Title of Regulation: 12VAC5-230. State Medical Facilities Plan (amending 12VAC5-230-530, 12VAC5-230-760).

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 4, 2014.

Agency Contact: Carrie Eddy, Policy Analyst, Department of Health, 3600 West Broad Street, Richmond, VA 23230, 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 12VAC5-230-760 be updated annually.

Purpose: The state medical facilities plan (SMFP) is the tool used by the certificate of public need (COPN) program 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 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 miscellaneous capital expenditure project thresholds listed in 12VAC5-220 and 12VAC5-230 each year. The department, however, has not received negative response from affected constituents in using the USDL index in prior years. 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 projects requiring a COPN application to more than $17,694,176.

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. In order to be consistent with a separate regulatory action (12VAC5-220), the proposed regulations update the threshold methodology in these regulations for capital expenditure projects for which 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 update the threshold methodology for capital expenditure projects for which the filing of an application for a COPN is required. The application threshold in these regulations has not been updated since 2008 and is $15 million currently.

Section 32.1-102.1 of the Code of Virginia mandates that the COPN application threshold is revised annually to reflect inflation. Pursuant to this requirement and through a separate regulatory action (12VAC5-220), the Board of Health proposes to adopt a methodology that will adjust the threshold automatically every year according to the Consumer Price Index published by the U.S. Department of Labor. The threshold calculated by the proposed methodology currently corresponds to $17,608,697.

This proposed change merely updates the threshold methodology in these regulations to be consistent with the proposed methodology in COPN regulations. Thus, no significant economic impact is expected from this change other than preventing potential confusion among the regulated entities.

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

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

Projected Impact on Employment. No significant impact on employment is expected.

Effects on the Use and Value of Private Property. No significant impact on the use and value of private property is expected.

Small Businesses: Costs and Other Effects. No significant costs or other effects on small businesses are expected.

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

Real Estate Development Costs. No adverse impact on real estate development costs is expected.

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's Response to Economic Impact Analysis: The Department of Health agrees with the economic impact analysis for 12VAC5-230 produced by the Department of Planning and Budget and has no further comments.

Summary:

The amendments change the threshold for capital improvement projects for projects that are required to obtain a certificate of public need before construction begins by (i) establishing a formula for figuring the expenditure threshold and (ii) tying its annual increase to the Consumer Price Index for All Urban Consumers published by the U.S. Department of Labor.

12VAC5-230-530. Need for new service.

A. No new inpatient beds should be approved in any health planning district unless:

1. The resulting number of beds for each bed category contained in this article does not exceed the number of beds projected to be needed for that health planning district for the fifth planning horizon year; and

2. The average annual occupancy based on the number of beds in the health planning district for the relevant reporting period is:

a. 80% at midnight census for medical/surgical or pediatric beds;

b. 65% at midnight census for intensive care beds.

B. For proposals to convert under-utilized beds that require a capital expenditure of $15 million or more with an expenditure exceeding the threshold amount as determined using the formula contained in subsection C of this section, consideration may be given to such proposal if:

1. There is a projected need in the applicable category of inpatient beds; and

2. The applicant can demonstrate that the average annual occupancy of the converted beds would meet the utilization standard for the applicable bed category by the first year of operation.

For the purposes of this part, "underutilized" means less than 80% average annual occupancy for medical/surgical or pediatric beds, when the relocation involves such beds and less than 65% average annual occupancy for intensive care beds when relocation involves such beds.

C. The capital expenditure threshold referenced in subsection B 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.

12VAC5-230-760. Project need.

A. All applications involving the a capital expenditure of $15 million or more with an expenditure exceeding the threshold amount as determined using the formula contained in subsection B of this section by a medical care facility should include documentation that the expenditure is necessary in order for the facility to meet the identified medical care needs of the public it serves. Such documentation should clearly identify that the expenditure:

1. Represents the most cost-effective approach to meeting the identified need; and

2. The ongoing operational costs will not result in unreasonable increases in the cost of delivering the services provided.

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.