SD6 - Report of the Special Joint Subcommittee Studying Certificate of Public Need

Executive Summary:

Study Origin

This two-year study was initiated in 1998 as a result of a commitment by the Senate Committee on Education and Health to study issues relating to certificate of public need and subsequent consultation between the chairperson of the Senate Committee and the chairmen of the House Committee on Health, Welfare and Institutions. In 1999, the Special Joint Subcommittee obtained formal authorization pursuant to SJR 496 to add citizen members and to continue its study.

The Virginia Certificate of Public Need Program

Virginia's Certificate of Public Need Program, a regulatory mechanism that controls the development of certain health services and facilities, is operated by the Department of Health. A formal application process and due process protections are established in law and detailed in regulation, including requirements for one local public hearing, review by the appropriate regional health planning agency, review by the Department of Health, a final decision by the Commissioner of Health, and the right to appeal the Commissioner's determination.

Virginia's law covers increases in various inpatient beds, introduction of certain new services regardless of site, and the purchase of specified major medical equipment regardless of site. A five-million-dollar capital expenditure threshold authorizes coverage of projects entailing expenditures by or in behalf of a medical facility that are not defined as reviewable in the law. Projects are batched according to categories. Nursing home applications are processed through the Requests For Applications procedure, a mechanism for identifying need according to planning district demographics.

History of Certificate of Public Need in Virginia

Virginia established its certificate of public need law in 1973, approximately one year before the National Health Planning and Resources Development Act of 1974 was passed and required all states to operate certificate of need programs as a condition for receiving certain federal funding. Overbuilding of facilities, duplication of services, and escalating health care costs were the motivating forces behind state and federal efforts to regulate the development of the health care industry in the 1970s.

In the 1980s, the implementation of the Medicare prospective Payment System and Medicaid cost controls and the philosophical shift to promoting competition in the health care industry fueled the controversy surrounding certificate of need. In 1986, Congress repealed the federal certificate of need requirement effective on January 1, 1987. In Virginia, this action stimulated several studies of COPN in the 1980s, generating various recommendations.

Among these recommendations, an approved 1989 bill is notable for implementing significant COPN deregulation, e.g., of equipment and certain capital expenditures, and for projecting deregulation of hospitals and ambulatory surgery centers. This bill also levied a codified moratorium on new nursing home beds.

The projected deregulation of hospitals and ambulatory surgery centers did not, however, take place because of being postponed in 1991 and then repealed in 1992. In fact, an approved 1992 bill rendered Virginia's COPN program more comprehensive than it had been before the 1989 partial deregulation, providing coverage of building of facilities, new beds, and initiation of certain new services and purchase of new and replacement major medical equipment for any site.

In 1996, the moratorium on new nursing home beds was lifted and a Request For Applications process was established. Detailed reports on the COPN program are required pursuant to an approved 1997 bill.

In 1998, the Special Joint Subcommittee recommended, and in 1999 the General Assembly approved, elimination of COPN for replacement of any equipment, registration of equipment purchases, and revision of the administrative procedures for review of applications for certificate of public need.

The 2000 Session saw the passage of SB 337 requiring a transition for elimination of the COPN requirements in accordance with a plan to be developed by the Joint Commission on Health Care.

Certificate of Public Need Issues

Certificate of need laws were enacted to address such issues as cost containment, indigent care, quality of care, access to care, consumer involvement, distribution of services, and education of the public in personal care and in the use of the health care system. In the 1970s, overbuilding of facilities was perceived as largely "responsible for the high cost of medical services." The economics of the health care industry of the 1970s have given way to prospective systems based on operating costs or negotiated and contracted rates. Managed care is pervasive in Virginia. Thus, cost containment issues are debated, with both sides presenting arguments for and against the viability of COPN in the age of prospective reimbursement and managed care.

With more than 800,000 Virginians uninsured and private hospitals being the only segment of the health care industry required to provide emergency care and to contribute to the Virginia Indigent Health Care Trust Fund, the questions concerning charity/indigent care are important, especially vis-à-vis the academic medical centers where substantial charity/indigent care is delivered.

Quality of care may be addressed through various regulatory mechanisms, including COPN. The relationship between certificate of need and quality of care is based on two premises, i.e., certificates will be denied to applicants who do not have or cannot obtain the expertise to operate highly sophisticated treatment and testing programs and that patient volume is inexorably linked to quality of care. Certificate of need restricts entry into the market, thus may concentrate services in a smaller number of providers than a free-market environment, and may reinforce the volume-to-quality link.

