 Sep. 10 Nov. 10	Jul. 18 Sep. 16 Nov. 16 Jan. 16 Mar. 19 May 19

Batch Group A includes:

1. The establishment of a general hospital.

2. An increase in the total number of general acute care beds in an existing or authorized general hospital.

3. The relocation at the same site of 10 general hospital beds or 10% of the general hospital beds of a medical care facility, whichever is less, from one existing physical facility to another in any two-year period if such relocation involves a capital expenditure of $17,095,823 or more with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section (see 12VAC5-220-280).

4. The introduction into an existing medical care facility of any new neonatal special care or obstetrical services that the facility has not provided in the previous 12 months.

5. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project category included in Batch Groups B through G, by or in behalf of a general hospital.

Batch Group B includes:

1. The establishment of a specialized center, clinic, or portion of a physician's office developed for the provision of outpatient or ambulatory surgery or cardiac catheterization services.

2. An increase in the total number of operating rooms in an existing medical care facility or establishment of operating rooms in a new facility.

3. The introduction into an existing medical care facility of any new cardiac catheterization, open heart surgery, or organ or tissue transplant services that the facility has not provided in the previous 12 months.

4. The addition by an existing medical care facility of any medical equipment for the provision of cardiac catheterization.

5. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project category in Batch Group A or Batch Groups C through G, by or in behalf of a specialized center, clinic, or portion of a physician's office developed for the provision of outpatient or ambulatory surgery or cardiac catheterization services.

6. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project category in Batch Group A or Batch Groups C through G, by or in behalf of a medical care facility, that is primarily related to the provision of surgery, cardiac catheterization, open heart surgery, or organ or tissue transplant services.

Batch Group C includes:

1. The establishment of a mental hospital, psychiatric hospital, intermediate care facility established primarily for the medical, psychiatric or psychological treatment and rehabilitation of alcoholics or drug addicts, or mental retardation facility.

2. An increase in the total number of beds in an existing or authorized mental hospital, psychiatric hospital, intermediate care facility established primarily for the medical, psychiatric or psychological treatment and rehabilitation of alcoholics or drug addicts, or mental retardation facility.

3. An increase in the total number of mental hospital, psychiatric hospital, substance abuse treatment and rehabilitation, or mental retardation beds in an existing or authorized medical care facility which that is not a dedicated mental hospital, psychiatric hospital, intermediate care facility established primarily for the medical, psychiatric or psychological treatment and rehabilitation of alcoholics or drug addicts, or mental retardation facility.

4. The relocation at the same site of 10 mental hospital, psychiatric hospital, substance abuse treatment and rehabilitation, or mental retardation beds or 10% of the mental hospital, psychiatric hospital, substance abuse treatment and rehabilitation, or mental retardation beds of a medical care facility, whichever is less, from one existing physical facility to another in any two-year period if such relocation involves a capital expenditure of $17,095,823 or more with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section (see 12VAC5-220-280).

5. The introduction into an existing medical care facility of any new psychiatric or substance abuse treatment service that the facility has not provided in the previous 12 months.

6. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project category in Batch Groups A and B or Batch Groups D/F through G, by or in behalf of a mental hospital, psychiatric hospital, intermediate care facility established primarily for the medical, psychiatric or psychological treatment and rehabilitation of alcoholics or drug addicts, or mental retardation facilities.

7. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project category in Batch Groups A through and B or Batch Groups D/F through G, by or in behalf of a medical care facility, which is primarily related to the provision of mental health, psychiatric, substance abuse treatment or rehabilitation, or mental retardation services.

Batch Group D/F includes:

1. The establishment of a specialized center, clinic, or that portion of a physician's office developed for the provision of computed tomographic (CT) scanning, magnetic resonance imaging (MRI), magnetic source imaging (MSI), positron emission tomographic (PET) scanning, or nuclear medicine imaging, except for the purpose of nuclear cardiac imaging.

2. The introduction into an existing medical care facility of any new computed tomography (CT), magnetic resonance imaging (MRI), magnetic source imaging (MSI), positron emission tomographic (PET) scanning, or nuclear medicine imaging services, except for the purpose of nuclear cardiac imaging that the facility has not provided in the previous 12 months.

3. The addition by an existing medical care facility of any equipment for the provision of computed tomography (CT), magnetic resonance imaging (MRI), magnetic source imaging (MSI), positron emission tomographic (PET) scanning.

4. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project category in Batch Groups A, B, C, E, and G, by or in behalf of a specialized center, clinic, or that portion of a physician's office developed for the provision of computed tomographic (CT) scanning, magnetic resonance imaging (MRI), magnetic source imaging (MSI), positron emission tomographic (PET) scanning, or nuclear medicine imaging, except that portion of a physician's office dedicated to providing nuclear cardiac imaging.

5. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project category in Batch Groups A, B, C, E, and G, by or in behalf of a medical care facility, which is primarily related to the provision of computed tomographic (CT) scanning, magnetic resonance imaging (MRI), magnetic source imaging (MSI), positron emission tomographic (PET) scanning, or nuclear medicine imaging, except for the purpose of nuclear cardiac imaging.

Batch Group E includes:

1. The establishment of a medical rehabilitation hospital.

2. An increase in the total number of beds in an existing or authorized medical rehabilitation hospital.

3. An increase in the total number of medical rehabilitation beds in an existing or authorized medical care facility that is not a dedicated medical rehabilitation hospital.

4. The relocation at the same site of 10 medical rehabilitation beds or 10% of the medical rehabilitation beds of a medical care facility, whichever is less, from one existing physical facility to another in any two-year period, if such relocation involves a capital expenditure of $17,095,823 or more with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section (see 12VAC5-220-280).

5. The introduction into an existing medical care facility of any new medical rehabilitation service that the facility has not provided in the previous 12 months.

6. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project category in Batch Groups A, B, C, D/F, and G, by or in behalf of a medical rehabilitation hospital.

7. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project category in Batch Groups A, B, C, D/F, and G, by or in behalf of a medical care facility, that is primarily related to the provision of medical rehabilitation services.

Batch Group D/F includes:

1. The establishment of a specialized center, clinic, or that portion of a physician's office developed for the provision of gamma knife surgery, lithotripsy, or radiation therapy.

2. Introduction into an existing medical care facility of any new gamma knife surgery, lithotripsy, or radiation therapy services that the facility has not provided in the previous 12 months.

3. The addition by an existing medical care facility of any medical equipment for the provision of gamma knife surgery, lithotripsy, or radiation therapy.

4. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project in Batch Groups A, B, C, E, and G, by or in behalf of a specialized center, clinic, or that portion of a physician's office developed for the provision of gamma knife surgery, lithotripsy, or radiation therapy.

5. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project in Batch Groups A, B, C, E, and G, by or in behalf of a medical care facility, which is primarily related to the provision of gamma knife surgery, lithotripsy, or radiation therapy.

Batch Group G includes:

1. The establishment of a nursing home, intermediate care facility, or extended care facility of a continuing care retirement community by a continuing care provider registered with the State Corporation Commission pursuant to Chapter 49 (§ 38.2-4900 et seq.) of Title 38.2 of the Code of Virginia.

2. The establishment of a nursing home, intermediate care facility, or extended care facility that does not involve an increase in the number of nursing home facility beds within a planning district.

3. An increase in the total number of beds in an existing or authorized nursing home, intermediate care facility, or extended care facility of a continuing care retirement community by a continuing care provider registered with the State Corporation Commission pursuant to Chapter 49 (§ 38.2-4900 et seq.) of Title 38.2 of the Code of Virginia.

4. An increase in the total number of beds in an existing or authorized nursing home, intermediate care facility, or extended care facility that does not involve an increase in the number of nursing home facility beds within a planning district.

5. The relocation at the same site of 10 nursing home, intermediate care facility, or extended care facility beds or 10% of the nursing home, intermediate care facility, or extended care facility beds of a medical care facility, whichever is less, from one physical facility to another in any two-year period, if such relocation involves a capital expenditure of $17,095,823 or more with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section (see 12VAC5-220-280).

6. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project category in Batch Groups A through D/F, by or in behalf of a nursing home, intermediate care facility, or extended care facility, which does not increase the total number of beds of the facility.

7. Any capital expenditure of $17,095,823 or more, with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section and not defined as a project category in Batch Groups A through D/F, by or in behalf of a medical care facility, that is primarily related to the provision of nursing home, intermediate care, or extended care services, and does not increase the number of beds of the facility.

B. The capital expenditure threshold referenced in subsection A of this section shall be adjusted annually using the percentage increase listed in the Consumer Price Index for All Urban Consumers (CPI-U) for the most recent year as follows:

A x (1+B)

where:

A = the capital expenditure threshold amount for the previous year

and

B = the percent increase for the expense category "Medical Care" listed in the most recent year available of the CPI-U of the U.S. Bureau of Labor Statistics.

C. Annually, the department shall (i) publish the threshold amount in the General Notices section of the Virginia Register of Regulations and (ii) post the threshold amount on its website.