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Expanded Certificate of Need Exemptions Poised to Grow Healthcare Industry

In recent months, the Commonwealth of Kentucky has begun to amend the Kentucky Administrative Regulations and the Kentucky Revised Statutes, aiming to deregulate certain healthcare facilities and services to promote growth and expansion of healthcare services to Kentuckians. Kentucky’s ability to regulate the growth of its healthcare industry is based, in part, on the State Health Plan, the Certificate of Need (CON) process and the licensure of healthcare entities through the Office of Inspector General. As a Certificate of Need state, Kentucky-based healthcare providers who wish to initiate or expand healthcare services generally must go through a lengthy and expensive process unless they meet one of the few available exemptions. For years, Kentucky excluded certain physician-owned healthcare entities from both the Certificate of Need process and licensure through a series of strict guidelines established by the Cabinet for Health and Family Services known as the “physician office exemption.”

During the 2018 legislative session, the Kentucky legislature approved measures through amendments to KRS 216B.020 to liberalize the process by which physicians and hospitals are able to expand healthcare services.. The Cabinet for Health and Family Services has amended 900 KAR 6:130 to implement these changes. 

Prior to the amendments set forth through 900 KAR 6:130, only hospitals that were designated as academic medical centers could utilize the physician office exemption. Hospitals that were not designated as academic medical centers such were required to use another CON exemption and were required also to obtain a license to operate certain types of healthcare entities and physician-owned offices. Types of healthcare entities that required licensure included primary care centers, ambulatory care centers, special clinics and rural health clinics. However, obtaining the license to operate these facilities often required hospitals to first go through a lengthy and complicated process to obtain an Advisory Opinion recognizing that the requested facility fell within a specific exemption to the CON process. 

With the recent amendment to 900 KAR 6:130, the Cabinet for Health and Family Services has removed many of the restrictive barriers that created the lengthy and complicated process by modifying the criteria by which a hospital could qualify for the physician office exemption. Specifically, 900 KAR 6:130, Section 3(3) now allows the physician office exemption to apply to a “hospital acquired private practice or an outpatient clinic under the same ownership and administrative and financial control as a Kentucky-licensed hospital.” To qualify, the hospital must meet specific criteria as follows:

  • Does not provide pain management services in which the majority of clinic’s patients are provided treatment for pain that includes the use of controlled substances;
  • Does not provide outpatient surgical services;
  • Does not provide any services or equipment covered by the State Health Plan; and
  • The physician(s) and other practitioners providing care and treatment to patients of the clinic are licensed to practice in Kentucky and employed by the hospital or other entity with ownership and control of both the hospital and clinic.
  • The clarification to this often-used exemption now allows hospitals to provide for the clinical integration of their services across multiple disciplines and to manage patient care with greater efficiency and effectiveness.

The second broadening of Kentucky’s Certificate of Need and licensing requirements centers around the provisions contained within House Bill (HB) 444. This new law amends KRS 216B.020 adding new exemptions that no longer require healthcare operators to obtain a Certificate of Need and license to operate a defined set of outpatient services, regardless of who owns and operates the healthcare entity. Specifically, the following healthcare entities will be exempt from obtaining a Certificate of Need and obtaining a license:

  • Primary care centers;
  • Special health clinics, unless the clinic provides pain management services and is located off the campus of the hospital that has majority ownership interest;
  • Specialized medical technology services, unless providing a State Health Plan service;
  • Retail–based health clinics and ambulatory care clinics that provide non-emergency, non-invasive treatment of patients;
  • Ambulatory care clinics treating minor illnesses and injuries;
  • Mobile health services, unless providing a service in the State Health Plan;
  • Rehabilitation agencies;
  • Rural health clinics; and
  • Off-campus, hospital-acquired physician practices. 

As the opioid crisis in America continually grows, the Kentucky legislature has not chosen to exempt any physician-owned pain management clinics from any type of licensure requirements. Specifically, the following healthcare entities are not exempt from obtaining a Certificate of Need and licensure:

  •  An ambulatory surgical center as defined by KRS 216B.015(4);
  • A health facility or health service that provides one (1) of the following types of services: Cardiac catheterization; Megavoltage radiation therapy; Adult day health care; Behavioral health services; Chronic renal dialysis; Birthing services; or Emergency services above the level of treatment for minor illnesses or injuries;
  • A pain management facility as defined by KRS 218A.175(1);
  • An abortion facility that requires licensure pursuant to KRS 216B.0431; or
  • A health facility or health service that requests an expenditure that exceeds the major medical expenditure minimum.

Kentucky’s recent moves toward deregulating the Certificate of Need and licensure process will have a significant impact in how both physician and non-physician owned healthcare entities operate throughout the Commonwealth. Specifically, it is yet to be determined just how the deregulation of the licensing process will affect each entity’s individual Medicare and Medicaid participation and reimbursement requirements.      

Because of the deregulation of the Certificate of Need and licensure requirements, the Commonwealth of Kentucky is now promoting the rapid growth of certain types of healthcare entities in order to expand the number of facilities and increase the quality of care available to Kentuckians in both urban and rural areas.  Navigating Kentucky’s complex Certificate of Need and licensure process is not only time consuming, but can be extremely litigious with numerous statutory and regulatory pitfalls.

To ensure your healthcare entities’ compliance, please contact Lisa English Hinkle lhinkle@mmlk.com or William J. George at  wgeorge@mmlk.com.

Bill George

William J. George is a Senior Attorney at McBrayer, McGinnis, Leslie & Kirkland PLLC and is located in the firm's Lexington office.  Mr. George focuses his practice on healthcare law, administrative law, corporate investigations, criminal defense, and malpractice and professional liability defense.  He can be reached at wgeorge@mmlk.com or (859) 231-8780, ext. 1263.  We take a team approach to deliver effective counsel to all our clients, so other attorneys in the firm may perform these services as well.

This article does not constitute legal advice.

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