Certificate of need programs were also predicated on planning principles intended to distribute needed services to appropriate areas and to prevent essential services from withdrawing from needy areas. Service distribution may also be influenced by many factors that are hard to control through regulatory mechanisms.

Consumer involvement is provided by certificate of need through notice to the public of proposed projects, public hearings, and the input of the consumer-controlled boards of the regional health planning agencies.

Work of the Special Joint Subcommittee: 1998

During the 1998 interim, five meeting were held which addressed Virginia certificate of need statistics, the COPN process, the role of the regional health planning agencies, and opportunity for public and stakeholder input and recommendations. The Special Joint Subcommittee also received a literature review on related issues and presentations from the three national accreditation organizations. For the 1999 Session, the Special Joint Subcommittee recommended that certificate of need be eliminated for replacement equipment, that registration of all new equipment purchases be required, that the timelines and procedures for COPN applications be streamlined and specifically delineated, and that the study be continued through an enabling resolution.

Work of the Special Joint Subcommittee: 1999

During the 1999 interim, the Subcommittee operated pursuant to Senate Joint Resolution 496, with six citizen members being added. The Subcommittee again held five meetings during which questions were posed on issues ranging in breadth from the standards used to determine need for outpatient operating rooms to practice pattern concerns, such as the claim that surgeons who cannot get practice privileges in local hospitals might take advantage of deregulation to establish ambulatory surgery centers.

The Special Joint Subcommittee monitored the implementation of 1999 legislation, obtained up-to-date information on the activities of the regional health planning agencies, reviewed other states' recent certificate of need legislation, received reports from the Commissioner of Health and the Department of Medical Assistance Services, sought information on issues relating to anesthesia in practitioners' offices and outpatient surgical procedures, obtained information on related reimbursement issues, such as facility fees, and received information on the impact of the Balanced Budget Act of 1997 on Virginia's health care providers. Public comment and public and provider participation were also obtained and various legislative alternatives and suggestions were reviewed. In addition, a 50-state telephone survey was conducted relating to certificate of need and health policy.

Fifty-State Telephone Survey: Certificate of Need and Health Policy

Conducted in October and November of 1999, the 50-state Telephone Survey found that 35 states had certificate of need laws of some kind in 1999. One state continued to maintain a § 1122 review process for determining facility need for Medicaid services only. Fourteen states had either repealed their certificate of need laws or allowed their certificate of need laws to expire.

Among the states retaining certificate of need laws, 24 states had programs defined by this survey as "Full-Service" certificate of need laws. Eleven states had restricted certificate of need programs, with seven states covering only long-term care services and facilities, and four other states having other kinds of limited coverage. One of the long-term care states had repealed its law during the 1980s, revived its law in the early 1990s, and reduced its certificate of need coverage to long-term care in 1995.

Among the states without certificate of need laws, eleven states removed certificate of need in the 1980s; three states removed certificate of need from the books in the 1990s; one state removed its certificate of need law in the 1980s, revived the law in the early 1990s, and repealed the law a second time during 1995.

Among the states without certificate of need laws, five state respondents mentioned excess capacity in nursing home beds; five state respondents mentioned hospital concerns; seven state respondents mentioned rural health issues; three state respondents noted increases in ambulatory surgery centers; and three state respondents observed increases in assisted living facilities.

Some of the states without certificate of need programs in 1999 were highly rural and/or sparsely populated or had intensely urbanized populations. These states appeared to have smaller health care systems than Virginia and many rural health care issues as well as generalized access and availability concerns.

Other states without certificate of need programs in 1999 had growing populations and complex health care systems; some states without certificate of need laws had large managed care penetration.

Every state respondent, except one, admitted to health care issues relating to costs or access. No state efforts to monitor or to manage any effects of certificate of need elimination were cited.


The Special Joint Subcommittee collected substantial data and sought the opinions and suggestions of all parties in 1998 and 1999. The Subcommittee's 1998 legislation accomplished significant revisions to the COPN program by eliminating certification for replacement equipment, requiring registration of equipment purchases, and streamlining and delineating the application process. The data collected through the equipment registration process can be used to monitor the trends in Virginia's health care system and could be used to design solutions for unwanted developments.

Many alternative legislative proposals were considered in 1999; however, none of these proposals was endorsed by a majority of the Subcommittee. Although no agreement could be reached, there was strong feeling that the certificate of public need process needs streamlining and could be reduced.

Thus, the Special Joint Subcommittee puts forth this study as documentation of its deliberations in the belief that its work will serve as one of the foundations upon which future General Assembly decisions on Virginia's certificate of public need program may be based.