Few S.C. hospitals willing to take risks while certificate of need program suspended

dworthington@heraldonline.comApril 12, 2014 

In a matter of days last June, Gov. Nikki Haley, the legislature and the state’s Department of Health and Environmental Control changed – at least temporarily – rules covering new health care construction and equipment in South Carolina.

Haley vetoed almost $2 million in funding for the state’s certificate of need program for health care projects. The program had required anyone wanting to to build or expand a health care facility, or buy equipment costing more than $600,000, to get a certificate from the state stating the service was needed. Supporters of the program said it held down medical costs by avoiding duplication of services.

But Haley, in explaining her veto, said the free market, not politics, should guide such decisions.

The certificate of need requirement remains in limbo as the state Supreme Court considers the issue. But the suspension raises questions about the nearly 10-year battle to build a Fort Mill hospital.

Piedmont Medical Center of Rock Hill and Carolinas HealthCare System of Charlotte, owner of Carolinas Medical Center, have been seeking permission to build the hospital. Under the previous certificate of need program, DHEC opted to select only one for a certificate of need.

But if the program is eliminated, what would stop both from building hospitals?

Earlier this month, a South Carolina administrative law judge overturned DHEC’s 2011 decision to allow CMC to build the hospital. Instead, the judge said PMC should build it. Last week, CMC appealed the judge’s reversal.

One South Carolina health care analyst, Lynn Bailey of Columbia, said if CMC were her client, she would advise the Charlotte system to move forward with construction plans despite the judge’s decision.

After legislators upheld Haley’s veto last June, DHEC Director Catherine Templeton sent a letter to “members of the regulated community” saying that the practical effect of the state’s action was that efforts to build or expand health care facilities could move forward without a certificate of need.

According to DHEC, applications for 36 projects, totaling about $102 million, were being processed when the certificate program was unfunded. A survey by the S.C. Hospital Association said $60 million of the total came from hospitals.

Among them was PMC’s application for robotic surgery equipment, which is on hold.

The hospital association and others sued the state because of the veto, and the case was recently heard by the S.C. Supreme Court. The question before the court is whether the state can eliminate a mandated program by no longer funding it.

Gov. Haley says yes; the hospital association and others say no. The court’s decision may come down to the wording of the governor’s veto message, said James F. Blumstein, director of the Health Policy Center at the Vanderbilt Law School and a professor of constitutional and health care law. Typically, any action by federal authorities to not fund a program also includes language that the program goes away, he said.

No date has been set for the Supreme Court’s decision, leaving health care providers uncertain over what to do.

DHEC says that since the certificate of need program was suspended, 119 applications for licensing or construction have been filed for projects that previously would have required a certificate. The applications for licensing and construction are separate from the certificate of need process.

None of the applications are from Piedmont or Carolinas HealthCare for a Fort Mill hospital. Nor are there applications from two Lowcountry companies seeking to build a Berkeley County hospital.

Before Haley vetoed funding for the certificate program, DHEC issued certificates of need to both Trident Health System and Roger St. Francis Health Care for each to build 50-bed hospitals in Berkeley, the state’s largest county without a hospital. Trident’s appeal of that decision is pending before the state’s court of appeals.

“It’s one thing to lease an MRI, it’s another thing to build a $100 million hospital,” said Ron Luke, a health care consultant based in Austin, Texas.

After Templeton released her letter, the S.C. Hospital Association advised its members to proceed at their own peril, said Thornton Kirby, the association’s president and CEO. Hospitals were told to conduct their business assuming the certificate of need was still law, even if there was no money to fund the program, Kirby said.

Most of the applications filed since the certificate program was suspended are from home healthcare operators seeking to expand their territory, stand-alone surgical centers adding operating rooms, or hospitals wanting to make changes in how they allocate beds.

Springs Memorial in Lancaster filed to eliminate 18 substance abuse beds, and the Grand Strand Medical Center in Myrtle Beach proposed 20 beds for psychiatric care and 27 beds for rehabilitation care. Springs’ request allowed the beds to be transferred to Rebound Behavioral Health, an inpatient treatment and rehabilitation program in Lancaster for a variety of addictions and behavioral health issues.

Two hospitals proposed more significant changes. Trident Medical Center filed, and was approved, for construction of a 17-bed unit for psychological care and more beds for rehabilitation care. It was not approved for more complex perinatal care.

New Hope Carolinas of Rock Hill applied to convert 24 beds on the first floor of the old York County Hospital on Sedgewood Drive into a unit where children could get psychological care and medical care as needed.

New Hope has been at the location for 20 years and, on average, 85 to 90 percent of its 150 beds are in use each day.

Jay Orvin, chairman and CEO of New Hope, said the facility applied knowing the confusion and risk over the certificate program.

New Hope applied in January, and Orvin said the window for action “will be shut down before we get a chance.”

Economics were a deciding factor in New Hope’s decision to put its plans on hold as construction costs were more than anticipated. “The bottom line is we were not confident in what the Supreme Court would rule and we drew the line,” he said.

Orvin is firm, however, in his opposition to the certificate of need, or CON, program.

“The CON is outdated,” he said. “It adds to the costs, and slows down needed services.”

He said the governor had the right idea, but went about it the wrong way. “She looked for a back door to do it,” he said.

State Sen. Joel Lourie, D-Richland, agrees with Orvin that too much chaos surrounds the certificate program. But Lourie wants to keep the program because, without it, “we would be the wild west of health care, ” he said, with “further chaos.”

Lourie has introduced several bills that would change or clarify the situation. His latest effort is a proviso to not penalize any health care organization that moved forward with projects during the certificate program’s suspension..

Lourie said the proviso would not apply to Piedmont Medical Center or Carolinas HealthCare System because the certificate of need they are seeking was on appeal when the program was suspended.

Kirby said Lourie’s proviso is controversial because some health care providers don’t want those who took action to be grandfathered, especially if their actions affect the health needs in a county as determined by DHEC.

The hospital association favors a bill that would reform, but not eliminate, the certificate program. That bill, sponsored by Sen. Harvey Peeler, is stalled in the legislature, Kirby said. Peeler, a Gaffney Republican whose district includes portions of York County, is chairman of the senate Medical Affairs Committee.

Litigation carries it own set of concerns, Luke said.

In 1983, Humana was awarded a certificate of need to build a hospital in Little Rock, Ark. Construction was underway when the Arkansas Supreme Court invalidated Humana’s certificate. Construction was halted, and several years passed before the steel structure was finished into an office building, Luke said.

Luke said the trend nationally had been for states to drop certificate of need requirements. A 1976 federal law that mandated the process was repealed in 1983. States in the west and midwest have dropped the requirements while most Southern state have retained them. Some have narrowed the scope of when a certificate of need is needed, he said.

Luke’s firm was a consultant for Novant Health, the third health care organization competing to build a Fort Mill hospital. Novant dropped out of the competition just days before the case was heard by the state’s Administrative Law Court last year.

Luke said there has not been much change in certificate regulations in the last 10 years, but maybe it’s time for South Carolina to change.

Looking at his Fort Mill experience, Luke said, “With the CON, you’ve gotten 10 years of lawyers and consultants and nothing to show that helped the public.”

Don Worthington •  803-329-4066

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